DEPARTMENT OF MANAGEMENT

Lecture note on the course

International Marketing
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 CHAPTER ONE
CONCEPTS OF INTERNATIONAL MARKETING
1.1. Definitions and distinctions
1.2. Domestic marketing Vs IM
1.3. International trade concepts
1.4. Export marketing and IM
1.5. Strategic Marketing
1.6. Absolute advantage theory
1.7. Comparative advantage theory
1.8. Opportunities and challenges of IM
1.9. International product life cycle
1.10. Concepts of foreign exchange and balance of payment
1.11. Barriers to international trade
CHAPTER OBJETIVES:
After completing the study of this chapter, you are expected to:
 Define the term International Marketing
 Differentiate domestic marketing Vs. International Marketing

 Understand international trade concepts

 Understand Principle of Absolute Advantage
 Understand comparative advantage theory
 Understand Concepts of Foreign Exchange and Balance of Payment

 Understand Entry Strategies of International Marketing

 Understand Barriers to International Trade
 Introduction
 Today, the marketing organizations are not restricted to their
national borders the entire world is open for them.
 In today’s global market opportunities are on a parity with the
expansion of economies, with the increasing purchasing power,
and with the changing consumer taste and preferences.
 Whether or not a company wants to participate directly in
international business, it cannot escape the effect of numerous
companies engaged in exports, imports, and/or manufacturing
abroad and the multinationals operating in the domestic markets
giving direct and indirect competition.
 International marketing as the marketing of goods and services across
the national borders.
 Organization is part of association with enterprise which also
operated in other countries
 There is some degree of influence on or control of organization’s
marketing activities from outside the country in which it sells
products
 International marketing represents only part of international trade
flows
 Leading corporations around the world have increasingly turned their
attention to international business in order to maintain a competitive
edge in today’s dynamic economic scene
 1.1. Definitions of IM
 According to Cateora and Graham, "International marketing is the
performance of business activities designed to plan, price, promote, and
direct the flow of a company’s goods and services to consumers or users in
more than one nation for a profit.“
 According to Terpstra and Sorathy, “international marketing consists of
finding and satisfying global customer needs better than the competition,
both domestic and international and of coordinating marketing activities
with in the constraints of the global environment.”
 According to Cateora, "International marketing is the performance of
business activities that direct the flow of goods and services to consumers
and users in more than one nation.“
 According to AMA (American Marketing Association),
international marketing is the multinational process of planning and
executing the conception, pricing, promotion, and distribution of
ideas, goods, and services to create exchanges that satisfy individual
and organizational objectives.
 According to Stuart Wall and B. Rees, ‘International marketing
can simply be defined as involving marketing activities that cross
national borders.’
 According to Czinkota and Ronkainen, ‘International marketing is
the process of planning and conducting transactions across national
borders to create exchanges that satisfy the objectives of individuals
and organizations.’
 Distinctions of International marketing
 Distinctions in international marketing arise due to the expansion of
business operations beyond domestic borders.
 Here are some key differentiating factors:
 It deals with diverse cultures, languages, values, and behaviors.
 Each country has distinct laws, regulations, and compliance standards that
international marketers must navigate.
 Different economic conditions, currencies, income levels, and purchasing
power affect market strategies and pricing decisions.
 It introduce competition from local, regional, and global players,
necessitating unique positioning strategies and differentiation tactics.
 Scaling operations in foreign markets involves dealing with logistical
complexities, cultural barriers, and adapting to new business environments.
 1.2. Domestic marketing Vs IM
Similarities between Domestic Marketing and International Marketing :
 Both aim to identify and satisfy customer needs by providing goods and
services
 Both Use Marketing Mix Elements such as product, price, place, and
promotion to influence customer behavior and meet marketing objectives.
 Both Rely on Market Research to understand customer needs and
preferences, market trends, and competition, and to make informed
marketing decisions.
 Both Focus on Building Relationships with customers, suppliers, distributors,
and other stakeholders to achieve marketing objectives
 Both Require Adaptation to Local Conditions such as language, culture, legal
and regulatory requirements, and economic factors, to be successful.
 Stages of International Involvement
 The stages of international involvement represent the
progression of a business as it expands its operations beyond its
domestic market and gets involved in international business
activities.
 These stages are often described in terms of;
 The extent of internationalization and
 The level of commitment to global markets.
 The specific stages can vary slightly depending on the source,
but generally, they include:
1.Domestic Stage:
 In this stage, the company operates exclusively within its home country.
 There is no international involvement, and the focus is on the domestic market.
2.Export Stage:
 The company begins to explore international markets by exporting its products or
services to foreign countries.
 Exporting might involve indirect methods, such as using intermediaries like
agents or distributors.
3. International Stage:
 The company becomes more actively involved in international business,
establishing a more direct presence in foreign markets.
 This stage may involve setting up subsidiaries, joint ventures, or strategic
alliances abroad.
4. Multinational Stage:
 The company operates in multiple countries, each with its own
business strategy and adaptation to local market conditions.
 There is a higher degree of decentralization, with more
autonomy granted to foreign subsidiaries.
5. Global Stage:
 The company adopts a global approach, seeking
standardization in products, marketing, and operations across
different countries.
 Global integration and coordination become key strategies to
achieve economies of scale and scope.
6. Transnational Stage:
 The company aims to balance global integration and local
responsiveness by combining standardized processes with flexibility
to adapt to local conditions.
 There is a focus on knowledge sharing and collaboration across the
organization's global network.
7. Metanational Stage:
 This stage involves a high level of integration and coordination,
transcending national boundaries.
 The organization operates as a global entity, leveraging resources
and capabilities seamlessly across different markets.
No Direct Foreign Marketing
 A company does not actively cultivate customers outside national
boundaries however, this company‘s products may reach foreign markets
indirectly via domestic wholesalers or distributors.
 Sales are made to trading companies as well as foreign customers who
come directly to the firm. Or through web orders.

Infrequent Foreign Marketing

 Temporary surpluses caused by variations in production levels or demand may
result in infrequent marketing overseas.
 Foreign sales activity declines and is withdrawn when domestic demand increases.
 Sales to foreign markets are made as goods are available, with little or no intention
of maintaining continuous market representation.
Regular Foreign Marketing
 The firm has permanent productive capacity devoted to foreign markets.
 The primary focus of operations and production is to serve domestic market needs.
 However, as overseas demand grows, production is allocated for foreign markets.
 Profits will move from being seen as a bonus to regular market profits.
 The firm employs domestic or foreign intermediaries Regularly entering into
international market.
International Marketing
 Companies are fully committed and involved in international marketing activities.
 Production takes place on foreign soil.
 They seek markets all over the world and sell products in various countries.
 This entails the marketing and the production of goods outside the home market.
 At this point a company becomes an international firm.
 1.3. International trade concepts
What Is International Trade?
 International trade is referred to as th
e exchange or trade of goods
and services between different nations.
 The most commonly traded comm
odities are television sets,
clothes, machinery, capital goods, food, and raw material, et
c.,
 International trade involves the exch
ange of goods, services, and
capital between countries, shaping the global economy.
 International trade has a long histor
y, evolving through various
stages each of which has been marked by debates about th
e costs
and benefits of international trade to the country concerned.
a) Import Trade:
 Refers to purchase of goods from a foreign country.
 Countries import goods which are;
 Not produced by them either because of cost disadvantage or because of
physical difficulties
 Those goods which are not produced in sufficient quantities
a) Export Trade: It means the sale of goods to a foreign country.
b) Entrepot Trade:
 When goods are imported from one country and are exported to another
country, it is called entrepot trade.
 The goods are imported not for consumption or sale in the country but for re-
exporting to a third country.
Characteristics of International Trade:
a) Separation of Buyers and Producers: producers and buyers are belong to
different countries.
b) Foreign Currency: Foreign trade involves payments in foreign currency.
c) Restrictions: Imports and exports involve a number of restrictions but by
different countries.
d) Need for Middlemen: The rules, regulations and procedures involved in foreign
trade are so complicated, there is a need to take the help of middle men.
e) Risk Element: The risk involved in foreign trade is much higher since the goods
are taken to long distances and even cross the oceans.
f) Law of Comparative Cost: A country will specialize in the production of those
goods in which it has cost advantage.
g) Governmental Control: In every country, government controls the foreign
trade.
 Reduced dependence on your local market
 Increased chances of success
 Increased efficiency
 Increased productivity
 Economic advantage
 Innovation
 Growth
 Uneven Distribution of Natural Resources
 Division of Labour and Specialization
 Differences in Economic Growth Rate
 Advantages of International Trade:
 Optimal use of natural resources
 Availability of all types of goods
 Specializations: Foreign trade leads to specialization and encourages
production of different goods in different countries.
 Advantages of large-scale production
 Stability in prices
 Exchange of technical know-how and establishment of new industries
 Increase in efficiency
 Development of the means of transport and communication
 International co-operation and understanding
 Ability to face natural calamities
 Economic Dependence
 Political Dependence
 Mis-utilization of Natural Resources
 Import of Harmful Goods
 Storage of Goods
 Danger to International Peace
 World Wars
 Hardships in times of War
Theories of international trade

A. Mercantilism
 Mercantilism is theory stated that a country‘s wealth was determined by
the amount of its gold and silver holdings.
 Mercantilists believed that a country should increase its holdings of gold
and silver by promoting exports and discouraging imports.
 Mercantilism favor of exporting more goods than importing goods.
 It‘s used to sell more products than purchase products, for profit in
gold/silver.
 It put emphasis on export but not import, but it is not easy to be self-
sufficient.
B. Absolute Advantage
 In 1776, Adam Smith propounded the theory of Absolute Cost
Advantage against the theory of mercantilism.
 Absolute advantage focused on the ability of a country to
produce a good more efficiently than another nation.
 A company can produce greater output of a good or service
than other countries using the same amounts of resources.
 Smith reasoned that trade between countries shouldn‘t be
regulated or restricted by government policy or intervention.
Trade should flow naturally according to market forces.
 In a hypothetical two-country world, if Country A could produce a
good cheaper or faster (or both) than Country B, then Country A had
the advantage and could focus on specializing on producing that
good.
 Similarly, if Country B was better at producing another good, it
could focus on specialization as well.
 By specialization, countries would generate efficiencies, because
their labor force would become more skilled by doing the same
tasks.
 Production would also become more efficient, because there would
be an incentive to create faster and better production methods to
increase the specialization.
C. Comparative Advantage
 Introduced by David Ricardo in 1817, and later improved by John
Stuart Mill, Cairnes and Bastable.
 It‘s principle states that: a country should specialize in producing
and exporting those products in which it has a comparative, or
relative cost, advantage (Low Production Costs) compared with
other countries and should import those goods in which it has a
comparative disadvantage (High Production Costs).
 The principle of comparative costs is based on the differences in
production costs (because of geographical division of labor and
specialization in production) of similar commodities in different
countries.
 According to Ricardo‘s principle of relative (or comparative)
advantage, one country may be better than another country in
producing many products but should produce only what it produces
best.
 Essentially, it should concentrate on either a product with the greatest
comparative advantage or a product with the least comparative
disadvantage.
 Conversely, it should import either a product for which it has the
greatest comparative disadvantage or one for which it has the least
comparative advantage.
Worker Shirt Per day Wheat Per day
America 50 200
china 25 50
From the above example:
America has absolute advantage in the production
of both products since American worker can
produce more products than China worker.
America: 1 shirt costs 4 bushels of wheat
China: 1 shirt costs 2 bushels of wheat
Therefore, China should specialize in shirt and
America in wheat
D. Product Life Cycle Theory
 Raymond Vernon developed the international product life cycle theory in
the 1960s.
 The international product life cycle theory stresses that a company will
begin to export its product and later take on foreign direct investment
(FDI) as the product moves through its life cycle.
 Eventually a country's export becomes its import.
 The theory does not explain trade patterns of today. (It‘s design was for
US in 1960‘s)
 There are four phases in the production and trade cycle: (US‘s example).
We'll assume a U.S. firm has come up with a high-tech product.
PHASE ONE: INTRODUCTION
 Product innovation is likely to be related to the needs of the home market.
 Is produced in the home market.
 As it begins to fill home-market needs, the firm begins to export the new
product, seizing on its first-mover advantages.
 (We assume the U.S. firm is exporting to Europe.)

PHASE TWO: GROWTH

 Importing countries gain familiarity with the new product.
 They begin producing the product for their own markets.
 Foreign production will reduce the exports of the innovating firm.
 (We assume that the U.S. firm's exports to Europe are replaced by
production within, Europe.)
PHASE THREE: MATURITY
 Foreign firms gain production experience and move down the cost curve.
 If they have lower costs than the innovating firm, they export to third-
country markets, replacing the innovator's exports there.
 (We assume that European firms are now exporting to Latin America,
taking away the U.S. firm's export markets there.)

PHASE FOUR: DECLINE

 The foreign producers now have sufficient production experience and
economies of scale to allow them to export back to the innovator's home
country.
 (We will assume the European producers have now taken away the home
market of the original U.S. innovator.)
 1.4. Export marketing and IM
 Export marketing includes the management of marketing
activities for products which cross the national boundaries of a
country.
 Export marketing means marketing of goods and services
beyond the national boundaries.
 It involves lengthy procedure and formalities.
 Exporters require various documents to submit them to various
authorities such as customs, port trust etc.
 The documents include Shipping Bill, Consular Invoice,
Certificate of Origin etc.
 Exporting is one aspect of international marketing.
 IM is a broad subject which covers the know how to make your
product reach to international markets.
 It covers the barriers and challenges that businesses and
marketers face when doing trade internationally.
 It covers the effective tools and techniques which can be
adopted while making product or service global.
 It discuses about the Strategies that need to be followed by the
marketer before entering into a particular country.
 Therefore, exporting and international marketing are
incomparable because of differences in the subjects.
 1.5. Strategic Marketing
 Strategic Marketing is the use of marketing disciplines to
achieve organizational goals by developing and maintaining a
sustainable competitive advantage
 Strategic marketing is what is being carried out by those
businesses who have a clear documented marketing strategy,
which is guiding all activity
 The strategy and its associated tactics are often documented in
a marketing plan Marketing management is the process of
implementing that plan delivering the strategy at the tactical
level
 Strategic marketing refers to a company plan that allocates resources
in ways to generate profits by positioning products or services and
targeting specific consumer groups.
 It is seen as a process consisting of:
 analyzing environmental, market competitive and business factors
 identifying market opportunities and threats and
 Forecasting future trends in business areas of interest for the enterprise,
 Formulating corporate and business unit strategies, Selecting market
target strategies for the product-markets in each business unit,
 Establishing marketing objectives
 developing, implementing and managing the marketing program
positioning strategies
What does Strategic Options to
Marketing cover? international
 Mission , Vision and Values
strategies
 Objectives Exporting
 Clearly define your product Piggybacking
offering Countertrade
 Target audience Licensing
 Competitive Positioning Joint ventures
 Key routes to market Company ownership
Franchising
 Key Processes
Outsourcing
 Messaging
Greenfield investments
 Strategic Orientation / International Marketing
Concepts
 Companies are led in to international and even global market
by the growing customer demands, and strategic thinking.
 Management‘s philosophy on international involvement
affects decisions such as: the firm‘s response to global
threats and opportunities and resource allocation.
 Companies‘ philosophies on international involvement can be
described, based on the EPRG framework, as ethnocentric,
polycentric, Regio centric and geocentric.
1. Ethnocentric Orientation:
 A mindset where the company's domestic strategies, norms, and
practices are considered superior and suitable for all markets.
Characteristics:
 Centralized decision-making at the home country headquarters.
 Key positions often occupied by home country nationals.
 Standardized products and strategies applied globally without
much localization.
 Example: Home country's policies, practices, and products are
replicated in international markets without much adaptation.
2. Polycentric Orientation
 A decentralized approach where subsidiaries or regional offices
adapt to local market conditions, cultures, and preferences.
Characteristics:
 Local autonomy in decision-making within different regions.
 Emphasis on hiring host country nationals for key positions.
 Products and strategies tailored to suit specific regional preferences.
 Example: Each regional office develops unique marketing
strategies and products to cater to local tastes and preferences
 Factors such as customer preferences, expectations and cultural
diversity etc. takes in to account. Ex: Ford Motors, GM, Toyota,
Suzuki..etc
3. Regio centric Orientation
 This approach views regions or groups of countries as distinct
markets, each with its own strategy and coordination.
Characteristics:
 Regional headquarters manage operations and strategies for
specific regions or clusters of countries.
 Regional product variations and marketing strategies developed to
suit broader regional preferences.
 Mix of local and expatriate managers in key positions.
 Example: An automobile company creates different models for
different continents or regions based on their specific demands.
4. Geocentric Orientation (Global Approach)
 A global mindset where the company views the entire world as a
single market and develops strategies based on global integration.
Characteristics:
 Global coordination and integration across all markets.
 Focus on hiring and promoting the best talent globally, regardless of
nationality.
 Standardization of products and strategies wherever possible, with
adaptations only when necessary.
 Example: A multinational company with a unified global brand,
standardized products, and coordinated global marketing campaigns.
1.8. Opportunities and challenges of IM
Opportunities Challenges
 Survival and growth:.  Quantitative restrictions to
 Sales and profits protect local industries.
 Government regulations
 Diversify a company’s risk restricting imports by way of
 Inflation and price moderation import licenses, etc
 Exchange controls.
 Employment  Local taxes like sales taxes on
 Multilateral trade agreements imported goods.
 Different monetary systems
 Meeting market needs and like Dollars in USA, Sterling in
wants and the information UK, YEN in Japan.
 Different legal system
revolution regarding import and export of
 Transportation and goods.
 Differences in procedures and
communication improvements documentation.
 Product development costs  Differences in market
characteristics.
Potential Advantages and Disadvantages of International Marketing
Potential advantages Potential disadvantage
 Opportunity to create economies of scale
 Opportunity for growth, if the domestic  The cost of the customization of
trade is limited marketing mix
 Opportunity to avoid fierce competition at
home  Risk of governments instability
 Keep up with international competition  Risk of currencies instability
 Create an international brand image or
 Difficult entry requirements,
provide international services to
multinational clients different standards, legislation and
 Opportunity to dispose large stocks
regulations
 Opportunity to increase profits by using
the excess capacity  Difficulty understanding the local
 Opportunity to extend the product life culture, customs, values and
cycle if it is different than in domestic
country norms
 Benefit from lower costs (particularly  Difficulty in entering the local
wage) and more free regulation
 Geographic diversification reduces distribution channel
country-specific risks
1.10. Concepts of foreign exchange and balance of payment
Foreign exchange is a financial asset involving a cash claim by
residents of one country against the residents of other countries.
Foreign exchange can be held in different forms such as:
Currency (paper money and coin), Cheques (e.g., travelers
cheque), Letter of credit, Bill of exchange
Foreign exchange transactions involve the purchase or sale of one
national currency against another.
The easiest way to understand this type of transaction is to view
money as just another product that customers are willing to buy and
sell.
 Balance of Payments
 The balance of payments (BoP) is a systematic record of a country's
economic transactions with the rest of the world over a specific period,
usually a year.
 It consists of various accounts that measure the country's economic
interactions with other nations.
 Analyzing the balance of payments helps policymakers, economists, and
investors understand a country's economic health, its capacity to meet
international payment obligations, and the impact of international
transactions on its overall economic stability.
 Persistent imbalances in the balance of payments can have implications
for a country's currency value, trade policies, and macroeconomic
policies.
 The BoP is divided into three main accounts: the current account,
the capital account, and the financial account.
1) Current Account:
 The current account records the country's transactions related to the trade of goods
and services, income flows, and unilateral transfers.
 It is divided into three sub-accounts:

