topic 5- instructions

7/29/2019 Topic 5- Instructions

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TOPIC 5: International Marketing Decisions

IntroductionThis topic introduces the students to various challenging and strategic decisions to be taken in

international marketing.

ObjectivesBy the end of this topic, you will be able to;

1. Discuss the strategic decisions necessary in international marketing.2. Explain the important environmental analysis model for international marketing concept.3. Evaluate the Social, Legal, Economical, Political and Technological influences in International Marketing.4. Highlight the importance of Multi National Companies ( MNCs).

Your Learning ActivityCore Task

Read the topic notes on International Marketing Decisions and participate in the discussion in the topic

discussion forum.

AssessmentThe discussion will be graded

DiscussionGiving an example in each case , discuss the SLEPT (Social Legal, Economical Political and Technological)

influences in International Marketing.


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TOPIC NOTES

TOPIC 5: INTERNATIONAL MARKETING DECISIONS

International Marketing presents a more complex task than domestic marketing because ofthe uncontrollable international marketing environment and their heterogeneity. Hence,

though the basic marketing decisions to be made are similar in international and domesticmarketing, making international marketing decision is generally more challenging. Ininternational marketing, a company has to make, broadly five strategic decisions.

1. International marketing decision: The first decision a company has to make, is whetherto take up international marketing or not. This decision is based on a serious consideration ofa number of important factors, such as the present and future overseas opportunities,present and future domestic market opportunities, the resources of the company in terms ofskills, experience, production and marketing capabilities and finance, company objectives etc.

2. Market Selection Decision: Once it has been decided to do international marketing,the next important step is the selection of the most appropriate market. For this purpose, a

thorough study of potentials of the various overseas markets and their respective marketingenvironment is essential. Company resources and objectives may not permita company to do business in all the overseas markets. Further, some markets are notpotentially good, and it may be suicidal to waste company resources in such markets. Aproper selection of the overseas markets therefore is very important.

3. Entry and Operating Decisions: Once the market selection decision has been made,the next important task is to determine the appropriate mode of entering the foreign marketsuch as export, contract manufacturing, direct manufacturing plant etc. on the basis of thisdecision, proper arrangements must be made to continue the activities of marketing.

4. Marketing Mix Decision: As in the domestic marketing, the success highly depends upon

the applicability of proper Marketing Mix, in International marketing also; MarketingMix plays a major role. The elements of marketing mix product, promotion, price andphysical distribution should be suitably designed so that they may be adapted to thecharacteristics of the overseas market.

INTERNAL AND EXTERNAL INTERNATIONAL MARKETING CONCEPT

The key difference between domestic and international marketing is the multi-dimensionality and complexity of foreign country markets a country may operate in.Knowledge and awareness of these complexity and implications for internationalmarketing is a must. The important environmental analysis model for internationalmarketing concept may be explained as: SLEPT(Social, Legal, Economical, Political and

Technological)influences.

1. SOCIAL AND CULTURAL INFLUENCES

a. SOCIAL: Difference in social conditions, religion and culture determines whether the

customers are similar or dissimilar across the globe. McDonalds had to understand the samein India when they had to enter such huge market with its burger. In 1995 / 6 Indias vegetarian


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market was 40%. These vegetarians preferred that the burger should be made in a clean andseparate kitchen. Also their love for spicy food was required to be considered. Among the non-veg. eaters, their disliking towards pork and beef among mean eater was very well known.McDonalds realize that they need to serve Indians more than just burger, a burger thatsatisfies Indians taste.

b. CULTURE: Culture describes the kind of behaviour considered acceptable in society. Theprescriptive characteristic of culture simplifies a consumers decision-making process bylimiting product choices to those which are socially acceptable. The same feature createsproblems for those products, which are not in time with culture. Coca Cola had to withdraw its 2 liters bottle from Spain market as Spaniards were nothaving refrigerator having larger compartments. Johnsons floor wax was doomed to failure in Japan as it made the wooden floors veryslippery and Johnson failed to take into account the custom of not wearing shoes insidethe home. Coca Cola when introduced in china the name sounded like KOOKE KOULA meaningthirsty mouth, full of candle wax. So they had to change the name to KEE KOU KEELEwhich means joyful taste and happiness.

