What is International Marketing? "International Marketing is the performance of business activities that direct the flow of a company's goods and services to consumers or users in more than one nation for a profit. ("Cateora and Ghauri (1999)) International marketing can be defined as "marketing carried on across national boundaries". International marketing has also been defined as ' the performance of business activities that direct the flow of goods and services to consumers or users in more than in one nation. "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 objectivesWhy go International? Profit Motive Government Policies Monopoly Power Domestic Market constraint Spin off benefits CompetitionDifference between international marketing and domestic marketing? Political Entities Different Legal Systems Cultural Differences Different Monetary Systems:Each country has its own monetary system and the exchange value of each country's currency is different from that of the other. The exchange rates between currencies fluctuate every day. In case of domestic marketing there is only one currency prevailing in the country. Differences in the Marketing infrastructure Trade Restrictions: Trade restrictions, particularly import controls are a very important problem which an international marketer faces. Transport Cost Procedures and Documentations Degree of Risk Stability in Business EnvironmentImportance of global marketingA) Importance from the consumer's point of view: Consumption of unpronounced goods Consumption of goods at a low price Enjoying benefits of competition Consumption of new products Increase in consumptionB) Importance from the producer's point of view: Export of surplus production Expansion of market in foreign countries Production of goods at a low cost Increase in production More profitable Reduce business risk Reduce costC) Importance from economic point of view: Increases total production Increases export earnings Challenging natural calamities knowledge and cultural progress Increases international peace and assistantship Extension of industry Export of unusual goods Optimum utilization of natural resources Progress in technological knowledge Image development.International Trade

International trade is the exchange of capital, goods, and services across international borders or territories. Trades mainly have two components EXPORTS and IMPORTS.

Why trade theories? The first purpose of trade theory is to explain observed trade. That is, we would like to be able to start with information about the characteristics of trading countries, and from those characteristics deduce what they actually trade, and be right. Thats why we have a variety of models that postulate different kinds of characteristics as the reasons for trade. Secondly, to know about the effects of trade on the domestic economy. A third purpose is to evaluate different kinds of policy.

Trade theoriesa. Mercantilist Theory Mercantilist theory proposed that a country should try to achieve a favorable balance of trade (export more than it imports) Mercantilism was at its height in the 17th and 18th centuries. The term Merchantilism was coined by the Marquis de Mirabeau in 1763, and was popularised by Adam Smith in 1776. Neomercantilist policy also seeks a favorable balance of trade, but its purpose is to achieve some social or political objective A nations wealth depends on accumulated treasure Gold and silver are the currency of trade Theory says you should have a trade surplus. Maximize export through subsidies. Minimize imports through tariffs and quotas Flaw: restrictions, impaired growthb. Theory of Absolute Advantage Suggests specialization through free trade because consumers will be better off if they can buy foreign-made products that are priced more cheaply than domestic ones A country may produce goods more efficiently because of a natural advantage or because of an acquired advantage Adam Smith: Wealth of Nations (1776) argued: Capability of one country to produce more of a product with the same amount of input than another country A country should produce only goods where it is most efficient, and trade for those goods where it is not efficient Trade between countries is, therefore, beneficial Assumes there is an absolute balance among nationsc. Theory of Comparative Advantage Also proposes specialization through free trade because it says that total global output can increase even if one country has an absolute advantage in the production of all products.

d. Theories of Specialization Both absolute and comparative advantage theories are based on specialization

e. Product Life Cycle (PLC) Theory

f. The Porter Diamond theory Four conditions as important for competitive superiority: 1) demand conditions2) factor conditions3) related and supporting industries4) firm strategy, structure, and rivalry