a) Trade Balance (Balance of Trade):

 The difference between the value of a country's exports and imports of goods.
 A surplus occurs when exports exceed imports, and a deficit occurs when imports
exceed exports.
a) Services Balance: The trade balance for services, including sectors such as
tourism, transportation, and business services.
b) Income Balance: Records income earned by the country's residents from
foreign investments and income paid to foreign investors in the country.
2) Capital Account:
 The capital account measures the flow of financial assets between a country and
the rest of the world.
 It includes transactions such as the purchase or sale of non-produced, non-
financial assets (e.g., patents, copyrights) and capital transfers.
3) Financial Account:
 The financial account records transactions involving financial assets and
liabilities.
 It includes foreign direct investment (FDI), portfolio investment, other
investments, and changes in reserve assets (official reserves held by the central
bank).
a) Foreign Direct Investment (FDI): Involves long-term investments in
foreign countries, such as the establishment of subsidiaries or the acquisition
of significant ownership stakes in foreign companies.
 b) Portfolio Investment: Involves short-term investments in financial
instruments such as stocks and bonds.
c) Other Investments: Encompasses various short-term and long-term
financial transactions, including loans, currency, and bank deposits.
d) Reserve Assets: Represent changes in a country's official reserves held by
the central bank, such as foreign currency reserves and gold.
 The balance of payments equation is expressed as:

Current Account + Capital Account + Financial Account =0

 This equation reflects the accounting principle that a country's external
transactions are always balanced.
 If a country has a current account surplus, it is expected to have a capital and
financial account deficit, and vice versa.
 1.11. Barriers to international trade
 Barriers to international trade are obstacles that impede the
free flow of goods, services, and investments between
countries.
 These barriers can be imposed by governments or arise due to
various economic, social, and political factors.
 Domestic politics often cause countries to try to protect their
domestic firms from foreign firms by erecting barriers to trade.
 Such forms of government intervention can be divided into
two categories: Tariffs and Nontariff barriers.
1. Tariffs barriers
 Taxes imposed on imported goods, making them more
expensive and less competitive in the importing country.
 Increases the cost of imported goods, protecting domestic
industries but reducing international competitiveness.
 In general tariffs increase: inflationary pressures, government
control and political considerations in economic matters
 Tariff weakens:
 Balance-of-payments positions,
 Supply-and-demand patterns,
 International relations
There are three kinds of tax rates applied in tariffs.
1. Specific duties are a fixed or specified amount of money per unit of
weight, or other measure of quantity. It is a fixed sum of money
charged upon each unit of the commodity imported.
2. Ad-valorem duties are duties ‘according to value’. An ad-
valorem duty is charged as a fixed percentage of the value of the
imported article.
3. Combined rates or duties: Is a combination of the specific and ad-
valorem duties on a single imported product. They are duties based
on both the specific rate and the ad-valorem rate that are applied
to an imported product.
2. Non-tariff barriers
 A tariff is a tax imposed on foreign goods as they enter a
country; non-tariff barriers, on the other hand, are non-tax
measures imposed by governments to favor domestic over
foreign suppliers.
 Non-tariff barriers can be grouped in to five major categories:
1. Government participation in trade
2. Customs and entry procedures
3. Product requirements
4. Quotas
5. Financial controls
1) Government participation in trade: The degree of government involvement in
trade varies from passive to active. The types of participation include
administrative guidance, state trading and subsidies.
2) Customs and entry procedures: Customs and entry procedures can be employed
as non tariff barriers. These restrictions involve classification, valuation,
documentation, license, inspection and health and safety regulations.
3) Product requirements: For goods to center a country, product requirements set
by that country must be met. Requirements may apply to product standards and
product specifications as well as to packaging, labeling and marking.
4) Quotas: A quota is simply a maximum limitation, specified in either value or
physical units, on imports of a product for a given period.
5) Financial Control: restrictive monetary policies are designed to control capital
flow so that currencies can be defended or imports controlled.
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 CHAPTER TWO
INTERNATIONAL MARKETING ENVIRONMENT
2. Introduction
2.1. Definitions of international marketing environment
2.2. types of international marketing environment
2.2.1. Cultural environment
2.2.2. Economic environment
2.2.3. Political – Legal environment theory
2.2.4. Technological environment
2.3. Regional economic integration
 Chapter objectives
After completing this chapter, student should be able to:
 Discuss culture and its implication for marketing

 Discuss the influence of culture on consumption, thinking processes and

communication processes
 Discuss different types of government and its impact in marketing performance

 Identify political risks in international marketing

 Discuss the Management of political risk

 Identify legal form of organization

 Discuss economic environment in international marketing

 Discuss natural environment

 Analyze the impact of technology

 2. Introduction
 One of the fundamental steps that need to be taken prior to beginning
international marketing is the environmental analysis.
 The marketing environment consists of all factors that can affect the
organization’s marketing activities. These factors are largely
uncontrollable
 It can be classified as internal and external environment.
 Internal marketing environment are controllable because they are under
the control of the firm’s management.
 For example: Human resource, Company image and brand equity ,R&D
and technological capabilities ,Marketing mix ,Competitors, Customers,
Suppliers, Stockholders, Employees, and Publics.
2.1. Definitions of international marketing environment
We can define the word ‘international marketing environment as under:
1. International marketing environment is a set of controllable (internal) and
uncontrollable (external) forces or factors that affect international
marketing. International marketing mix is prepared in light of this
environment.
2. International marketing environment consists of global forces, such as
economic, social, cultural, legal, and geographical and ecological forces,
that affect international marketing decisions.
3. International marketing environment for any marketer consists of internal,
domestic, and global marketing forces affecting international marketing
mix.
2.2. Types of international marketing environment
2.2.1. Cultural environment
 Culture is a set of traditional beliefs and values that are transmitted and
shared in a given society.
 Culture means many things to many people because the concept
encompasses norms, values, customs, art, and mores.
 According to Jain, doing business across national boundaries requires
interaction with people nurtured in different environments.
 Values that are important to one group of people may mean little to
another.
 Therefore, international marketers need to be as familiar as possible with
the cultural traits of any country they want to do business with.
 Elements of Culture
 From the viewpoints of a marketer, one way of gaining
cultural understanding is to examine the following cultural
elements: material life, social interactions, language,
aesthetics, religion and faith, pride and prejudice, and
ethics.
 A foreign marketer may find such cultural scheme as a useful
instrument in assessing the potential and details of a foreign
market.
 Now let us have a brief overview of each of the elements of
culture:
A. Material Life: refers to what people do to derive their livelihood. The tools,
knowledge, techniques, methods, and processes that a culture utilizes to produce
goods and services, as well as their distribution and consumption, are all part of
material life.
B. Social Interactions: social interactions establish the roles that people play in a
society and their authority/ responsibility patterns.
C. Language: language as part of culture consists not only of the spoken word, but
also symbolic communication of time, space, things, friendship, and agreements.
D. Aesthetics: include the art, music, folkways, and architecture endemic to a society.
E. Religion and faith: Religion influences a culture's outlook on life, its meaning and
concept.
F. Pride and prejudice: Cultural pride and prejudice make many nations reject
foreign ideas and imported products.
G. Ethics: The concept of what is right or wrong is based on culture.
 2.2.2. Economic environment
1. Macroeconomic Factors:
 GDP and Economic Growth: The overall economic performance of countries,
including their GDP growth rates, which influence consumer spending, investment,
and market potential.
 Inflation and Deflation: Fluctuations in price levels impacting consumer
purchasing power, production costs, and pricing strategies.
 Interest Rates: Monetary policies affecting borrowing costs, investment decisions,
and currency exchange rates in international markets.
2. Currency Exchange Rates:
 Foreign Exchange Market: Volatility and fluctuations in currency exchange rates
impacting the cost of imports, exports, and profitability of international transactions.
 Exchange Rate Risks: Exposure to risks related to currency fluctuations affecting
pricing strategies and financial performance.
3. Trade Policies and Agreements:
 Trade Barriers: Tariffs, quotas, and non-tariff barriers influencing
the cost of trade and market access.
 Free Trade Agreements: Bilateral or multilateral agreements
affecting market openness and trade preferences between countries
or regions.
4. Global Economic Trends:
 Globalization: Increasing interconnectedness and integration of
markets, leading to opportunities and challenges for international
businesses.
 Emerging Markets: Growth opportunities in developing economies
offering new consumer markets and investment prospects.
5. Economic Stability and Political Risks:
 Political Instability: Political uncertainty, conflicts, or changes in
government impacting investment climate and market stability.
 Country Risk Assessment: Evaluating risks related to economic
instability, regulatory changes, and government policies in different
markets.
6. Consumer Behavior and Spending Patterns:
 Consumer Confidence: The willingness and ability of consumers
to spend, influenced by economic conditions, employment levels,
and income growth.
 Income Distribution: Variances in income levels and distribution
affecting market segmentation and product demand.
 Analysis of Economic Environment
 Given the perspectives of macro and microeconomic
environment, an opportunity analysis may be performed
to determine if it is worthwhile to seek entry into a
foreign country's market.
 Analysis of marketing opportunity centers on two sets of
criteria and risk/reward criteria.
 Cost-benefit criteria answer a series of questions that
stress markets, competition, and the financial
implications of doing business in a foreign country.
Markets:
 will people want our products?
 More importantly, will they want them enough to pay a price that will
yield us a profit?
 Is the market large enough for the firm?
Competition:
 what kind of competition will we have to face, and will the rules apply
equally to all?
 Concern about equal treatment within a market arises from the altered
market place competition that exists in many countries because of host
governments that own or subsidize competitors.
 In such cases, a foreign business usually is at a disadvantage even when it
is pitted against inefficient local business.
Financial examination:
 how many resources must be committed and what will they cost?
 What return may be expected and how long might it takes to recover
the environments?
Risk/reward criteria analysis:
 emphasizes the overall constantly changing mix of situations in the
social, political, and economic climates of a host country.
 In terms of economics, the macro economic characteristics of a
nation will almost always affect the specific economics of business.
 The national economic objectives of the country, therefore, also
figure in a firm's decision to explore entry there.
International Economic Institutions
1) GATT-WTO
 Because each nation is sovereign in determining its own commercial policy, the
danger is that arbitrary national actions will minimize international trade.
 This was the situation in 1930s when international trade was at low stage of
development and each nation tried to maintain domestic employment while
restricting imports that might help foreign rather than domestic employment.
 This experience led many trading nations to seek better solutions after World War II.
 One outcome of their efforts was the General Agreement on Tariffs and Trade
(GATT), now called the World Trade Organization (WTO).
 Today, WTO more than ever the world's trading club, accounting for over 90
percent of the world trade.
 It has about 130 members, with more wanting to join. GATT-WTO has certainly
contributed to the expansion of world trade.
 Providing a framework for multilateral trade negotiations is a primary reason
for WTO‟s existence, but there are other WTO principles that further trade
expansion.
 One is the principle of nondiscrimination.
 Each contracting party must grant all others the same rate of import duty; that
is, a tariff concession granted to one trading partner must be extended to all
WTO members under the most favored nation clause.
 Another WTO principle is the concept of consultation. When trade
disagreements arise, WTO provides a forum for consultation.
 In such an atmosphere, disagreeing members are more likely to compromise
than to resort to arbitrary trading restricting actions.
 Apart from market access, there were issues of trade in services, agriculture,
and textiles, intellectual property rights; and investment and capital flows Since
GATT‟s inception, there have been eight rounds of intergovernmental tariff
negotiations.
 The most recently completed was the Uruguay Round (1994), which built on
the success of the Tokyo Round (1974) the most comprehensive and far
reaching round undertaken by GATT up to that time.
 The Tokyo round resulted in tariff cuts and set out new international rules for
subsidies and countervailing measures, antidumping, government procurement,
technical barriers to trade (standards, customs valuation, and import licensing.
2) IBRD (International Bank for Reconstruction and Development)
 It was conceived at the Bretton woods conference in July 1944 and began its
operations in June 1946.
 It has its head quartets at Washington DC and is also known as World Bank.
 The bank's purpose is to provide funds and technical assistance to facilitate
economic development of its poorer member countries.
 This organization is one of the world's largest sources of development
assistance.
 It works in more than 100 developing economies with the primary focus of
helping the poorest people and the poorest countries.
 Owned by member countries, IBRD links voting power to members‟ relative
economic strength.
 The bank obtains its funds from capital paid in by member countries; sales
of its own securities, sale of parts of its loan; repayments; and net earnings.
3) IMF (International Monetary Fund)
 It was conceived in July 1944 at the United Nations conference held at Bertton woods,
New Hampshire, United States, when representatives from 45 governments agreed on
a framework for economic cooperation designed to avoid a repetition of the disastrous
economic policies that had contributed to the great depression of the 1930s.
 Its headquarters is located in Washington DC with offices in Paris and Geneva.
 The objectives of the bank are to promote international monetary cooperation, the
expansion of international trade and exchange rate satiability; to assist in the removal
of exchange restrictions and establishment of a multilateral system of payments; and
to alleviate any serious disequilibrium in members‟ international balance of payments
by making the financial resources of the fund available to them, usually subject to
conditions to ensure the revolving nature of fund resources.
 Whereas the IMF is concerned with the provision of short-term liquidity, World Bank
provides long term capital to aid economic development.
4. UNCTAD (United Nations Conference on Trade and Development):
 As opined by Terpstra, although GATT-WTO has been an important force in world
trade expansion, benefits have not been distributed equally.
 The less developed countries have been dissatisfied with trade arrangements because
their share of world trade has been declining, and the prices of their raw material
exports have compare unfavorably with the prices of their manufactured goods
imports.
 Though many of these countries are members of WTO, they felt that GATT did more
to further trade in goods industrialized nations than it did to promote their own
primary products.
 It is true that tariff reduction have been far more important to manufactured goods
than to primary products.
 The result of these countries‟ dissatisfaction was the formation of UNICTAD in
1964, which is a permanent organ of the United Nations General Assembly and
counts over 160 member countries.
 The goal of UNICTAD is to further the development of emerging
nations- by trade as well as by other means.
 It seeks to improve the prices of primary goods exports through
commodity agreements.
 If the commodity producing countries could get together to control
supply, this would mean higher prices and higher returns.
 It also works to establish a tariff preference system favoring the
export of manufactured goods from less developed countries.
 Since these countries have not been able to export commodities in
a quantity sufficient to maintain their share of trade, they want to
expand in the growth areas of world trade- industrial exports.
Economic Systems
 An economic system, or economic order, is a system of production,
resource allocation and distribution of goods and services within a society.
 we can identify four broad types of economic system
 2.2.3. Natural environment
 The natural environment includes the natural resources that a company uses
as inputs and affects their marketing activities.
 The concern in this area is the increased pollution, shortages of raw
materials and increased governmental intervention.
 Marketers should be aware of several trends in the natural environment.
 key aspects of the natural environment in the international context
include:
 Ecological Diversity
 Natural Resources
 Climate Change and Environmental Regulations
 Sustainable Practices
 Renewable Energy Sources
 Environmental Risks and Natural Disasters
 Biodiversity Conservation
 Water Scarcity
 Global Supply Chain Sustainability:
 2.2.4. Political environment
 No company, domestic or international, large or small, can conduct business without
considering the influence of the political environment within which it operates.
 Government reacts to its environment by initiating and pursuing policies deemed
necessary to solve the problems created by particular circumstances.
 A government controls and restricts a company‘s activities by encouraging and
offering support or by discouraging and banning or restricting its activities
depending on the pleasure of the government.
 International laws recognize the sovereign right of nations to grant or withhold
permission to do business within its political boundaries and to control where its
citizens conduct business.
 Thus, the political environment of countries is a critical concern for the international
marketer.
Factors Related to Political Environment
 The most relevant factors that need to be discussed regarding the political environment
include the sovereignty of nations, stability of government policies, nationalism, and
political risks.