In Japan, White face is associated with mask of death. The size of refrigerators in USA is very big compared to Indian refrigerators, as womenthere believe in storing vegetables and other eatable items, which can be consumed tilllonger period of time.

Even the value and beliefs associated with colour vary significantly between different cultures.Blue considered as feminine and worm in Holland, is seen as masculine and cold in Sweden.Green is a favorite color in Muslims, but in Malaysia, it is associated with illness. White isassociated with death and mourning in China, Korea and in some traditions in India. The samecolour expresses happiness and is colou`

r of wedding dress of the bride in English country. Such differences suggest that samemarketing mix cannot be used for all markets.

2. Legal Environment:Legal systems vary both in content and interpretations. A successful marketer will modify hismarketing strategies in accordance with such variations. Laws affect the marketingmix in terms of products, price, distribution and promotional activities quite dramatically.For many firms such laws are burdensome regulations. For example in Germanyenvironmental laws mean a firm is responsible for the retrieval and disposal of packagingwaste it creates and must produce packaging which is recyclable. In Canada, if the informationdoes not appear in both French and English, the goods may be confiscated.

An international Marketer should learn about the advertising, packaging, and labelingregulations in foreign markets. India has been seen by many firms to be an attractiveemerging market having many legal difficulties, bureaucratic delays and lots of official

procedures. Many international business enterprises have found it difficult to break suchhard structure. Foreign companies are often viewed with suspicion. However, some firmshave been innovative in overcoming difficulties.

3. ECONOMIC ENVIRONMENT:The economic situation varies from country to country. There are variations in the levels ofincome and living standards, interpersonal distribution of income, economic organization,occupational structure and so on. These factors affect market conditions. The level ofdevelopment in a country and the nature of its economy will indicate the type of products that


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may be marketed in it and the marketing strategy that may be employed in it. In high incomecountries there is a good market for a large variety of consumer goods. But in low-incomecountries where a large segment does not have sufficient income even for their basicnecessities, the situation is quite different.

4. POLITICAL ENVIRONMENT:

The political environment of international marketing includes any national or internationalpolitical factor that can affect the organizations operations or its decision-making. Thetendencies of governments to change regulations can seriously affect an international strategyproviding both opportunities and threat. An unstable political climate can expose firms to manycommercial, economic and legal risks. Political risk is defined as being: A risk due to asudden or gradual change in a local political environment that is disadvantageous to foreignfirms and markets.

5. TECHNOLOGICAL ENVIRONMENT:The Technological Environment is perhaps the most dramatic force now shaping ourdestiny. An international marketer should very well keep in his mind the change takingplace in technology and thereby affecting the product. New technologies create new

markets and opportunities. However, every new technology replaces an old technology.Xerography hurt carbon-paper industry, computer hurt typewriter industry, and examplesare so on. when any international marketer ignores or forgets new technologies, hisbusiness has to decline. Thus, the marketer should watch the technological environmentclosely. Companies that do not keep up with technological changes, soon find theirproducts outdated. The United States leads the world in research and developmentspending. Scientists today are researching a wide range of promising new products andservices ranging from solar energy, electric car, and cancer cures. All these researchesgive a marketer an opportunity to set his products as per the current desired standard. Thechallenge in each case is not only technical but also commercial which meansmanufacturing products that can be afforded by mass customers.

MULTINATIONAL CORPORATIONS (MNCs)

A Multinational Corporation is a business unit which operates simultaneously in different partsof the world either by manufacturing or marketing or both by keeping its headquarterelsewhere as a strategic nerve centre. Although MNC took birth in the early 1860s, it wasafter the Second World War that the Multinationals have grown rapidly. Generally, an MNCmeets five criteria:1. It operates in many countries at different levels of economic development.2. Its local subsidiaries are managed by nationals.3. It maintains complete industrial organizations including R & D and manufacturingfacilities, in several countries.4. It has direct investment base in different countries.