g. Trade Pattern Theories How much a country will depend on trade if it follows a free trade policy What types of products countries will export and import With which partners countries will primarily trade h. Theory Of Country Size Countries with large land areas are apt to have varied climates and natural resources. They are generally more self-sufficient than smaller countries. Large countries production and market centers are more likely to be located at a greater distance from other countries, raising the transport costs of foreign tradei. Factor-Proportions Theory A countrys relative endowments of land, labor, and capital will determine the relative costs of these factors Factor costs will determine which goods the country can produce most efficiently j. Country-similarity Theory Most trade today occurs among high-income countries because they share similar market segments and because they produce and consume so much more than emerging economies Much of the pattern of two-way trading partners may be explained by cultural similarity between the countries, political and economic agreements, and by the distance between them TRADE BARRIERS A trade barrier is defined as any hurdle, impediment or road block that hampers the smooth flow of goods, services and payments from one destination to another. They arise from the rules and regulations governing trade either from home country or host country or intermediary. Trade barriers are man-made obstacles to the free movement of goods between different countries and impose artificial restrictions on trading activities between countries TRADE BARRIERS OBJECTIVES To protect domestic industries from foreign goods To promote new industries and research & development activities by providing a home market for domestic industries To maintain favorable balance of payment To conserve foreign exchange reserves of the country by restricting imports from foreign countries To protect the national economy from dumping by other countries with surplus production To mobilize additional revenue by imposing heavy duties on imports. This also restricts conspicuous consumption within country To counteract trade barriers imposed by other countries To encourage domestic production in the domestic market and thereby make the country strong and efficientTYPES OF TRADE BARRIERSTrade barriers are classified as tariff barriers and non-tariff barriers. A country may use both tariff and non-tariff barriers in order to restrict the entry of foreign goods.a. TARIFF BARRIER A tariff barrier is a levy collected on goods when they enter a domestic tariff area through customs. Tariff refers to the duties imposed on internationally traded commodities when they cross national boundaries and may be in the form of heavy taxes or custom duties on imports, so as to discourage their entry into the home country for marketing purposes. Tariffs enhance the price of the imported goods, thereby restricting their sales as well as their import. Governments impose tariffs only on imports and not on exports as they are interested in export promotion The aim of a tariff is thus to raise the prices of imported goods in domestic markets, reduce their demand and thereby discourage their importsCLASSIFICATION OF TARIFFS(1) On the basis of origin and destination of goods crossing national boundaries Export duty: an export duty is levied by the country of origin on a commodity designated for use in other countries. The majority of finished goods do not attract export duty. Such duties are normally imposed on the primary products in order to conserve them for domestic industries. In India, export duty is levied on oilseeds, coffee and onions, etc. Import duty: an import duty is a tax imposed on a commodity originating in another country by the country for which the product is designated. The purpose of heavy import duties is to earn revenue, to make imports costly and to provide protection to domestic industries. Transit duty: a transit duty is a tax imposed on a commodity when it crosses the national frontier between the originating country and the country which it is consigned to.(2) On the basis of quantification of tariffs Specific duty: a specific duty is a flat sum collected on physical unit of the commodity imported. Here, the rate of the duty is fixed and is collected on each unit imported. For example, rs 800 on each tv set or washing machine or rs 3000 per metric ton on cold rolled iron coils. Ad-valorem duty: this duty is imposed at a fixed % on the value of a commodity imported. Here the value of the commodity on the invoice is taken as the base for calculation of the duty e.g., 3% ad-valorem duty on the c&f value of the goods imported. Compound duty : a tariff is referred to a compound duty when the commodity is subject to both specific and ad-valorem duty