1) The Sovereignty of Nations:

 a sovereign country is independent and free from all external control, enjoys full legal
equality with other states; governs its own territory; selects own political, economic, and
social systems; and has the power to enter into agreements with other nations.
 Sovereignty refers to both the powers exercised by a country in relation to other countries
and the supreme power exercised over its own members.
 It sets requirements for citizenship, defines geographical boundaries, and controls trade and
the movement of people and goods across its borders.
 The ideal political climate for a multinational firm is a stable, friendly government.
 Unfortunately, governments are not always friendly and stable, nor do friendly, stable
governments remain so; changes in the attitudes and goals can cause stable and friendly
situations to be risky.
2. Stability of Government Policies:
 the ideal political climate for a multinational firm is a stable, friendly government.
 Unfortunately, governments are not always stable and friendly governments remain
so.
 Radical shifts in government philosophy when an opposing political party ascends to
power, pressures from nationalist and self interest groups, weakened economic
conditions, bias against foreign investment or conflicts between governments are all
issues that can affect the stability of a government.
 Because foreign businesses are judged by standards as variables as there are nations,
the stability and friendliness of the in each country must be assessed as an ongoing
business practice.
 Governments might change or new political parties might be selected, but the
concern of the multinational corporation is the continuity of the set of rules or code
of behavior.
3. Nationalism:
 Economic and cultural nationalism, which exists to some degree
within all countries, is another factor important in assessing business
climate.
 Nationalism can best be described as an intense feeling of national
pride and unity, an awakening of a nation's people to pride in their
country.
 This pride can take an anti foreign business bias, and minor harassment and
control of foreign investment are supported, if not applauded.
 Such feelings can be manifested in various ways including a call to
buy our country's product only‖, restrictions on imports, restrictive
tariffs, and other barriers to trade.
4. Political and Economic Risks:
 risks can range from confiscation to many lesser but still significant
government rules and regulations such as exchange controls, import
restrictions, and price controls that directly impact the performance of
business activities.
 Confiscation: the most severe political risk is confiscation, that is, the
seizing of a company's assets without payment.
 Expropriation: requires some reimbursement for the government seized
investment. The reimbursement does equate with the value of the assets
which leads a firm whose property is expropriated to incur into loss.
 Domestication: occurs when host countries take steps to transfer foreign
investments to national control and ownership through a series of
government decrees.
 2.2.5. Legal environment
 There are many products that can’t be legally imported into most countries. e.g.
include counterfeit(fake) money, illicit (unlawful) drugs, & espionage (spying)
equipment.
 Furthermore, many products have to be modified to conform to local laws before
these products are allowed across the border.
 Multinational enterprises in global exercise must cope with widely differing laws.
An Ethiopian firm which does business in other countries has to consider not only
the Ethiopian law wherever it runs business, but also must be responsive to the laws
of the host country.
 Worldwide, different countries pursue legal systems of varied complexity and
dimension.
 In some countries, laws provide only a broad guide and the interpretation is left to
the courts. In other countries, laws spell out virtually every detail.
2.3. 4.1 International Legal Perspective
 Two important aspects of international legal systems are pertinent to
marketing: the philosophical bases of the laws and the jurisdiction of these
laws.
1. Common Law versus Code Law: philosophically, two types of laws may
be distinguished: common law and code law.
a) Common law: is based on precedents and practices established in the past
and interpreted over time. It was first developed in England, and most of
the countries that at one time or another formed a part of the British
Empire follow this system. It is also practiced today in USA and Canada.
b) Code law is based on detailed rules for all eventualities. Code law was
developed by the Romans and is popularly practiced by a number of free
world countries.
2) Tariffs: a tariff is a tax that government levies on exports and imports.
3) Antidumping Laws: dumping is a type of pricing strategy for selling
products in foreign markets below cost, or below the price charged to
domestic customers. Dumping is practiced to capture a foreign market and to
damage rival foreign national enterprises.
4) Export/Import Licensing: many countries have laws on the books that
require exporters and importers to obtain licenses before engaging in trade
across national boundaries. Licensing helps ensure that certain goods are not
exported at all, or at least not to certain countries. Import licensing is
enforced to control the unnecessary purchase of goods from other countries.
Such restrains save foreign exchange balances for other important purposes
like the import of pharmaceuticals, chemicals, and machinery.
6) Foreign Investment Regulations:
 are established to limit the influences of MNCs and to achieve a
pattern of foreign investment that contributes most effectively to
the realization of the host country's economic objectives.
 There are several areas of legislation concerned with foreign
investment: administration of the investment process, screening
criteria, ownership, finance, employment and training, technology
transfer, investment incentives, and dispute settlement
 It is important for an international marketer to be familiar with the
genesis of a country's law, for it frequently has far reaching effects
on all kinds of decisions.
 2.3.5. Technological environment
 The technological environment is perhaps one of the fastest
changing factors in the macro environment.
 This includes all developments from antibiotics and surgery to
nuclear missiles and chemical weapons to automobiles and credit
cards.
 New technologies create new markets and opportunities.
 However, every new technology replaces an older technology.
 Companies that do not keep up with technological change soon
will find their products outdated. And they will miss new product
and market opportunities.
 Technology is changing day by day at a greater pace that it causes a
major threat for domestic as well as international marketing.
 Due to globalization effect, there has been an unlimited
innovational opportunity worldwide.
 Ultimately technology change is a force for creative destruction.
 Technological advances have had substantial effect on the variety
of goods and services.
 Hacking and Stealing of Business Data
 Expensive Technologies
 Distraction in Working
 Training of the Employees
 2.4. Regional economic integration
 Regional economic integration refers to agreements among countries in a
geographic region to reduce and ultimately remove tariff and nontariff
barriers to the free flow of goods, services, and factors of production
between each other
 Regional economic integration has enabled countries to focus on issues
that are relevant to their stage of development as well as encourage trade
between neighbors
 There are four main types(level) of regional economic integration
1) Free trade
2) Customs union
3) Common market.
4) Economic union.
Free trade area
 This is the most basic form of economic cooperation Member countries
remove all barriers to trade between themselves but are free to
independently determine trade policies with nonmember nations
 An example is the North American Free Trade Agreement NAFTA

Customs union
 This type provides for economic cooperation as in a free trade zone
 Barriers to trade are removed between member countries
 The primary difference from the free trade area is that members agree to
treat trade with nonmember countries in a similar manner
 An example Andean Community (formally known as the Andean Pact
between Bolivia, Colombia, Ecuador, Peru, and Venezuela
Common market
 This type allows for the creation of economically integrated markets between
member countries
 Trade barriers are removed, as are any restrictions on the movement of labor
and capital between member countries Like customs unions, there is a
common trade policy for trade with nonmember nations
 The primary advantage to workers is that they no longer need a visa or work
permit to work in another member country of a common market
 An example is the Common Market for Eastern and Southern Africa
Economic union
 This type is created when countries enter into an economic agreement to
remove barriers to trade and adopt common economic policies
 An example is the European Union
 Under an economic union, members will harmonize monetary policies, taxation, and
government spending.
 In addition, a common currency is be used by members which is accomplished, de
facto, by a system of fixed exchange rates.
 Common policies on product regulation
 Free movement of g/s
 Free movement of factors of production
 Common external trade policy
 Unifying currency /common currency
 common monetary policy
 Coordination of economic & fiscal policies
 Integration is more intense in an economic union compared to a common market, as
member countries are required to harmonize their tax, monetary, and fiscal policies
and to create a common currency
 Example EU
 Economic Integration and the International Marketer
 Regional economic integration creates opportunities and potential
problems for the international marketer.
 It may have an impact on a company's entry mode by favoring direct
investment.
 By design, larger markets are created with potentially more
opportunity.
 Because of harmonization efforts, regulations may be standardized,
thus positively affecting the international marketer
 The international marketer will then have to develop a strategic
response to the new environment to maintain a sustainable long-term
competitive advantage.
 Major Regional Trade Agreements
AFTA : Asian Free Trade Area
 Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand,
Vietnam
ANCOPM :Andean Common Market
 Bolivia, Colombia, Ecuador, Peru, Venezuela
APEC : Asia Pacific Economic Cooperation
 Australia, Brunei, Canada, China, Hong Kong, Indonesia,
Japan, Malaysia, Mexico, New Zealand, Papua New Guinea,
Philippines, Singapore, South Korea, Taiwan, Thailand, United
States
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 OUTLINE
3.1. Analyzing international marketing
3.1.1. Index for international marketing
3.2. Assessing company resources for export involvement
3.3. Selecting a market entry mode
3.4. Direct exporting activities, agents, distributors,
franchising, and licensing
3.5. Direct investment activities, wholly owned
subsidiaries, mergers/acquisitions and joint ventures.
 Learning Objectives
After completing the study of this chapter, you are expected to:
 Analyze International Marketing environment;
 Explain the various international market entry modes/strategies.
 Define Direct investment activities, wholly owned subsidiaries,
mergers/acquisitions and joint ventures.
 Compare the organizational implications of franchising versus
Licensing
 Identify the criteria to select a market entry mode
 Differentiate between agents and distributors
INTRODUCTION
 When a firm is considering interning a foreign market the
question arises as to the best means of achieving.
 There are basically eight to inter a foreign market exporting,
Turnkey projects, licensing, strategic alliance, franchising,
management contract, joint venturing, with a host country firm
and setting up a wholly owned subsidiary in the host country
each country mode has advantages and disadvantages, mangers
need to considers this carefully when deciding which entry
mode to be used.
 3.1. Analyzing international marketing

 Market analysis is an important instrument in assessing the

attractiveness of a particular market, since it is utilized to decide
whether to enter a foreign market in terms of international marketing
strategy.
 It is necessary to apply a market analysis in order to determine and
examine the appropriate approach to enter a market
Different entry modes differ in three crucial aspects:
 The degree of risk they present.
 The control and commitment of resources they require.
 The return on investment they promise.
Root‘s (1994) summarization of the external factors listed below will be used as a
complement to the external factors previously mentioned since it has a clear connection
between the external factors and the actual choice of market entry mode and these are:
External Factors (Foreign Country):
 Low sales potential
 High sales potential
External factors (Home country):
 Poor marketing infrastructure
 Good marketing infrastructure  Large market
 Low production cost
 High production cost  Small market
 Restrictive import policies  Low production cost
 Liberal import policies
 Small geographical distance  High production cost
 Great geographical distance
 Dynamic economy  Strong export promotion
 Stagnant economy  Restrictions on investment abroad
 Exchange rate depreciation
 Exchange rate appreciation
 Small cultural distance
 Great cultural distance
 Low political risk
 High political risk
 3.1.1. Index for international marketing
 International marketing has become more and more important over the
years with the increasing trend of internationalization.
 Faced with too many choices, marketers have the challenge of
determining which international markets to enter and the appropriate
marketing strategies for those countries.
 Therefore, marketing index serve as an indicator of the situations of the
international market.
1. A statistical indicator that measures changes in the economy in general
or in particular areas. An example is the cost-of-living index
2. A reference point against which measurements are taken for purposes
of making future adjustments.
 Statistical composite that measures changes in the economy or in
financial markets, often expressed in percentage changes from a base
year or from the previous month.
 Indexes measure the ups and downs of stock, bond, and some
commodities markets, in terms of market prices and weighting of
companies in the index
 The international Marketing Index, compiled by World Economics,
provides a unique monthly indicator of the state of the global
marketing industry, by tracking current conditions among marketers.
 The global marketing panel consists of experienced executives
working for brand owners, media owners, creative and media
agencies and other organizations serving the marketing industry.
 3.2. Assessing company resources for export involvement
 Internal company assessment is the first to be assessed.
 The decision to export or not should rest on an analysis of the company’s readiness to
export and the product’s readiness for the targeted export destination.
 Below is a list of factors to be considered to achieve this analysis.
 Top management commitment, Adequate managerial and qualified staff resources
 Sufficient production capacity (includes factory space, warehousing, machinery, and
accessibility of raw materials to meet the export order)
 Adequate financial resources to purchase capital equipment spare parts, raw materials as
well as working capital.
 Ability to produce and adapt products with real export potential using cost-effective
methods
 Ability to provide after-sales services in the importing country, if required.
 It is a prerequisite to have skilled and experienced personnel to handle the various aspects
of export marketing.
 3.3. Selecting a market entry mode
 The criteria to be considered include:
1. Speed of market entry desired
2. direct and indirect costs.
3. Flexibility required: The laws of a country exist to protect that country's nationals.
4. Risk factors : including political risk and economic as well as competitive risk.
5. Investment payback period: Shorter-term payback may be realized from
licensing and franchising deals, whereas joint ventures or wholly owned
subsidiaries will tie up capital for a number of years.
6. Long-term profit objectives: the growth expected in that market for the
years ahead.
3.4. Direct exporting activities, agents, distributors, franchising, and
licensing
Direct exporting activities
 Exporting is a strategy in which a company, without any marketing
or production organization overseas, exports a product from its home
base.
 Often, the exported product is fundamentally the same as the one
marketed in the home market.
 Firms have two alternatives in exporting products to international
market these are: direct and, indirect exporting.
 In indirect involvement firms participate in international businesses
through an intermediary.
 There are various reasons for firms to just take other alternatives than
exporting.
 Let us see some reasons that might force for looking beyond exporting
 Overcoming trade barriers
 Reducing tariffs
 Reducing transport and production costs
 Utilizing more favorable production conditions
 Being closer to your market
 Better market credibility
 Achieving better market penetration
 Reaching more markets
Advantages of Exporting Disadvantages of Exporting
 Market Expansion  Logistical Challenges
 Currency Risks
 Increased Revenue and Profitability
 Cultural and Regulatory Differences
 Diversification of Customer Base
 Political and Economic Instability
 Economies of Scale
 Trade Barriers
 Utilization of Excess Capacity  Intellectual Property Concerns
 Brand Recognition and Reputation  Payment Risks
 Competitive Advantage  Increased Competition
 Agents
 Utilizing agents is a common business strategy that allows companies to extend their
reach in the market and leverage the expertise of intermediaries.
 Agents act on behalf of the principal (the company) to facilitate transactions,
negotiations, or other business activities.
Disadvantages of Agents
Advantages of Agents  Limited Control
 Risk of Misalignment
1.Market Expertise  Dependence on Agents
2.Cost Savings  Communication Challenges
3.Quick Market Entry  Brand Image Concerns
 Difficulty in Coordination
4.Reduced Financial Risk  Limited Direct Customer
5.Focus on Core Competencies Relationships
6.Local Connections
 High Agent Turnover
 Confidentiality Concerns
7.Flexibility  Difficulty in Performance
8.Access to Existing Customer Base Evaluation
Distributors:
 Distributors purchase products from the manufacturer and resell
them in their local markets to end customers.
 They manage inventory, distribution, marketing, and sales within
their market, assuming some risks and responsibilities.
 Advantages: Offers wider market coverage, local market
knowledge, established networks, and reduced logistical
complexities for the exporter.
 Challenges: Loss of control over pricing, branding, and customer
relationships, as well as the need to manage distributor
relationships effectively.
 Franchising
 Franchising is a form of licensing in which a parent company (the franchiser) grants
another independent entity (the franchisee) the right to do business in a prescribed
manner.
 This right can take the form of selling the franchisor’s products, ‘using its name,
production and marketing techniques, or general business approach.
 One of the common forms of franchising involves the franchisor supplying an
important ingredient (part, material etc.) for the finished product, like the Coca Cola
supplying the syrup to the bottlers.
 The major forms of franchising are manufacturer-retailer systems (such as
automobile dealership), manufacturer wholesaler systems (such as soft drink
companies), and service firm-retailer systems (such as lodging services and fast
food outlets).
Advantages for Franchisees Disadvantages for Franchising
 Established Brand Recognition
Disadvantages for Franchisors
 Proven Business Model  Loss of Control
 Quality Control Challenges
 Training and Support
 Legal and Regulatory Compliance
 Easier Market Entry  Conflict Resolution
 Initial Investment in Support Systems
 Access to Supply Chains
 Dependence on Franchisee Performance
 Shared Advertising Costs  Franchisee Recruitment Challenges:
 Economies of Scale Disadvantages for Franchisees
 High Initial Costs
 Risk Mitigation
 Royalty Payments
 Ongoing Innovation  Limited Autonomy
 Contractual Obligations
 Exclusive Territory
 Market Saturation
 Community of Franchisees  Brand Image Dependence
 Limited Flexibility
 Proven Marketing Strategies
 Territorial Restrictions
 Higher Likelihood of Success  Ongoing Costs and Fees
 Exit Challenges:
3. Licensing
 A licensing agreement is an arrangement whereby a licensor grants
the rights to intangible property to another entity (the licensee) for
a specified period of time, and in return, the licensor receives a
royalty fee from the licensee.
 Intangible property includes patents, inventions, formulas,
processes, designs, copyrights, and trademarks.
 Licensing is a form of contractual agreement in which the licensor
permits the licensee to use its intellectual property (such as patents,
trade marks, copyrights, technology, technical know-how,
marketing skill or some other specific skill) in payment .
Advantages for Licensees Disadvantages for Licensees
 Limited Control
1.Access to Established Brands
 Dependence on Licensor's Success
and Intellectual Property  Competition with Other Licensees
2.Time and Cost Savings  Risk of Changes in Licensing Terms