5. It derives 20 % to 50 % or more of its net profits from foreign operations.

CLASSIFICATIONS OF MNCS

Pyramid Model, Umbrella Model, Inter/ ConglomerateMNC

a. Pyramid Model MNC: These organizations have strong Headquarters and weaksubsidiaries. Head Quarter is rude, arrogant and gives no powers to its subsidiaries. The


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decision making capacity is also not centralized. For E.g. Siemens, Johnson & Johnson, IBM,McDonalds, Marks & Spencer etc. This model of MNC is very power conscious.

b. Umbrella Model MNC: This model is very good among others. There is a relationship ofmutual help between the Head quarter and the subsidiary. Ideas and money flow freely.Making money and using power is not the primary motto of the organizations. Head quarters

give full freedom to the subsidiaries. Both HQ and subsidiaries are very strong.Problems: These organizations are very image conscious. If anything damages theirimage, strong actions are taken for that.

c. Inter conglomerate Model MNC:

For such organizations, money is main aim. Investment

and Rate of Investments are very high. No loyalty

towards any subsidiary countries. E.g. Unilever etc.

Companies enter any segment and adapt the approach of Multi segments, Multi

markets, Multi products and Multi countries.Such companies try to acquire monopoly and take over its competitors there by

reducing competition. E.g. Brooke Bond and Lipton are taken over by HLL.

How MNCs expand their business:

1. International Licensing: MNC permits the domestic company to use its trademark, brandname or technical know-how for manufacturing and marketing purpose. The license is givenagainst payment of fee which acts as source of income to the MNCs. E.g. Brand 555 is thelicensed user of British American Tobacco company. The BAT does not provide any rawmaterial but just the brand name is given. This company took 45 years to establish. Thelicensor generally keeps supervisor in the plant of licensee.

2. International Franchising: the licensor not only provides the brand name but also theraw material. E.g. McDonalds. (Syrup pharmaceutical companies, printed circuit boards toelectronic items).3. Turnkey projects: MNCs undertake to complete the whole project and handover thesame when ready to the host country. Such projects may be supplied on tender basis. Theyprovide new opportunity to expand the business activities.

4. Joint Ventures: Like marriage, binding between home country representative andhost country representative, to set up a project either in home country or host or 3rdcountry with a commitment of joint risk taking and joint profit sharing.E.g. Modi Luft Modi and Lufthansa.

5. Collaborations: It deals with any one part of management function, either finance ortechnology collaboration. (it is not possible to have collaboration in consumer products. Ithappens generally with medicines, technological products etc.) Collaborations are timebound and not permanent.

Merits of Multinational Corporations:1. Change and progress: MNCs are said to be the agents of change and progressworldwide.2. Enables maximum use of resources.


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3. To the host countries, the plants, equipments, and technical knowhow necessary for itsoperations which is not available otherwise is made available thru MNCs.4. MNCs create employment opportunities in the host countries. Local recruitment ofJunior Managers creates a pool of managerial talent in the host country.5. Goods are made available at cheaper price due to economies of scale.6. MNCs contribute enormously to technology transfer between rich and poor countries.

7. MNCs stimulate domestic employment.8. Helps removal of monopoly and improve the quality of domestic made products.9. Promotes exports and reduce imports by raising domestic productions.10. Provides benefits of Research & Development.

DEMERITS OF MNCs(Students please elaborate the following points)1. Provides out-dated technology.2. MNCs exploit local labour by paying relatively lesser rates.3. MNCs involvement often results in the lack of development of local research anddevelopment.4. Use of capital-intensive technology reduces jobs in local country.

5. MNCs ruin domestic companies.6. Adverse effect on life style / culture in host countries.7. Charge very high fees.

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