(3) On the basis of the purpose they serve Reverse tariff : it aims at collecting substantial revenue for the government, but does not really obstruct the flow of imported goods. Here, the duty is imposed on items of mass consumption, but the rate of duty is low. Protective tariff: it aims at giving protection to home industries by restricting or eliminating competition. Protective tariffs are usually high so as to reduce imports Anti-dumping duty: dumping is the commercial practice of selling goods in foreign markets at a price below their normal cost or even below their marginal cost so as to capture foreign markets. Countervailing duty: such duties are similar to anti-dumping duties but are not so severe. They are imposed to nullify the benefits offered through cash assistance or subsidies by the foreign country to its manufacturers. The rate of such duty will be proportional to the extent of cash assistance or subsidy granted.(4) On the basis of trade relations Single column tariff : under this system, tariff rates are fixed for various commodities and the same rates are made applicable to imports from all other countries. Double column tariff : under this sysytem, two rates of duty are fixed on all or some commodities. The lower rate is made applicable to a friendly country or to a country with which the importing country has a bilateral trade agreement. The higher rate is applicable to all other countries. Triple column tariff : here three different rates of duties are fixed. They are general tariff, international tariff and prefential tariff. The first two categories have minimum variance but the preferential tariff is substantially lower than the general tariff and is applicable to friendly countries where there is a bilateral relationship.Benefits of tariff to the home country Imports from abroad are discouraged or even eliminated to a considerable extent. Protection is given to the home industries and manufacturing sector. This facilitates an increase in domestic production. Consumption of foreign goods is reduced to a minimum and the attraction for imported goods is brought down. Tariff brings in substantial revenue to the government. In addition it also creates employment opportunities within the country by promoting domestic industries. Tariffs aim to reduce the deficit in the balance of trade and balance of payment of a country.Non-tariff barriers(1) QUOTA SYSTEMUnder this system, the quantity of a commodity permitted to be imported from various countries during a given period is fixed in advance. Such quotas are usually administered by requiring importers to have licences to import a particular commodity. Imports are not allowed over and above a specific limit. The types of quotas are : Tariff quota : it combines the features oof the tariff as well as the quantity here, the imports of a commodity upto a specified volume are allowed duty free or at a special low rate of duty. Imports in excess of this limit are subject to a higher rate of duty Unilateral quota : in a unilateral quota system, a country fixes its own ceiling on the import of a particular item. Bilateral quota : in a bilateral quota, the quantity to be imported is decided in advance, but it is the result of negotiations between the country importing the goods and the country exporting them. Mixing quota : under the mixing quota, the producers are obliged to utilize a certain % of domestic raw materials in manufacturing the finished products.(2) IMPORT LICENSING In this system, imports are allowed under license. Importers have to approach the licensing authorities for permission to import certain commodities. Foreign exchange for imports is provided against license. Such import licenses are the practice in many countries. This method is used to control the quantity of imports(3) CONSULAR FORMALITIES. Some importing countries impose strict rules regarding the consular documents necessary to import goods. Such documents include import certificates, certificates of origin and certified consular invoices. Penalties are imposed for non-compliance of such documentation formalities. The purpose of consular formalities is to restrict imports to some extent and prevent free imports of commodities that are not necessary.(4) PREFERENTIAL TREATMENT THROUGH TRADING BLOCS Some countries form regional groups and offer special concessions and preference to member countries. As a result trade is developed among the member countries and allows advantages to all member countries. On the other hand, it can cause considerable loss to nonmember countries, as a trading bloc acts as a trade barrier.(5) CUSTOMS REGULATIONS Customs regulations and administrative regulations are very complicated in many countries. There are a number of commodities acts, pertaining to the movement of drugs, minerals, bullion, etc. Restrictions under such acts are useful to curtail imports. Tax administration also acts as barrier to free marketing amongst countries.(6) STATE TRADING State trading refers to import-export activities conducted by the government or a government agency. State trading is useful to restrict imports as the final decision is taken by the government. Such state trading acts as a barrier, restricting the freedom of private parties.(7) FOREIGN EXCHANGE REGULATIONS Countries impose various restrictions on the use of foreign exchange earned through imports. Such restrictions have the following objectives: (a) to restrict the demand for foreign exchange and to use the foreign exchange reserves in the best possible manner. (b) to check the flow of capital. (c)to maintain the value of exchange rates. Under such regulations, the foreign exchange earned should be surrendered to the government. The government provides foreign exchange to the businessmen as per priorties that are fixed periodically(8) HEALTH & SAFETY MEASURES Many countries have specific rules regarding health & safety regulations, which are applicable to imports. Such health & safety measures are mainly applicable to raw materials and food items. Imports are not allowed if the regulations are not followed properly.Indias foreign trade since independence On the eve of Independence in 1947, foreign trade of India was typical of a colonial and agricultural economy. Trade relations were mainly confined to Britain and other Commonwealth countries. Exports consisted chiefly of raw materials and plantation crops while imports composed of light consumer goods and other manufactures. Over the last 60 years, Indias foreign trade has undergone a complete change in terms of composition and direction. The exports cover a wide range of traditional and non-traditional items while imports consist mainly of capital goods, petroleum products, raw materials, and chemicals to meet the ever-increasing needs of a developing and diversifying economy. For about 40 years (1950-90, foreign trade of India suffered from strict bureaucratic and discretionary controls. Similarly, foreign exchange transactions were tightly controlled by the Government and the Reserve Bank of India. From 1947 till mid-1990s, India, with some exceptions, always faced deficit in its balance of payments, i.e. Imports always exceeded exports. This was characteristic of a developing country struggling for reconstruction and modernization of its economy. Imports galloped because of increasing requirements of capital goods, defence equipment, petroleum products, and raw materials. Exports remained relatively sluggish owing to lack of exportable surplus, competition in the international market, inflation at home, and increasing protectionist policies of the developed countries. Beginning mid-1991, the Government of India introduced a series of reforms to liberalise and globalise the Indian economy. Reforms in the external sector of India were intended to integrate the Indian economy with the world economy. Indias approach to openness has been cautious, contingent on achieving certain preconditions to ensure an orderly process of liberalization and ensuring macroeconomic stability. This approach has been vindicated in recent years with the growing incidence of financial crises elsewhere in the world. All the same, the policy regime in India in regard to liberalization of the foreign sector has witnessed very significant change. In recognition of the growing importance of the foreign trade in driving the economy, this book describes and examines changes in the pattern of Indias foreign trade since Independence in 1947, with focus on post-1991 developments. It addresses issues related to trade policy, export strategy, tariff policy, current account dynamics, exchange rate management, foreign exchange reserves, capital account liberalization, external debt and aid, foreign investments (both direct and portfolio), and WTO.