3.Reduced Financial Risk  Royalty Costs

 Limited Adaptability and Customization
4.Market Entry and Expansion
 Dependency on Licensor's Technological
5.Focus on Core Competencies
Advancements
6.Flexibility  Risk of Contractual Disputes
7.Access to Technology and  Limited Opportunities for Brand Building
 Potential for Licensing Termination
Innovation
 Market Restrictions
8.Risk Sharing
 Investment in Compliance
 3.5. Direct investment activities, wholly owned subsidiaries,
mergers/acquisitions and joint ventures.

Direct investment activities

 Direct investment activities refer to the deployment of capital
directly into assets or projects with the goal of acquiring a substantial
degree of control or influence over those assets or projects.
 This type of investment involves a long-term commitment, and
investors often engage in direct investment activities to gain strategic
advantages, generate returns, or expand their business operations.
 Direct investment can take various forms, including mergers and
acquisitions, joint ventures, and the establishment of wholly-owned
subsidiaries.
 However, some critics point out that free capital flows are driven by

speculative and short-term considerations.

 One indisputable fact is that developed countries are both the largest

recipients and sources of FDI.

 Certain countries have managed to attract large amounts of FDI.

 In the case of Africa, to attract FDI, African countries have relied on

their natural resources, locational advantages, and targeted policies.

 Above all, the countries that are successful in attracting FDI have

certain traits: political and macroeconomic stability and structural

reforms .
Advantages of direct investment
 Control and Influence
 Potential for Higher Returns
 Long-Term Perspective
 Operational Involvement

Disadvantages of direct investment

High Capital Requirement
Risk Exposure
Lack of Diversification
Management Challenges
Wholly-Owned Manufacturing Subsidiary
 A wholly-owned manufacturing subsidiary refers to a company
that is entirely owned and controlled by another company (referred to
as the parent company), typically for the purpose of carrying out
manufacturing activities.
 The parent company owns 100% of the shares of the subsidiary,
giving it complete control over the subsidiary's operations,
management, and decision-making processes.
 The establishment of a wholly-owned manufacturing subsidiary often
serves strategic purposes such as gaining direct control over
production, accessing new markets, reducing costs, or protecting
intellectual property.
 Advantages
 Full Control and Decision-Making
Disadvantages
 High Initial Investment
 Technology Transfer and
 Financial Risk
Knowledge Retention  Operational and Management Challenges
 Brand Consistency  Limited Local Market Knowledge
 Efficient Coordination and  Slower Market Entry

Integration  Political and Regulatory Risks

 Flexibility and Adaptability  Lack of Local Connections and Networks

 Resource Redundancy
 Investment Incentives
 Cultural and Language Barriers
 Risk Mitigation and Security
 Exit Challenges
 Operational Consistency
 Potential for Resistance from Local
 Long-Term Strategic Vision
Stakeholders
 Enhanced Customer Trust
Acquisitions
 When a manufacturer wants to enter a foreign market
rapidly and yet retain maximum control, direct
investment through acquisition should be considered.
 Acquisition:- is transferring the local company to
foreign owner. In this the foreign company invest in
local firm for 100 percent ownership on the existing
facility.
Advantages of Acquisitions
 It may provide a resource that is scarce (human or
managerial skill) in the target country
 Rapid access to new markets

 Is a good method for a firm to gain market specific

experience quickly.
 Favorable in situations with less need for strategic
flexibility and when the transaction is used to
maintain economies of scale or scope.
Disadvantages of Acquisitions
 Costs and multiple risks come with an acquisition entry mode.
 Firms that uses equity based entry mode have a higher rate of
growth than export mode when foreign risk is higher.
 Complex international negotiations, the problems dealing with
the legal and regulatory requirements in the target firm’s
country, and problems of merging the new firm into the
acquiring firm.
 High financial commitment, and thus demands more stable
political and commercial climate than those with a smaller
financial commitments.
Joint Venture
 A joint venture is an enterprise formed for a specific
business purpose by two or more investors sharing
ownership and control.
 A joint venture is the long-term commitment of funds,
facilities and services by two or more legally separate
interests, to a combined enterprise for their mutual
benefits.
 A joint venture need not be a separate legal entity or
company.
 The essential feature of a joint ownership venture is that
the ownership and management are shared between a
foreign firm and a local firm.
 The Benefits of a Joint Venture
Advantages:
 Benefit from local firm’s knowledge about the host
country’s competitive Conditions, culture, language,
political systems and business systems.
 Shared costs/risks of development of product
 Political constraints on other options by host
government will be minimized
The Disadvantages of a Joint Venture
Potentially high capital cost required to establish JV
It might take much time to get profit
Difficult to get out of quickly if a partner find the
venture infeasible later
Working in a different legal and Cultural system might
be source of conflict among partners
Political risks in the country where the joint venture is
based
Management contracts:
 An arrangement whereby a company operates a foreign firm for a client who retains
the ownership is known as management contract.
 There are a number of variations but a broad distinction between foreign management
and local ownership is a characteristic feature, and the management typically extends
to all functions.
 In the management contract the principal (the contractor) operates a complete
management system. This method of conducting business has only gradually emerged.
 In a basic management contract the local (host country) company holds all the equity,
but in practice the contractor often takes a small amount.
 The holding of equity makes it easier to negotiate the other terms; the contractor
company does not feel so encouraged to provide for an increasing royalty in the event
of success as it knows that it will share anyway.
 On the other hand, the holding of equity may bias the advice the contractor gives,
especially when it’s not managing all the functions.
 Advantages of Management Disadvantages of Management

Contracts Contracts
 Loss of Control
 Expertise and Experience
 Communication Challenges
 Cost Savings
 Conflicts of Interest
 Focus on Core Competencies  Dependency on Management
 Efficiency and Productivity Company
 Access to Networks and  Transition Challenges
 Confidentiality Concerns
Resources
 Costs and Fees
 Risk Mitigation
 Quality of Service
 Flexibility  Risk of Management Turnover
 Short-Term Commitment  Potential for Short-Term Focus
Turnkey Projects
 Firms that specialize in the design, construction, and start-up of turnkey
plants are common in some industries.
 IN a turnkey project, the contractor agrees to handle every detail of the
project for a foreign client including the training of operation personnel.
 At completion of the contract, the foreign client is handled the “key “ to
a plant that is ready for full operation- hence the term turnkey.
 This is actually a means of exporting process technology to other
countries. IN a sense it is just a very specialized kind of exporting.
 Turnkey projects are most common in the chemical, pharmaceutical,
petroleum refining, and metal refining industries, all of which use
complex, expensive production-process technologies.
Advantages of Turnkey Disadvantages of Turnkey Projects
Projects  Limited Client Control

 Single-Point Responsibility  Potential for Disputes

 Dependence on Contractor Competence
 Time Savings
 Higher Initial Costs
 Reduced Client
 Limited Flexibility for Changes
Involvement
 Potential for Scope Creep
 Cost Predictability
 Limited Client Involvement in
 Quality Assurance
Decision-Making
 Risk Transfer  Dependency on External Factors
 Integrated Design and  Risk of Overemphasis on Time and Cost

Construction  Limited Customization

 Operational Efficiency
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 CHAPTER FOUR
PRODUCT POLICY DECISIONS
4.1. Product standardization/Modification
4.2. Branding and its types, brand piracy
4.3. Packaging
4.4. After sales service
 4.1. Product standardization/Modification
 Product standardization means that a product originally designed for a local
market is exported to other countries with virtually no change, except perhaps for
the translation of words and other cosmetic changes.
 There are advantages and disadvantages to both standardization and
individualization.

Arguments for Standardization

 The strength of standardization in the production and distribution of products and
services is in its simplicity and cost.
 It is an easy process for executives to understand and implement, and it also is
cost-effective.
 If cost is the only factor being considered, then standardization is clearly a logical
choice because economies of scale can operate to reduce production costs.
 Yet minimizing production costs does not necessarily mean that
profit increases will follow.
 Simplicity is not always beneficial, and costs are often confused
with profits.
Advantages of standardization includes
 High cost of adaptation.
 Primarily industrialized products, e.g. medical equipment's
 Convergence and similar tastes in diverse country markets.
 Marketing to predominantly similar countries, almost similar needs,
income and exposed to the same media.
 Centralized management of international operations, headquarters
prefer standardization
 Strong country of origin effect and image, e.g. Italian shoes, French
fashion, German cars,
 Economies of scale in production, R&D, and marketing.
 Competitors have “successful” standardized products.
Arguments for Adaptation
 All countries are not the same in their preference for products due to their difference in
economy, culture, natural environment.
 Climate is a major factor which force companies to adapt their product accordingly.
 As petroleum companies are modifying their product to hot country users and cold
country users.
Let us see some of the reasons for product adaptations.
• Difference in technical standards, e.g. voltage, driver side,
• Primarily consumer and personal use products, e.g. clothes, food,
• Variations in conditions of use.
• Variations in ability to buy, i.e. difference in income levels.
• Fragmentation with independent national subsidiaries.
• Strong cultural differences, language may affect purchase.
• Local environment-induced adaptation, e.g. governmental
intervention.
• Adaptation strategy successfully used by competitors.
 Product adaptation is necessary under several conditions.
 Some are mandatory, whereas others are optional.

Mandatory product modification

 The mandatory factors affecting product modifications include the
following: government’s mandatory standards (i.e., country’s
regulations), electrical current standards, measurement standards, and
product standards and systems.
 The most important factor that makes modification mandatory is
government regulation. To gain entry into a foreign market, certain
requirements must be satisfied. Regulations are usually specified and
explained when a potential customer requests a price quotation on a
product to be imported.
 4.2. Branding and its types, brand piracy
Branding
 Any word, name, symbol, or device or any combination thereof used by a
manufacturer or merchant to identify this goods and distinguish them
from those manufactured or sold by others (Lanham Trade-Mark Act
 A brand, once developed and recognized, can have a long life: Major
brands such as Gillette and Coca-Cola have been popular for many years.
 A big question then is how to build up brand recognition in international
markets.
 Brands can be built up through adverting, but advertising merely builds
on the brand’s foundation, which rests on (a) quality, (b) innovation, (c)
superior service, (d) customer satisfaction, and (e) value.
 The return of good branding to the firm is brand loyalty and repeat
purchases and a loyal customer; since acquiring customers is costly,
loyal customers who buy regularly are valuable to a firm.
 Furthermore, brands provide customers with a guarantee of value and
quality, making the customer’s choice easier; it frees them from the
confusion and message fatigue endemic to consumption, allowing the
customer to make safe choices, secure that satisfaction and value will
result if the brand is purchased.
 Brands allow a firm to charge premium prices, and the profits from
premium pricing, coupled with steady market share and repeat
purchases, result in measureable cash flow, which is at the heart of
brand equity calculations.
Branding decision
 The basic purpose of branding is the same everywhere in the
world: in general the functions of a brand are:
 Create identification and brand awareness
 Guarantee a certain level of quality, quantity and satisfaction
Uses as a promotional tool etc.
• All of these purposes have the ultimate goal to induce repeat
sales
Branding level and alternatives
There are four levels of branding decisions:
1. No brand versus brand
2. Private brand versus manufacturer’s brand
3. Single brand versus multiple brands
4. Local brands versus worldwide brand
A. Branding versus No Brand
 To brand or not to brand, that is the question. Most U.S. exported products are
branded, but that does not mean that all products should be.
 Branding is not a cost-free proposition because of the added costs associated with
marking, labeling, packaging, and legal procedures.
 For products like salt, cement, diamonds, produce, beef, and other agricultural
and chemical products).
 Commodities are “unbranded or undifferentiated products which are sold by
grade, not by brands.”
 As such, there is no uniqueness, other than grade differential, that can be used to
distinguish the offerings of one supplier from those of another.
 Branding is then probably undesirable because brand promotion is ineffective in a
practical sense and adds unnecessary expenses to operations costs.
B. Private Brand versus Manufacturer’s Brand
 Branding to promote sales and move product: necessitates a
further branding decision: whether the manufacturer should use
its own brand or a distributor’s brand on its product.
 Distributors in the world of international business include trading
companies, importers, and retailers, among others; their brands
are called private brands.
C. Single Brand versus Multiple Brands
 When a single brand is marketed by the manufacturer, the brand is
assured of receiving full attention for maximum impact.
 But a company may choose to market several brands within a
single market based on the assumption that the market is
heterogeneous and thus-must be segmented.
 Consequently, a specific brand is designed for a specific market
segment.
D. Local Brands versus Worldwide Brand
 When the manufacturer decides to put its own brand name on
the product, the problem does not end there if the
manufacturer is an International marketer.
 The possibility of having to modify the trademark cannot be
dismissed: The international marketer must then consider
whether to use just one brand name worldwide are different
brands far different markets are countries.
 To market brands worldwide and to market worldwide brands
are not the same thing
Brand Characteristics
 Short and easy to pronounce (in local languages)

 Suggesting product benefits without negative

connotations
 Unique or distinctive (or capable of being
distinctive)
 4.3. Packaging

PACKAGING: FUNCTIONS AND CRITERIA

 Much like the brand name, packaging is another integral part of a
product.
 Packaging serves two primary purposes: functional and
promotional.
 First and foremost, a package must be functional in the sense that
it is capable of protecting the product at minimum cost.
 For most packaging applications, marketers should keep in mind
that foreign consumers are more concerned with the functional
aspect of a package than they are with convenience.
 In addition, it should help sell the product by attracting the buyer’s
attention, identifying the product, and providing a reason to buy.
 Another way of looking at this is to apply the VIEW test in each
market:
 V – Visibility: the package must be easily distinguished from the
visual competition.
 I – Information: the package must quickly communicate the nature
of its contents.
 E – Emotional impact: the design must create favorable
impressions in the mind of the consumer.
 W – Workability: the package must function as protection and must
also be efficient in home use.
 Using standardized dimensions for packages leads to reductions in
cost and generates some benefits.
 Some of these are as follows:
 Reduction of dimensions to a few standards sizes and facilitates
the machine packing of merchandise.
 Standardized package sizes facilitate production of the fewer types
of packages and shipping boxes.
 Uniform package dimensions permit a balanced format for display
and for self-service selling.
 Standardized sizes simplify, expedite, and cut the cost of handling
and shipping.
 4.4. After sales service
 After sale service is defined as customer support following the purchase of a
product or service.
 After sale service involves a continuous interaction between the service
provider and the customer throughout the post purchase product life cycle.
 At the time the product is sold to the customer, this interaction is formalized
by a mutually agreed warranty or service contract.
 The exact terms of the warranty or service contract, the characteristics of the
customer base, and nature of the sold product influence the after sales
service provider.
 After sales service includes a package of different services provided to
customers after they have concluded the purchase deal.
Components of After Sales Service
There are seven elements of after sale support which must be provided to customers
over the working lifetime of product these are:
1. Installation: for many products the first element of product support following the
sale is installation. This is usually performed for complex product or where
personnel from the manufacturing company or their representatives involve safety
issues.
2. User training: the complexity of some type equipment necessitates that
manufacturers provide good training for users. Many computers based and
complex products include functions that help users learn to use them more
efficiently.
3. Documentation: most products have some form of documentation and industries
such as medical electronics plays key role. Typical form of documentation covers
equipment operation, installation, maintenance, and repair. Good documentation
can lead to lower support cost.
4. Maintenance and repair: - maintenance and repair are an important
element of product support, which has required companies to invest
significant resource. Preventive maintenance is undertaken to clean, refurbish
or replace parts of equipment which otherwise would be liable to fail.
Mechanical parts, for example, normally require regular maintenance as in the
case of cars.
5. Online support: - telephone advice on product is a major element of
customer support in many industries. Product experts give online consulting
to customers to help them use products more or, sometimes to trace the cause
of fault (troubleshooting).
6. Warranties: - manufacturers of most products offer warranty and, in some
markets such as automobiles. Manufacturers try to gain a competitive
advantage by offering longer warranty periods.
Warranty reduces the financial risk of owning products and
therefore it is an important element of customer support.
7. Upgrades: - offering customer the chance to enhance the
performance of the existing products can be an important aspect of
support. For example, computer-manufacturers offer upgrades,
because they increase the working lifetime of products and can be a
significant source of revenue. Original equipment manufacturers
have a competitive advantage in this because they normally have
records of where equipment has been sold which could benefit
from upgrading.
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 CHAPTER FIVE
PROMOTION STRATEGY IN INTERNATIONAL CONTEXT

5.1. Personal selling

5.2. Exhibitions trade fairs
5.3. Public relations/publicity
5.4. Sales promotion
5.5. Advertising in the global situations
5.6. Campaign transferability
5.7. Advertising standardization versus local adaptation
OBJECTIVE
After studying this unit, you should be able to:
Analyze the approaches to international pricing.
Discuss the export pricing strategies.
Explain the different terms of sale in international
marketing.
Explain each of the different terms of payments in
international marketing.
Define countertrade
 Introduction
 Price is the only element of the marketing mix that is
revenue generating; all of the others are costs.
 Price serves as a means of communication with the buyer
by providing a basis for judging the attractiveness of the
offer.
 Price is a major competitive tool in meeting and beating
close rivals and substitutes.
 Price is also one of the most flexible marketing mix
elements
 5.1. Personal selling
 Personal selling refers to the process of interacting directly with
potential customers to present, promote, and sell products or
services.
 Unlike mass advertising or marketing efforts that target broader
audiences, personal selling involves one-on-one interactions
between a salesperson and a prospective buyer.
 Personal selling is a fundamental component of many
businesses, especially for products or services that require
explanation, demonstration, or customization, as it allows for
direct engagement and tailored solutions to potential customers.
 International selling Company sales force travels across
countries and meets directly with clients abroad.
 Local selling Company organizes and staffs a local sales force
made up of local nationals to do selling in that country.
 When a customer is met in person by a representative of the
marketing company it is called personal selling.
 Global marketing presents additional challenges because the
buyer and seller may come from different national or cultural
backgrounds.
Characteristics:
1) Interpersonal Communication: It involves direct communication
between the seller and the buyer, allowing for tailored messages and
personalized interactions based on the buyer's needs and
preferences.
2) Relationship Building: Personal selling often focuses on building
relationships with customers. Salespeople aim to understand
customer needs, address concerns, and establish trust to facilitate the
sales process.
3) Customization: Salespersons can adapt their sales pitch,
demonstrations, or explanations based on the individual buyer's
situation, providing specific solutions or benefits.
Personal communication/ Mass Selling/ direct
Communication
When to use/effective?
Personal selling has three important
 Industrial buying qualities:
 Personal interaction
 Large volume purchases
 Cultivation
 Large amount of money  Response/personal choices
 Market is concentrated
 It works well with high-unit value
 Infrequently purchased products
Process:
1) Prospecting: Identifying potential customers who might be interested in
the product or service.
2) Approaching: Initiating contact with the prospective buyer, either through
face-to-face meetings, phone calls, or other means.
3) Presenting and Demonstrating: Showcasing the features, advantages, and
benefits of the product or service to the potential buyer.
4) Handling Objections: Addressing concerns or objections raised by the
buyer and providing relevant information or solutions.
5) Closing the Sale: Asking for the sale or commitment from the buyer.
6) Follow-up: After the sale, maintaining contact with the customer to ensure
satisfaction, address any issues, and potentially secure future business.
Steps in the personal Selling

1) Prospecting and qualifying - identifying qualified potential customers

2) Pre-approach-learn as much as possible about the organization & the research

to develop a customer strategy.

3) Approach-A salesperson meets the customer for the first time.

4) Presentation and demonstration - showing how the company’s offer solves the
customer’s problems. “value story” to the buyer

5) Handling objections- A salesperson seeks out, clarifies, and overcomes any

customer objections to buying.

6) Closing- A salesperson asks the customer for an order. Salespeople should know
how to recognize closing signals from the buyer, including physical actions,
comments, and questions.

7) Follow-up- salesperson wants to ensure customer satisfaction and repeat

business.
 5.2. Exhibitions trade fairs
 One type of sales promotion that can be highly effective is the exhibition of a
product overseas.
 This type of promotion may be very important because regular advertising and
sales letters and brochures may not be adequate.
 For certain products, quality can be judged only by physical examination, and
product exhibition can facilitate this process.
 One very effective way to exhibit products abroad is to use trade fairs. An
exhibitor should investigate whether it is worthwhile to use a carnet for
products that will be shipped or taken to the exhibition.
 A carnet is an international customs document that facilitates the temporary
duty-free importation of product samples in lieu of the usual customs
documents required to bring merchandise into several major trading countries.
Benefits of Exhibitions
1. Economic functions: The exhibition industry takes over important
economic functions. In the exhibition centre supply and demand are
brought together. Exhibitions offer a inter- active platform to the
market participants. They contribute to the development and revival of
markets and market segments.
2. Trade function: Transactions of goods, services and information
3. Transparency function: it offers market overview information
4. Development function: Support of the commercial development of
nations, regions and cities
Two main actors are considered here and they constitute the audience
axes of the event: the exhibitors and the visitors.
Motivations of exhibitors and visitors
 Before any decision is taken with respect to organizing a trade fair, it is
important to understand what determines the choice of participation by
exhibitors and visitors, their needs and expectations.
 The success and failure of the event depend on that. The answer might
appear obvious: to make business, but, if this is the core motivation, the
reality is somehow more complex; Organizing a trade fair means to place on
the market a service that is already widely available.
 The question therefore is what makes a new trade fair attractive, that is
which distinctive features may differentiate it from others and generate the
interest of the participants, knowing that participation can be fairly costly
and participants would obviously expect a return from their investment.
The driving motivations for participation in a trade fair for an exhibitor is the
opportunity to:
 Showcase its products or services and reach a targeted audience;
 Create or reinforce the visibility and raise the awareness and interest about its
supply capacity;
 Attend to inquiries and disseminate information;
 Identify new potential customers or strengthen relations with the existing
ones;
 Establish backward and forward business linkages;
 Identify agents;
 Negotiate offers which may result in actual orders;
 Develop the relationship network;
 Meet potential
Motivation for participation in a trade fair anyhow is not only linked to the
supplier-client relation, but it has many aspects of a more horizontal nature:
 Exploring the market and observing the trends;
 Exchanging experiences;
 Gathering information e.g.:
 Keeping abreast of product and industry innovations;
 Knowing what competitors do;
 Learning latest sales and promotion techniques.
 Comparing quality, price, and marketing mix performance;
 Attending technical sessions/conferences/symposia and other similar functions
organized within the
 trade fair as side events;
 Visiting local industry;
 Having the opportunity for some tourism
 5.3. Public relations/publicity
 Favorable news coverage about business/Product
 PR Marketing activities that enhance brand equity by promoting
goodwill toward the organization/CBBE
 May be necessary to defend brand against bad publicity & PR
campaigns can go wrong if not managed correctly
 Stakeholders (employees, customers, suppliers, Medias, shareholders, gov’t,
competitors, and the general public)
 Building and maintaining a positive perception of an organization in the mind
of its publics.
E.g.
 Charitable contribution
 News releases
 TV and radio talk show appearances by company personnel.
 PR involves the strategic management of communication between an organization
and its various stakeholders, including the public, customers, employees, investors,
media, and government entities.
 Its primary goal is to build and maintain a positive image and relationships for the
organization.
 PR activities can include:
 Media Relations: Interacting with journalists, bloggers, and media outlets to
generate positive coverage and manage the organization's portrayal in the media.
 Crisis Communication: Handling and mitigating negative situations or crises that
might impact the organization's reputation.
 Community Relations: Engaging with local communities or interest groups to
foster positive relationships and demonstrate corporate social responsibility.
 Internal Communication: Ensuring effective communication within the
organization, keeping employees informed and engaged.
Publicity:
 Publicity is a subset of PR and refers specifically to the
dissemination of information or news about a product, service, or
company with the aim of gaining public attention or awareness.
 It often involves utilizing media channels to showcase a company's
achievements, events, new products, or other noteworthy aspects.
 Publicity aims to generate positive coverage and public interest in a
particular aspect of the organization.
 Both PR and publicity play crucial roles in shaping public
perception, managing reputation, and maintaining positive
relationships between an organization and its stakeholders.
 5.4. Sales promotion
 Sales promotion refers to short-term marketing strategies and
tactics designed to stimulate immediate sales of a product or
service.
 These activities are typically distinct from long-term marketing
strategies and are focused on encouraging customers to make a
purchase within a specified timeframe.
 Sales promotion activities include: Advertising campaigns,
Product demonstration, Trade shows, Free sample campaigns,
Media campaigns, Door-to-door sales and Direct mail campaigns
and other activities
Types of Sales Promotion:
1) Coupons and Discounts: Offering price reductions, discount codes, or coupons
to incentivize purchases. These can be distributed through various channels,
including online, print media, or mobile devices.
2) Contests and Sweepstakes: Creating competitions or sweepstakes where
customers can win prizes by participating in activities related to the brand or
product.
3) Free Samples or Trials: Providing free product samples or trial offers to
encourage consumers to try the product and potentially make a purchase.
4) Buy One Get One (BOGO) Offers: Providing additional products or services
for free or at a discounted rate when a customer purchases one item at full price.
5) Loyalty Programs: Rewarding loyal customers with incentives, discounts, or
exclusive offers based on their repeated purchases or engagement with the
brand.
 Objectives of Sales Promotion
Benefits:
1.Boosting Sales
1.Immediate Impact
2.Creating Urgency
3.Attracting New Customers 2.Customer Engagement

4.Clearing Inventory 3.Competitive Advantage

Challenges:
1) Profit Margins: Constant promotions can impact profit margins if discounts are too
steep or if they become expected by customers.
2) Brand Perception: Over-reliance on promotions might lead customers to perceive
the brand as offering low-value products or erode brand equity.
3) Customer Expectations: Continuous promotions may condition customers to wait
for deals, affecting regular pricing and purchasing behaviors.
 5.5. Advertising in the global situations
 It is any paid form of non-personal, oral and / or visual openly sponsor-
identified message concerning goods, services or ideas.
Characteristics
 The firm pays for its message & Use of mass media,
 A designed messages delivered to the entire audience
 The name of the sponsor is clearly presented
 The company controls the message.
 At the same time, the international marketer must take into account
relevant cultural, linguistic, and legal constraints found in various
national markets.
 The major international advertising decisions
 Message decisions: Creative strategy – What kind of advertising
appeals do we use across markets? Same or different?
 Media decisions: Cost and availability of media across different
country markets – Suitability of media to match target audiences
 Agency selection: Local or global? Selection factors/availability/
Reliability/Audience
 Evaluation: what criteria do we use to compare relative success of
advertising campaigns across country markets
 5.6. Campaign transferability
 Campaign transferability refers to the ability of a marketing or advertising
campaign to be successfully adapted, replicated, or transferred from one market
or region to another, maintaining its effectiveness and core message while
accommodating local differences.
 The growing intensity of international competition, coupled with the
complexity of multinational marketing, demands that the international
advertiser function at the highest creative level.
 Advertisers from around the world have developed their skills and abilities to
the point that advertisements from different countries reveal basic similarities
and a growing level of sophistication.
 To complicate matters further, boundaries are placed on creativity by legal,
language, cultural, media, production, and cost limitations.
Key Factors in Campaign Transferability:
1) Core Message and Brand Consistency: The central message, values, and essence
of the campaign should remain consistent across different markets to maintain
brand identity and recognition.
2) Cultural Adaptation: Adapting the campaign to align with cultural nuances,
values, traditions, and preferences of the target audience in each region is crucial.
This might involve modifying visuals, language, or even the overall tone of the
campaign
3) Market Relevance: Assessing the relevance of the campaign in different markets
is vital. Some elements might need to be adjusted to resonate better with local
tastes and preferences.
4) Regulatory and Legal Compliance: Ensuring that the campaign complies with
local advertising regulations, laws, and ethical standards is essential to avoid any
legal issues or cultural insensitivity.
 Legal Considerations Laws that control comparative advertising vary from
country to country in Europe.
 Therefore, major consideration when undertaking cross-border promotion is
accommodating the regulation in different countries. Such regulation may be
controlled by legislation or by general practice, in particular where industry
codes of practice act as constraints.
 For example, a toy or confectionery maker wanting to run a pan-European TV
advertising campaign has to consider the different rules and regulations for
each country concerned.
 In Sweden advertising targeted at children is forbidden; some countries
require advertisements for sweets to carry a toothbrush symbol, and others
have rules intended to curb advertisers from encouraging children to exercise
‘pester power’.
 The same maze of national rules exists when it comes to promoting
alcohol, tobacco, pharmaceuticals and financial services.
 There are diverse regulations on how much of the human body can be
revealed, whether prices can be discounted for special offers and the use
of free gifts in sales promotion.
 In Germany, it is illegal to use any comparative terminology; you can be
sued by a competitor if you do.
 Belgium and Luxembourg explicitly ban comparative advertising,
whereas it is clearly authorized in the U.K., Ireland, Spain, and Portugal.
 The directive covering comparative advertising will allow implicit
comparisons that do not name competitors, but will ban explicit
comparisons between named products.
Cultural Diversity
 Of all the elements of the promotional mix, decisions involving advertising are
those most often affected by cultural differences among country markets.
 Consumers respond in terms of their culture, its style, feelings, value systems,
attitudes, beliefs, and perceptions.
 Because advertising's function is to interpret or translate the need/want-satisfying
qualities of products and services in terms of consumer needs, wants, desires,
and aspirations, the emotional appeals, symbols, persuasive approaches, and
other characteristics of an advertisement must coincide with cultural norms if it
is to be effective.
 The problems associated with communicating to people in diverse cultures
present one of the great creative challenges in advertising.
 Communication is more difficult because cultural factors largely determine the
way various phenomena are perceived.
Media Limitations
 Limitations on creative strategy imposed by media may
diminish the role of advertising in the promotional program and
may force marketers to emphasize other elements of the
promotional mix.
 A marketer's creativity is certainly challenged when a television
commercial is limited to 10 showings a year with no two
exposures closer than 10 days, as is the case in Italy.
 Creative advertisers in some countries have even developed
their own media for overcoming media limitations.
Production and Cost Limitations
 Creativity is especially important when a budget is small or
where there are severe production limitations, poor-quality
printing, and a lack of high-grade paper.
 For example, the poor quality of quality publications has caused
Colgate-Palmolive to depart from its customary heavy use of
print media in the West for other media in Eastern Europe.
 Newsprint is of such low quality in China that a color ad used
by Kodak in the West is not an option.
 Kodak's solution has been to print a single-sheet color insert as
a newspaper supplement.
 The necessity for low-cost reproduction in small markets poses
another problem in many countries.
 For example, hand-painted billboards must be used instead of
printed sheets because the limited number of billboards does not
warrant the production of printed sheets.
 In Egypt, static-filled television and poor-quality billboards have led companies
such as Coca-Cola and Nestle to place their advertisements on the sails of
feluccas, boats that sail along the Nile.
 Feluccas, with their triangle sails, have been used to transport goods since the
time of the pharaohs and serve as an effective alternative to attract attention to
company names and logos.
 In reflecting on what a marketer is trying to achieve through advertising, it is
clear that an arbitrary position strictly in favor of either modification or
standardization is wrong; rather, the position must be to communicate a relevant
message to the target market.
 If a promotion communicates effectively in multiple-country markets, then
standardize; otherwise, modify.
 It is the message a market receives that generates sales, not whether an
advertisement is standardized or modified.
Challenges in Campaign Transferability:
1) Cultural Differences: Diverse cultures might interpret messages
differently, requiring careful consideration to avoid misinterpretation or
offense.
2) Language Barriers: Language nuances and idiomatic expressions might
not translate effectively, impacting the message's effectiveness.
3) Resource Allocation: Replicating campaigns across various markets can
require substantial resources in terms of time, manpower, and financial
investment.
4) Market Differences: Varying market conditions, consumer behaviors,
and competitive landscapes might necessitate alterations in the campaign
strategy.
Successful Campaign Transferability Strategies:
1) Thorough Research: Conducting comprehensive market research to
understand cultural, social, and consumer behavior differences in target
markets.
2) Localization and Customization: Tailoring the campaign elements to
suit the preferences and sensibilities of each market while maintaining the
core message.
3) Adaptability and Flexibility: Building campaigns that allow for easy
adaptability without compromising the overall brand message or integrity.
4) Testing and Iteration: Testing the adapted campaign in the new market,
collecting feedback, and being open to iterations based on the responses
received.
 5.7. Advertising standardization versus local adaptation

 Advertising standardization refers to the practice of

creating and implementing a uniform advertising
strategy across multiple markets without significant
modifications.
 Instead of tailoring advertising campaigns to the specific
characteristics of each local market, standardized
advertising involves using consistent creative elements,
messaging, and promotional tactics globally.
Global Promotion
 A global promotion strategy is when your company presents the same basic
message of brand or product value around the globe
 This approach ties closely with the standardized product strategy
 The general idea is to present a universal product with benefits that apply
to customers in each targeted marketplace
 McDonald's has benefited from a consistent commitment to its global
message of efficient, family friendly fast food

International Promotion
 An international promotion strategy is when promotional messages vary
from one country to the next or where campaigns are tailored to different
regions
 This strategy is used with either the standardized or customized product
Advertising in the global situations
Why promotion mixes may have to be adapted?
 Language written and spoken language differences & differences in symbolic
meaning
 Political climate government regulation
 Cultural attitudes and religious practices value and norm differences, differences
in humor product use and preference differences
 One example is the use of color red is lucky in China and worn by brides in
India, whilst white is worn by mourners in India and China and brides in the UK
 For example a promotional strategy in one country could cause offence in
another
 The level of media development and availability will also need to be taken into
account.
 Is commercial television well established in your host country?
 What is the level of television penetration?
 How much control does the government have over advertising on TV, radio and
Internet?
 Is print media more popular than TV?
 Every aspect of promotional detail will require research and planning Before
designing promotional activity for a foreign market it would be expedient to
complete a PEST analysis
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 CHAPTER SIX
PRINCING AND TERMS PAYMENT
6.1. International pricing strategies versus domestic pricing
strategies
6.2. Price standardization
6.3. Export quotation terms
6.4. Methods of payment
6.5. Export credit terms
6.6. Transfer pricing
6.7. Bartering and counter trading versus domestic pricing strategies
 Introduction
 Pricing strategy forms another cornerstone of international marketing
program it represents one of the most critical and complex issues in global
marketing (due to economic financial and mathematical implications
 Price is the only marketing mix element that generates revenues
 All other elements entail costs
 Need to devote special care in pricing products as a manager’s fiduciary
responsibility is to market products at a profit and increase shareholder wealth
 A company’s global pricing policy may make or break its overseas expansion
efforts (due to foreign exchange complications
 Firms also face significant challenges in coordinating (standardizing or
adapting) their pricing strategies across various countries they operate in
Pricing objectives
In general, price decisions are viewed in two ways:
1) Pricing as an active instrument of accomplishing marketing
objectives
 the company uses price to achieve a specific objective
 targeted profit or
 targeted market share
2) Pricing as a static element in a business decision
 exports excess inventory
 places low priority on foreign business
 views its export sales a passive contributions to sales volume
 6.1. International pricing strategies versus domestic pricing
strategies
 Price policy is an essential part of the marketing mix. Its importance in international
marketing is based on the fact that through achieved prices the economic benefits of
various transactions among the partners are divided.
 In other words, the level of reached prices directly influences the profitability of the
transactions (Horská, 2007).
 Pricing globally is much trickier than pricing in the home market, due to issues such
as problems of currency fluctuations and devaluations, price escalation through
tariffs, difficult-to-assess credit risks, and different quotations, dumping charges,
transfer prices and price controls.
 In addition, the price is then compared and analyzed by competitors, distributors and
consumers.
 In global marketing, the level of price is sometimes less important than currencies
quoted, methods of payment and credit extended (Johanson, 2009).
 As in the domestic market, the price at which a product or service is
sold directly determines your firm‘s revenues.
 It is essential that your company‘s market research include an
evaluation of all the variables that may affect the price range for your
product or service.
 If your firm‘s price is too high, the product or service will not sell.
 If the price is too low, export activities may not be sufficiently
profitable or may actually create a net loss.
 The traditional components for determining proper pricing are costs,
market demand, and competition.
 Each component must be compared with your company‘s objective
in entering the foreign market.
 An analysis of each component from an export perspective
may result in export prices that are different from domestic
prices.
 It is also very important that you take into account additional
costs that are typically borne by the importer.
 They include tariffs, customs fees, currency fluctuation,
transaction costs, and value added taxes (VATs).
 These costs can add substantially to the final price paid by the
importer, sometimes resulting in a total that is more than
double the U.S. domestic price.
 Basically, pricing of goods and services in domestic market depend
upon the govt policies of tax & subsidies and the factors of
production whereas the pricing in international market is mainly
determined through the prevailing foreign exchange rate and the
value of own currency in terms of gold & US dollar.
 There's a huge difference in pricing in domestic and internal
marketing.
 There are numerous factors to it: law, taxes, difference in exchange
rate, taste and preferences, production factor, where the good are
produced, also the quality makes up the differences in domestic and
international exchange rate.
 The essential question is not whether cost is considered but rather
what kind of cost is considered and to what extent.
 The typical costs associated with international marketing include:
 market research;
 credit checks;
 business travel;
 inter- national postage, cable, and telephone rates;
 translation costs; commissions,
 training charges, and other costs involving foreign
representatives;
 consultants and freight forwarders;
 product modification; and special packaging.
6.1.1. Pricing Strategy
 Prices may differ from market to market due to various
reasons; political influence, buying capacity, financial
and import facilities, total market turnover and other
pricing and non-pricing factors etc. in order to make
the local price of the product competitive.
 There are different strategies of pricing that can be
employed by an international marketer.
 Some of such methods are discussed below:
1) Full cost versus variable cost pricing:
 Firms that orient their price thinking around cost must determine
whether to use variable cost or full cost in pricing their goods.
 In variable cost pricing, the firm is concerned only with the marginal
or incremental cost of producing goods to be sold in overseas
markets.
 Such firms regard foreign sales as bonus and assume that any return
over their variable cost makes a contribution to net profit.
 These firms may be able to price more competitively in foreign
markets, but because they are selling products abroad at lower net
prices than they are selling them in domestic market, they may be
subject to charges of dumping.
 On the other hand, companies following the full cost pricing
philosophy insist that no unit of a similar product is different
from any other unit in terms of cost and that each unit bears
its full share of the total fixed and variable cost.
 This approach is suitable when a company has high variable
costs relative to its fixed costs.
 In such cases, prices are often set on cost plus basis, that is,
total costs plus a profit margin.
 Both variable cost and full cost polices are followed by
international marketers.
2) Skimming Versus Penetration Pricing :
 Firms must also decide to follow a skimming or a penetration pricing
policy.
 The decision of which policy to follow depends on the level of competition,
the innovativeness of the product, and market characteristics.
 A company uses skimming when the objective is to reach a segment of a
market that is relatively price sensitive and thus willing to pay a premium
price for the value received.
 If limited supply exists, a company may follow a skimming approach in
order to maximize revenue and to match demand to supply.
 When a company is the only seller of a new or innovative product, a
skimming price may be used to maximize profit until competition forces a
lower price.
 A penetration pricing policy is used to stimulate market growth and
capture market share by deliberately offering products at low prices.
 Penetration pricing, most often, is used to acquire and hold share of
market as a competitive scheme.
 However, in country markets experiencing rapid and sustained
economic growth, and where large shares of the population move
into middle income classes, penetration pricing may be used to
stimulate market growth even with minimum competition.
 Penetration pricing may be a more profitable strategy than skimming
if it maximizes revenues and builds market share as a base for the
competition that is sure to come.
 Regardless of the formal pricing policies and strategies a
company uses, it must not be forgotten that the market sets the
effective price for a product.
 Said another way, the price has to be set at a point at which the
consumer will perceive value received and the price must be
within the reach of the target market.
Market Penetration Strategy:
 Under this strategy, exporters offer a very low introductory price
to speed up their sales and, therefore, widening the market base.
 It aims at capturing the products in the market especially if the
quality of the product is proved with its wide acceptance.
6.1.2 Price Escalation
 Price escalation is the disproportionate difference in price between the exporting
country and the importing country.
 People traveling abroad often are surprised to find that goods relatively inexpensive
in their home country priced higher in other countries.
 Some of factors that contribute towards the higher price include:
a) Cost of Exporting:
 are the added costs incurred as a result of exporting products from one country to
another.
 The term relates to a situation in which ultimate prices are raised by shipping costs,
insurance, packing, tariffs, and longer channels of distribution, lager middlemen
margins, special taxes, administrative costs, and exchange rate fluctuations.
 The majority of these costs arise as a direct result of moving goods across borders
from one country to another and often combine to escalate the final price to a level
considerably higher than in the domestic market.
b) Taxes, tariffs and administrative costs:
 Nothing is surer than death and taxes has a particularly familiar ring to the
ears of the international trader because taxes include tariffs, and tariffs are
one of the most pervasive features of international trading.
 Taxes and tariffs affect the ultimate consumer price for a product and, in
most instances; the consumer bears the burden of both.
 Sometimes, however, consumers benefit when manufacturers selling goods
in foreign countries reduce their net return in order to gain access to a
foreign market.
 Absorbed or passed on, taxes and tariffs must be considered by the
international businessperson. A tariff or duty is a special form of taxation.
 Like other taxes, a tariff may be levied for the purpose of protecting a
market or for increasing government revenue.
c) Inflation:
 The effect of inflation on cost must be taken into account.
 In countries with rapid inflation or exchange variation, the selling price
must be related to the cost of goods sold and the cost of replacing the
items.
 Because inflation and price controls imposed by a country are beyond
the control of companies, they use a variety of techniques to inflate the
selling price to compensate for inflation pressure and price controls.
 They may charge for extra services, inflate costs in transfer pricing, or
break up products into components and price each component separately.
 Inflation causes consumer prices to escalate and the consumer is faced
with rising prices that eventually exclude many consumers from the
market.
d) Exchange rate fluctuations:
 Exchange rate fluctuations refer to the changes in the value of one
currency relative to another in the foreign exchange market.
 These fluctuations are influenced by various factors and can have
significant impacts on international trade, investments, and the
overall economic environment.
 If exchange rates are not carefully considered in long term contracts,
it can lead either the seller or the buyer to lose some amount of
money.
 The added cost incurred by exchange rate fluctuations on a day to
day basis must be considered, especially where there is a significant
time lapse between signing the order and delivery of the goods.
Factors Influencing Exchange Rate Fluctuations:
 Supply and Demand: If the demand for a currency exceeds its supply, its value may
appreciate.
 Economic Indicators: GDP growth, employment rates, inflation, and interest rates influence
exchange rates.
 Interest Rates: higher rates can attract foreign capital seeking better returns. This increased
demand for a currency can lead to its appreciation.
 Political Stability: Political uncertainty can lead to currency depreciation, while stability can
attract foreign investments and strengthen the currency.
 Trade Balances: is the difference between a country's exports and imports, affects exchange
rates. A trade surplus (more exports than imports) can lead to a stronger currency.
 Central Bank Interventions: Central banks may intervene in the foreign exchange market
to stabilize or influence their currency's value. This can include buying or selling currencies
to adjust the exchange rate.
 Global Events and Crises: Major global events, geopolitical tensions, or economic crises
can lead to increased volatility in the foreign exchange market, impacting exchange rates.
Impact of Exchange Rate Fluctuations:
 International Trade: Exchange rate fluctuations affect the
competitiveness of a country's exports and imports. A depreciating
currency can make exports more attractive, while an appreciating currency
may benefit consumers by reducing import costs.
 Foreign Direct Investment (FDI): Investors consider exchange rates
when making FDI decisions. A stable or appreciating currency may attract
foreign investment, while a depreciating currency can deter investment.
 Inflation: Exchange rate fluctuations can influence import prices,
impacting inflation. A depreciating currency may contribute to higher
import costs and inflation, while an appreciating currency can have the
opposite effect.
 Corporate Profits: Multinational corporations with operations in multiple
countries may see fluctuations in their profits due to changes in exchange
rates. Translation of foreign earnings to the home currency can be
impacted.
 Tourism: Exchange rates influence the cost of travel and tourism. A
stronger currency may make outbound tourism more affordable for
residents, while a weaker currency can attract foreign tourists.
Managing Exchange Rate Risks:
 Hedging: Companies and investors can use financial instruments such as
forward contracts or options to hedge against potential losses due to adverse
exchange rate movements.
 Diversification: Diversifying investments across different currencies or
asset classes can help spread risk and reduce exposure to the impact of
exchange rate fluctuations.
 Monitoring Economic Indicators: Keeping a close watch on economic
indicators, central bank policies, and geopolitical events can help anticipate
potential exchange rate movements.
 Long-Term Planning: Businesses and investors should incorporate
exchange rate risk into their long-term planning and decision-making
processes.
e) Middlemen and transportation costs:
 Channel length and marketing patterns vary widely, but in most countries
channels are longer and middlemen margins higher than customary in one
country.
 The diversity channels used to reach markets and the lack of standardized
middlemen markups leave many producers unaware of the ultimate price of
a product.
 Besides channel diversity, the fully integrated marketer operating abroad
faces various unanticipated coasts because marketing and distribution
channel infrastructures are underdeveloped in many countries.
 The marketer can also incur added expenses for warehousing and handling
of small shipments and may need to bear increased financing costs when
dealing with under financed middlemen.
 6.2. Price standardization
 Price standardization refers to the practice of setting and
maintaining consistent prices for a product or service across different
markets or regions.
 This approach involves establishing uniform pricing regardless of
geographic location, local economic conditions, or other regional
factors.
 Price standardization contrasts with price differentiation, where
prices may vary based on factors such as market demand, local costs,
or competitive conditions.
 Here are key aspects of price standardization:
 Advantages of Price Standardization:
 Simplicity and Efficiency: Managing a standardized pricing strategy is
simpler and more efficient than dealing with multiple price points across
various markets. It streamlines pricing administration and reduces
complexity.
 Brand Consistency: Standardizing prices helps maintain a consistent brand
image globally. Consumers perceive the brand as reliable and trustworthy
when prices are uniform, contributing to brand equity.
 Cost Savings: Price standardization can lead to cost savings in terms of
marketing efforts, price adjustments, and administrative tasks associated
with managing diverse pricing strategies for different regions.
 Economies of Scale: Companies can benefit from economies of scale when
producing, distributing, and marketing products with a standardized price. It
allows for larger production runs and more efficient logistics.
 Global Customer Perception: Customers worldwide may perceive a
company as fair and transparent when prices are consistent. This contributes
to a positive customer experience and fosters trust in the brand.
 Competitive Positioning: Standardizing prices helps companies maintain a
competitive position in the global market. It prevents price wars or
confusion, ensuring that the brand remains attractive to consumers.
Considerations and Challenges:
 Currency Fluctuations: Exchange rate fluctuations can impact the effectiveness of
price standardization. Companies need to carefully monitor and manage currency
risks to maintain stable pricing.
 Local Economic Conditions: Ignoring local economic conditions may lead to
products being overpriced or underpriced in certain markets. Companies must
carefully assess the affordability of their products in each region.
 Competitive Dynamics: The competitive landscape may vary across markets.
Standardizing prices without considering local competition could impact market
share and competitiveness in specific regions.
 Regulatory Compliance: Different regions may have varying tax structures, legal
requirements, or pricing regulations. Companies need to ensure compliance with
local laws while implementing a standardized pricing strategy.
 Consumer Preferences: Cultural and regional differences can influence consumer
preferences and willingness to pay. Companies must be attentive to local consumer
behaviors and adjust their products and pricing accordingly.
 Product Variations: Standardized pricing may be challenging if products or services
vary across regions. Companies with region-specific product offerings may need to
consider localized pricing strategies.
 Adaptability to Local Markets: Companies must strike a balance between
standardization and adaptation. While maintaining consistent pricing, there may be a
need for localized marketing approaches, promotions, or product features to suit
specific markets.
DUMPING
 Dumping, in the context of international trade, refers to the practice of
exporting goods to another country at a price lower than their normal
value or fair market value.
 This can be a controversial trade practice and is generally considered
an unfair trade practice.
 Dumping can have significant economic implications and may lead to
trade disputes between countries.
 Dumping, a form of price discrimination, is the practice of charging
different prices for the same product in similar markets.
 As a result, imported goods are sold at prices so low as to be
detrimental to local producers of the same kind of merchandise.
Key Features of Dumping:
 Price Discrimination: Dumping involves selling goods in a foreign market at a
lower price than the price charged in the home market. This is a form of price
discrimination that can harm domestic industries in the importing country.
 Objective: The primary objective of dumping is often to gain a competitive
advantage in the target market by undercutting the prices of local producers. It
may lead to increased market share for the exporting country.
 Anti-Dumping Measures: Countries often have anti-dumping laws and
regulations to protect their domestic industries from unfair trade practices. Anti-
dumping measures may include the imposition of tariffs or duties on the
dumped products.
 Calculation of Dumping Margin: The dumping margin is the amount by
which the export price of a product is lower than its normal value or fair market
value. This margin is calculated to determine the extent of the price difference.
 Injury to Domestic Industries: Dumping can cause harm to domestic industries in
the importing country. The lower prices of dumped products can lead to reduced
market share, lower profits, and even the closure of domestic businesses.
 Dumping Investigations: Countries may initiate dumping investigations based on
complaints from domestic industries. These investigations aim to determine
whether dumping is occurring, the extent of the dumping margin, and the impact on
the domestic industry.
 World Trade Organization (WTO): The WTO provides a framework for
addressing dumping issues through its Anti-Dumping Agreement. Member
countries can impose anti-dumping measures, but these measures must comply with
WTO rules to avoid unjust protectionism.
 Dumping Margins and Penalties: If dumping is confirmed, anti-dumping duties
or tariffs may be imposed on the dumped products. The amount of the duty is often
based on the calculated dumping margin.
Reasons for Dumping:
 Excess Production: Countries with excess production capacity may
engage in dumping to sell surplus goods in foreign markets at lower prices
than they would domestically.
 Market Expansion: Dumping may be a strategy to enter or expand market
share in a foreign market. By offering products at lower prices, exporters
can attract customers away from local competitors.
 Currency Devaluation: Currency devaluation in the exporting country can
make its goods cheaper in foreign markets, contributing to a perception of
dumping.
 Strategic Pricing: Dumping may be part of a strategic pricing approach to
gain a competitive advantage, especially in the initial stages of entering a
new market.
Challenges and Criticisms:
 Unfair Competition: Critics argue that dumping leads to unfair
competition, as domestic industries in the importing country may
struggle to compete with artificially low prices.
 Retaliatory Measures: Imposing anti-dumping measures can lead to
retaliatory actions by the exporting country, escalating trade tensions.
 Consumer Benefits: Some argue that dumping can benefit consumers in
the importing country by providing access to cheaper goods. However,
this benefit may come at the expense of domestic industries.
 Complex Calculations: Determining the actual dumping margin and its
impact on the domestic industry can be a complex process, involving
economic and legal considerations.
 Types of dumping
1. Price Dumping:
 Description: Selling goods in a foreign market at a price lower than their normal
value or fair market value. Price dumping is the most common form of dumping.
 Objective: Gain a competitive advantage in the target market by offering
products at prices lower than those of local competitors.
2. Persistent Dumping:
 Description: Occurs when a country consistently engages in dumping practices
over an extended period.
 Objective: Establish a long-term competitive advantage and market share in the
target country.
3. Predatory Dumping:
 Description: Aggressively lowering prices in a foreign market to drive
competitors out of business. The goal is to establish a monopoly or dominant
market position.
 Objective: Eliminate competition and achieve market dominance.
4. Sporadic Dumping:
 Description: Involves occasional instances of dumping rather than a continuous
or consistent practice.
 Objective: Address specific market conditions or respond to short-term
opportunities.
5. Cyclical Dumping:
 Description: Occurs in response to economic cycles or fluctuations in demand.
Prices are adjusted based on market conditions.
 Objective: Adapt pricing strategies to economic conditions and maintain
competitiveness.
6. Asymmetric Dumping:
 Description: Involves situations where a country exports a product at a lower price
than it charges for the same product when sold domestically.
 Objective: Capture market share in the target country by offering lower prices than
what is available in the home market.
7. Reverse Dumping:
 Description: The importing country sells goods to the exporting country at a higher
price than the domestic market price for the same product.
 Objective: Gain profits from selling at higher prices in the foreign market compared
to the domestic market.
8. Social Dumping:
 Description: Occurs when a country exploits lower labor or environmental standards
to produce goods more cheaply, allowing for lower export prices.
 Objective: Benefit from lower production costs associated with lax social and
environmental regulations.
9. Discount Dumping:
 Description: Involves offering discounts on export prices to gain a competitive
advantage in the target market.
 Objective: Attract customers with lower prices, especially during promotional
periods or to counteract market competition.
10. Product Dumping:
 Description: Selling outdated or obsolete products in foreign markets at lower prices
than in the domestic market.
 Objective: Dispose of excess or obsolete inventory by targeting markets where such
products may still find buyers.
11. Intercompany Dumping:
 Description: Occurs when a multinational company sells goods at lower prices
to its subsidiaries in foreign markets compared to what it charges independent
buyers.
 Objective: Facilitate market penetration and sales growth within the company's
own network.
12. Regional Dumping:
 Description: Targeting specific regions with lower prices compared to other
regions.
 Objective: Tailor pricing strategies to regional market conditions or to respond
to local competition.
13. Seasonal Dumping:
 Description: Adjusting prices based on seasonal demand patterns in the target
market.
 Objective: Capture market share during peak demand seasons by offering
competitive prices.
14. Cost-Based Dumping:
 Description: Setting export prices based on production costs, ignoring market
dynamics or demand.
 Objective: Ensure sales by offering products at prices covering production
costs, even if it means selling below the market value.
Legal aspect of dumping
 The legal aspects of dumping involve international trade
regulations and anti-dumping laws that aim to address unfair
trade practices.
 Dumping is generally considered an unfair trade practice as it
can harm domestic industries in the importing country.
 Whether or not dumping is illegal depends on whether the
practice is tolerated in a particular country. Switzerland has no
specific antidumping laws.
 Most countries, however, have dumping laws that set a minimum
price or a floor on prices that can be charged in the market.
key legal aspects related to dumping:
 World Trade Organization (WTO): The WTO provides a framework for
addressing dumping through its Anti-Dumping Agreement. WTO member
countries agree to certain rules and procedures to prevent and address the
impact of dumping on international trade.
 Anti-Dumping Laws: Many countries have enacted anti-dumping laws to
protect their domestic industries from the adverse effects of dumping. These
laws allow for the imposition of anti-dumping duties on dumped products to
level the playing field.
 Definition of Dumping: Anti-dumping laws typically define dumping as the
act of exporting goods to another country at a price lower than their normal
value or fair market value. The calculation of the dumping margin is a
crucial aspect of anti-dumping investigations.
 Dumping Investigations: When a domestic industry believes it is being
harmed by dumped imports, it can file a complaint with the relevant
authorities in its country. This initiates a dumping investigation to
determine if dumping is occurring, the extent of the dumping margin,
and the impact on the domestic industry.
 Calculation of Dumping Margin: Dumping margin is calculated by
comparing the export price of a product with its normal value or fair
market value. The dumping margin helps quantify the extent to which
the exported product is being sold at a price lower than its fair value.
 Injury to Domestic Industry: Dumping investigations also assess the
impact of dumped imports on the domestic industry, considering factors
such as reduced market share, lower profits, and job losses.
 Imposition of Anti-Dumping Duties: If dumping is confirmed and it is
found to be causing material injury to the domestic industry, anti-dumping
duties may be imposed on the dumped products. These duties are intended to
offset the unfair competitive advantage created by dumping.
 Public Interest Considerations: Some anti-dumping laws include
provisions to consider the public interest. Authorities may assess whether
imposing anti-dumping duties would be in the overall interest of the
importing country.
 WTO Agreement on Subsidies and Countervailing Measures: In addition
to the Anti-Dumping Agreement, the WTO Agreement on Subsidies and
Countervailing Measures addresses the issue of subsidies that may
contribute to dumping. Subsidies provided by exporting countries can also
be subject to countervailing duties.
 6.3. Export quotation terms
 Export quotation may take various forms: a verbal agreement, a telephone,
telex, cable, fax airmailed letter or E-mail.
 It may also be a pro-forma invoice, which is an outline of what the
commercial invoice would be-showing all details of the shipment.
 Export quotation should describe the goods, the quantity involved, the unit
price, the total value, the delivery and payment terms.
 A quotation describes the product, states a price for it, sets the time of
shipment, and specifies the terms of sale and terms of payment.
 Because the foreign buyer may not be familiar with the product, the
description of the product in an overseas quotation usually must be more
detailed than in a domestic quotation.
 The description should include the following 15 points:
The description should include the following 15 points:
1) Seller's and buyer's names and addresses.
2) Buyer's reference number and date of inquiry.
3) Listing of requested products and brief description.
4) Price of each item (it is advisable to indicate whether items are new or used
and to quote in U.S. dollars to reduce foreign-exchange risk).
5) Appropriate gross and net shipping weight (in metric units where
appropriate).
6) Appropriate total cubic volume and dimensions packed for export(in metric
units where appropriate).
7) Trade discount (if applicable).
8) Delivery point.
9) Terms of sale.
10)Terms of payment.
11)Insurance and shipping costs.
12)Validity period for quotation.
13)Total charges to be paid by customer.
14)Estimated shipping date from U.S. port or airport.
15)Currency of sale.
Some commonly used export quotation terms:
1. EXW - Ex Works:
 The seller makes the goods available at their premises or another named place
(factory, warehouse, etc.). The buyer is responsible for all costs and risks associated
with transporting the goods from the seller's location to the final destination.
2. FCA - Free Carrier:
 The seller delivers the goods, cleared for export, to the carrier nominated by the buyer
at a named place or point. The risk transfers to the buyer once the goods are loaded
onto the transport.
3. CPT - Carriage Paid To:
 The seller pays for the carriage of the goods to the named destination. However, the
risk transfers to the buyer once the goods are handed over to the first carrier.
4. CIP - Carriage and Insurance Paid To:
 Similar to CPT, but the seller also pays for insurance coverage for the journey to the
named destination. The risk transfers to the buyer upon delivery to the first carrier.
5. DAP - Delivered at Place: The seller is responsible for delivering the goods to a
named place, typically the buyer's premises or another agreed location. The seller bears
all risks and costs until the goods are ready for unloading by the buyer.
6. DPU - Delivered at Place Unloaded (replaced DAT - Delivered at Terminal): The
seller is responsible for delivering the goods to the buyer at an agreed place of
destination. The seller is also responsible for unloading the goods, and the risk transfers
to the buyer upon completion of unloading.
7. DDP - Delivered Duty Paid: The seller is responsible for delivering the goods to the
buyer's premises or another agreed place of destination, cleared for import. The seller
bears all costs, including duties and taxes, and assumes all risks until the goods are
delivered.
8. FAS - Free Alongside Ship: The seller delivers the goods alongside the vessel at the
named port of shipment. The buyer is responsible for loading the goods onto the vessel
and bears all costs and risks from that point forward.
 6.4. Methods of payment
 In international trade, various methods of payment are used to facilitate
transactions between buyers and sellers across different countries.
 The choice of payment method often depends on factors such as the level of
trust between parties, the nature of the goods or services being traded, and
the financial arrangements they find mutually acceptable.
 Here are some common methods of payment in international trade:
1. Cash in Advance (Prepayment):
 The buyer makes full payment before the goods are shipped or the services
are provided.
 This method provides the seller with the highest level of security but may be
less attractive to the buyer due to the upfront financial commitment.
2. Letters of Credit (L/C):
 A letter of credit is a financial instrument issued by a bank on behalf of the
buyer, promising to make payment to the seller upon the presentation of
specified documents and compliance with the terms and conditions outlined
in the letter of credit. This method provides security for both parties.
3. Documentary Collection (D/C):
 In this method, the seller uses banks to collect payment from the buyer.
There are two types of documentary collection:
 Documents against Payment (D/P): Documents are released to the buyer
upon payment.
 Documents against Acceptance (D/A): Documents are released to the
buyer upon acceptance of a time draft, with payment due at a future date.
4. Open Account:
 The seller ships the goods and sends the buyer an invoice, and the buyer
agrees to pay at an agreed-upon future date. This method places a higher level
of trust on the buyer, and the seller assumes more risk.
5. Consignment:
 The seller ships the goods to the buyer, but ownership remains with the seller
until the goods are sold by the buyer. The seller only receives payment once
the goods are sold, and the buyer may return unsold goods.
6. Cash Against Documents (CAD):
 The buyer pays for the goods upon presentation of shipping documents by the
seller. The buyer can obtain the documents upon payment or upon accepting a
time draft, depending on the agreement
7. Cash with Order (CWO) / Cash in Advance of Shipment (CIAS):
 Similar to cash in advance, the buyer makes payment before the goods are
shipped. However, this term is sometimes used specifically for situations
where the buyer places an order and pays before the goods are produced or
shipped.
8. Escrow Services:
 An escrow service acts as a neutral third party that holds funds on behalf of
the buyer until certain conditions are met, such as the delivery of goods.
Once conditions are fulfilled, the funds are released to the seller.
9. Barter and Countertrade:
 In certain situations, countries or companies may engage in barter or
countertrade, where goods or services are exchanged directly without the
use of currency.
Approaches to lessening price
escalations
 6.5. Export credit terms
 Export credit terms refer to the specific conditions under
which an exporter agrees
to sell goods or services to an importer, detailing the payment terms, timeframe, and
methods agreed upon in an international transaction.
 These terms are crucial in determining the financial arr
angements between the
exporter and the importer.
 Here are some common export credit terms:
1. Open Account:
 Description: The exporter ships goods to the importer wit
hout demanding payment
at the time of shipment.
 Terms: Payment is expected after the agreed-upon period
, typically ranging from 30
to 90 days after shipment or receipt of goods.
 Risk: Higher risk for the exporter, as payment depends on
the importer's willingness
and ability to pay.
2. Advance Payment:
 Description: The exporter requires payment from the importer before shipment or
delivery of goods.
 Terms: Payment is made in full or partially before the exporter ships the goods.
 Risk: Reduces risk for the exporter, but the importer may face higher risk if the
goods are not as expected.
3. Documentary Collection:
 Description: The exporter ships goods and provides shipping documents to a bank,
which forwards these documents to the importer's bank with instructions for
payment.
 Terms: The importer receives shipping documents and pays upon delivery or after
accepting the terms of the documents.
 Risk: Moderate risk for both parties. Payment is made against documents, but
there's no bank guarantee of payment like a letter of credit.
4. Letter of Credit (L/C):
 Description: An agreement in which a bank guarantees payment to the exporter
upon presentation of compliant shipping documents.
 Terms: The importer's bank issues an L/C in favor of the exporter, ensuring
payment when compliant documents are presented.
 Risk: Reduces risk for both parties. Payment is assured for the exporter if
documents are in accordance with the L/C terms.
5. Consignment:
 Description: The exporter ships goods to the importer, retaining ownership until
the goods are sold by the importer.
 Terms: The exporter gets paid when the importer sells the goods, which may take
place after a certain period.
 Risk: Lower risk for the importer, as they pay only after selling the goods.
However, the exporter faces risks associated with delayed payment.
 6.6. Transfer pricing
 Transfer pricing refers to the pricing strategy used for transactions
between different entities within the same multinational company
or group.
 These transactions often involve the transfer of goods, services,
intellectual property, or loans between subsidiaries, divisions, or
branches in different countries.
 The responsibilities of the buyer and the seller should be spelled
out as they relate to what is and what is not included in the price
quotation and when ownership of goods passes from seller to
buyer.
 Key Aspects of Transfer Pricing:
Purpose: It's used to determine the prices of intercompany transactions,
ensuring they are at arm's length, similar to transactions between unrelated
entities in an open market.
Arm's Length Principle: The concept implies that transactions between
related entities should reflect the fair market value that unrelated parties
would agree upon in similar circumstances.
Types of Transactions: Transfer pricing applies to various transactions like
the sale of goods, services, licensing of intellectual property, loans, etc.
Complexities: Determining transfer prices can be complex due to variations
in tax regulations, differing accounting standards, and fluctuating market
conditions across countries
Methods of Transfer Pricing:
1. Comparable Uncontrolled Price (CUP): Compares prices of similar goods
or services in an uncontrolled market setting to determine the transfer price.
2.Cost Plus Method: Adds a markup (usually a percentage) to the cost
incurred by the selling entity to set the transfer price.
3.Resale Price Method: Sets the transfer price based on the resale price of the
product, deducting an appropriate gross margin.
4.Profit Split Method: Calculates the profits from a transaction and splits
them between the entities based on their contribution to generating those
profits.
5.Transactional Net Margin Method (TNMM): Compares the net profit
margins from related party transactions to those from independent parties to
determine the transfer price.
 Incoterms, or International Commercial Terms, are
standardized terms used in international trade to define the
responsibilities and obligations of buyers and sellers regarding
the delivery of goods.
 There are four main categories of Incoterms:
1. E Term (Departure):
 EXW - Ex Works: The seller's responsibility is to make the
goods available at their premises.
 The buyer assumes all risks and costs from this point onwards,
including transportation and customs clearance.
2. F Terms (Main Carriage Unpaid):
 FCA - Free Carrier: The seller delivers the goods
to a specified
location, usually their premises or a carrier appointed by the buyer. The
buyer bears all risks and costs after the goods are delivered to the carrier.
3. C Terms (Main Carriage Paid):
 CPT - Carriage Paid To: The seller is responsible fo
r delivering the
goods to a named place of destination, arranging and paying for
transportation. Once delivered to the carrier, the risk transfers to the
buyer.
 CIP - Carriage and Insurance Paid To: Similar to CP
T, but the seller
also has to procure insurance against the buyer's risk of loss or damage
to the goods during transit.
4. D Terms (Arrival):
 DAT - Delivered at Terminal: The seller is responsible for delivering the
goods, unloaded, at a named terminal at the destination. The buyer is
responsible for customs clearance and assumes risk from this point.
 DAP - Delivered at Place: The seller is responsible for delivering the goods
to a named place at the destination. The buyer is responsible for customs
clearance and assumes risk from this point.
 DPU - Delivered at Place Unloaded (replaces DAT): The seller is
responsible for delivering the goods unloaded at a named place at the
destination. The buyer assumes risk after unloading.
 DDP - Delivered Duty Paid: The seller is responsible for delivering the
goods to the buyer's premises, cleared for import. The seller assumes all risks
and costs, including duties and taxes.
 6.7. Bartering and counter trading versus domestic pricing
strategies
What Is Countertrade?
 Countertrade, one of the oldest forms of trade, is a government mandate to pay for
goods and services with something other than cash.
 It is a practice which requires a seller, as a condition of sale, to commit contractually
to reciprocate and undertake certain business initiatives that compensate and benefit
the buyer.
 In short, a goods-for-goods deal is countertrade.
 Countertrade is a reciprocal form of international trade in which goods or services are
exchanged for other goods or services rather than for hard currency.
 This type of international trade is more common in developing countries with limited
foreign exchange or credit facilities.
 Countertrade can be classified into three broad categories: barter, counter purchase,
and offset.
 In any form, countertrade provides a mechanism for countries
with limited access to liquid funds to exchange goods and
services with other nations.
 Countertrade is part of an overall import and export strategy
that ensures a country with limited domestic resources has
access to needed items and raw materials.
 Additionally, it provides the exporting nation with an
opportunity to offer goods and services in a larger
international market, promoting growth within its industries.
Barter
 Barter, possibly the simplest of the many types of countertrade, is a
one-time direct and simultaneous exchange of products of equal
value (i.e., one product for another).
 By removing money as a medium of exchange.
 Bartering is the oldest countertrade arrangement.
 It is the direct exchange of goods and services with an equivalent
value but with no cash settlement.
 The bartering transaction is referred to as a trade.
 For example, a bag of nuts might be exchanged for coffee beans or
meat.
Counter purchase
 Under a counter purchase arrangement, the exporter sells goods or services to an
importer and agrees to also purchase other goods from the importer within a specified
period.
 Unlike bartering, exporters entering into a counter purchase arrangement must use a
trading firm to sell the goods they purchase and will not use the goods themselves.
Offset
 In an offset arrangement, the seller assists in marketing products manufactured by the
buying country or allows part of the exported product's assembly to be carried out by
manufacturers in the buying country.
 This practice is common in aerospace, defense and certain infrastructure industries.
Offsetting is also more common for larger, more expensive items.
 An offset arrangement may also be referred to as industrial participation or industrial
cooperation.
 Bartering and countertrade are alternative methods of trade often utilized in
international transactions, especially when dealing with countries facing currency
restrictions, economic challenges, or when conventional payment methods are
limited.
Bartering and Countertrade:
1.Nature:
1.Bartering: Involves the direct exchange of goods or services between parties
without the use of money.
2.Countertrade: Refers to various trade agreements where goods are exchanged for
other goods, services, or a combination thereof.
2.Currency Involvement:
1.Bartering: No currency is used; goods or services are exchanged directly.
2.Countertrade: Can involve partial or full payment in goods or services rather than
cash.
3.International Focus:
1.Bartering and Countertrade: Typically associated with international trade, used
when conventional payment methods or currency limitations are issues.
4.Types:
1.Bartering: Direct exchange of goods or services without a monetary component.
2.Countertrade: Includes various methods like barter, buyback, offset, and switch
trading.
 d o f
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 CHAPTER SEVEN
DISTRIBUTION STRATEGIE
INTERNATIONAL CONTEXT
7.1. Meaning of logistic
7.2. Accessing foreign market channels of distribution
7.3. Use of Free ports
7.4. PLC and distribution
Learning Objectives
After completing the study of this chapter, you are expected
to:
 Describe types of intermediaries
 Know determinants of channel types
 Differentiate between direct channel and indirect channel
 Define free port
7.1. Meaning of logistic

The distribution process: physical handling and

distribution of goods, the passage of ownership.
Logistics: part of supply chain management that plans,
implements, and controls the efficient, effective forward
and reverse flow and storage of g/s and information in
international corporation.
supply chain: Outbound (downstream) & Inbound
(Upstream) Logistics and customer value delivery
system
 Logistics refers to the detailed coordination, organization, and
management of various activities involved in the movement,
storage, and handling of goods, materials, information, and
resources from their point of origin to the point of
consumption or final destination.
 It encompasses a broad range of processes and activities
within supply chains and operations, aiming to ensure
efficiency, cost-effectiveness, and timely delivery of goods or
services.
 Logistics involves tasks such as transportation, warehousing,
inventory management, packaging, distribution, and often
incorporates elements of procurement, production planning,
and information systems.
 The goal is to optimize these processes to meet customer
demands while minimizing costs and maximizing resource
utilization.
 Effective logistics management is crucial for businesses to
maintain competitive advantages, streamline operations, and
deliver products or services in a timely and efficient manner.
SELECTING CHANNELS OF INTERNATIONAL DISTRIBUTION
 Selection of a distribution channel is one of the most crucial decisions a
firm has to make while entering international markets.
 A firm may use the following criteria for the selection of channels of
international distribution :
 International marketing objectives of the firm
 Financial resource  Channel availability in the
 Organizational structure target market
 Experience in international markets  Speed of market entry required
 Legal implications
 Firm's marketing image
 Specific product need, if any
 Existing marketing channels of the firm.
 Synergy with other elements of
marketing mix
A firm has the following alternative channel strategies
in terms of market coverage.
1) Exclusive Distribution : The firm opts for a single or a few
market intermediaries.
2) Selection Distribution: The firm has limited coverage of the
market in terms of area and has a select number of
intermediaries.
3) Intensive Distribution: The firm deals with as many
numbers of intermediaries and outlets in the market as
possible.
TYPES OF INTERNATIONAL DISTRIBUTION CHANNELS
The International Distribution channels may broadly be divided into two categories
namely direct and indirect channels,

Indirect Channels :
 Indirect channels, an international marketing firm has to deal with domestic agents
or market intermediaries without any direct dealing with a foreign based firm.
Indirect marketing channels offer the following benefits
 Little investment and marketing experience.
 Provide low cost opportunity to test products in the international market.

However, indirect channels have certain limitations, which are as follows:

 Feedback from the ultimate customers is limited.
 The firm get little insight into the market even after operating for several years.
 The firm does not develop its own contacts with the buyers in the overseas market.
Advantages of Indirect Channels
 It is most appropriate for new entrant in the international market
 It is appropriate for those firms' having limited financial resources
 Distribution cost may be reduced
 Middlemen may provide better services to customers
 Customers acceptance may be increased
 Marketing company can take full advantage of goodwill & established image itself

Disadvantages of Indirect Channels

 It increases the selling price of products
 Middleman may not be loyal to marketing company
 It reduces the profit of exporter
 It is not appropriate for very high priced
 International marketing company remains ignorant about foreign market. So role of
firms becomes limited.
Direct Channels -
 Direct marketing channels involve selling of goods directly to a
market intermediary or the end users or customers in overseas
markets.
 The major benefits of using direct channels are as follows :
 The firm develops a closer relationship with overseas buyers as it
comes in direct contact with them.
 The firm develops an Insight in to the markets of operations which
helps in restructuring its marketing strategies as peer the market
requirements.
 The firm's control over the export process is greater in direct
marketing channels compared to indirect marketing channels.
Advantages Disadvantages
 Shortages channel  Increase the distribution costs.
 Firms bear all promotional
 Beneficial in highly technical product
expenditure
 Appropriate if product selling on very high price.
 It requires huge financial
 Appropriate number of customers is limited.
resources so it is inappropriate
 Profit is increase because profit margin of 
It increases responsibilities of
middleman is nil management.
 Full control may be established  It is very difficult tasks to
 Firm may take optimum use of its spare financial perform manufacturing & selling

resources. simultaneously.

 Products may be quickly delivered

 It is the best method to sell the product.
 The firm remains in direct touch of the foreign
customers.
7.2. Accessing foreign market channels of distribution
 Accessing foreign market channels of distribution involves understanding and
navigating the various routes and methods through which products or services reach
consumers in different countries.
 Here's a guide to accessing these distribution channels:
1. Market Research and Analysis:
 Understand Market Dynamics: Conduct thorough research to comprehend the
local market structure, consumer behavior, preferences, and existing distribution
channels.
2. Selection of Distribution Channels:
 Direct Sales: Selling directly to consumers through e-commerce, company-owned
stores, or sales representatives.
 Indirect Sales: Using intermediaries like agents, distributors, wholesalers, retailers,
or franchisees.
3. Types of Distribution Channels:
 Agents and Distributors: Utilize local agents or distributors who have
established networks and relationships within the market.
 Retailers and Wholesalers: Partner with local retailers or wholesalers to
distribute products to end consumers.
 E-commerce Platforms: Utilize online marketplaces or create an e-
commerce presence to reach a broader audience.
4. Partner Selection and Management:
 Screen and Select Partners: Choose partners based on their market
knowledge, distribution capabilities, reputation, and alignment with your
brand values.
 Agreements and Contracts: Establish clear agreements outlining roles,
responsibilities, pricing, and termination clauses.
5. Adaptation and Localization:
 Adapt Products or Services: Modify offerings to align with local preferences, regulations,
packaging, labeling, and language requirements.
 Cultural Sensitivity: Respect local cultural nuances and practices when designing marketing
and distribution strategies.
6. Regulatory Compliance and Logistics:
 Understand Regulations: Comply with import/export regulations, tariffs, taxes, and legal
requirements in the target market.
 Logistics and Supply Chain: Develop efficient logistics and supply chain management to
ensure timely delivery and minimize costs.
7. Market Entry Strategies:
 Joint Ventures or Partnerships: Collaborate with local companies to access their
distribution networks and local expertise.
 Franchising: Expand through franchising agreements to utilize local entrepreneurs and their
market knowledge.
 Licensing: Grant licenses to local entities to manufacture or distribute products under your
brand.
 7.3. Use of Free ports
 Free ports, also known as free trade zones, are designated
areas within a country that operate under different
economic regulations than the rest of the country.
 They are established to promote economic activity, trade,
and investment by offering various incentives and
benefits to businesses and investors.
 The duty-free advantages of free ports benefit
manufacturing businesses with a focus on exports.
 Plants inside free ports can import raw materials or
components duty-free and process them into finished
products.
 The resulting goods can then be exported, having incurred
no customs for their foreign inputs.
 This means that businesses operating inside designated
areas in and around the port may manufacture goods using
these imports, before exporting them again without paying
the tariffs and benefit from simplified customs procedures.
Features and Functions:
 Customs Benefits: Free ports offer exemptions or reductions in customs duties
and taxes on imported goods, encouraging international trade by making it more
cost-effective to store, process, or re-export goods.
 Logistics and Trade Facilitation: These zones often have superior
infrastructure, such as advanced transportation facilities, warehousing, and
logistics services, making them attractive for businesses involved in global trade.
 Economic Incentives: Free ports may provide tax advantages, including
exemptions or reductions in corporate taxes, income taxes, or VAT (value-added
tax), fostering an environment conducive to business growth and investment.
 Promotion of Innovation: Some free ports encourage innovation and research
by providing a supportive environment for technology development, startups,
and collaboration between businesses and research institutions.
Benefits:
 Boost to Trade: Free ports stimulate international trade by simplifying
customs procedures, reducing administrative burdens, and offering cost
savings on imports and exports.
 Economic Growth: They can attract foreign direct investment (FDI)
and domestic businesses, fostering economic growth, job creation, and
industrial development within the designated area.
 Strategic Advantage: Businesses operating in free ports can
strategically position themselves to access global markets more
efficiently, take advantage of logistical infrastructure, and optimize
supply chain operations.
Challenges and Concerns:
 Potential for Misuse: There are concerns that free ports can be
misused for tax evasion, money laundering, or smuggling due to
relaxed regulatory oversight.
 Impact on Local Economy: Some argue that the benefits provided
to businesses within free ports might not necessarily benefit the
broader local economy, leading to disparities between the zones and
surrounding areas.
 Regulatory Compliance: Businesses operating in free ports must
still comply with international trade laws, customs regulations, and
local legal requirements, which can sometimes be complex.
 7.4. PLC and distribution
 The Product Life Cycle (PLC) refers to the stages a product goes
through from its introduction to the market until its eventual decline.
 Distribution plays a pivotal role in each phase of the product life cycle:
Introduction Stage:
 Distribution Focus: Limited distribution channels initially to control
costs and manage market introduction.
 Strategies: Concentrate on selective distribution through specific
channels or geographic regions to create awareness and generate
demand.
 Challenges: Establishing distribution networks and gaining initial
market acceptance.
Growth Stage:
 Distribution Expansion: Increase distribution channels to reach a wider customer
base and cater to growing demand.
 Strategies: Expand distribution networks aggressively, add new channels, and
penetrate new markets or regions.
 Focus: Strengthening the supply chain to meet increasing demand and maintain
product availability.
Maturity Stage:
 Optimization: Optimize distribution channels for efficiency and cost-
effectiveness as competition intensifies.
 Strategies: Rationalize distribution channels, eliminate less profitable outlets, and
focus on high-performing channels.
 Market Coverage: Widespread distribution to maintain market share and defend
against competitors.
Decline Stage:
 Consolidation: Reduce distribution channels and focus efforts on profitable
segments.
 Strategies: Streamline distribution networks, minimize costs, and consider phasing
out unprofitable channels.
 Market Exit: Prepare for the withdrawal of the product from certain markets or
channels if it becomes economically unviable.
Distribution Challenges across PLC:
 Adaptation: Distribution strategies need adaptation across PLC stages to match
changing market demands and product positioning.
 Efficiency vs. Expansion: Balancing the need for efficient distribution with the
imperative to expand during growth stages.
 Market Changes: Adjusting distribution channels in response to market shifts,
consumer behavior, and competitive dynamics.
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