MME03 INTERNATIONAL MARKETING DOMESTIC VS.

INTERNATIONAL MARKETING
LESSON 1: UNDERSTANDING INTERNATIONAL MARKETING
Exporting And international marketing can be interesting, exciting
INTRODUCTION and in some cases challenging. In all cases it should be profitable
and help a business grow.
Human beings are continuously engaged in some activity or other in order to
satisfy their unlimited wants. It is important to understand the differences between domestic and
international marketing but they should not inhibit your interest or
Every day we come across the word "business" or "businessman" directly or drive for success internationally.
indirectly.
DIFFERENCES BETWEEN DOMESTIC AND INTERNATIONAL
Business has become essential part of modern world. A business is an MARKETING
organization or enterprising entity engaged in commercial, industrial or
professional activity.

International business comprises all commercial transactions(private and

governmental, sales, investments, logistics and transportation) that takes
place between two or more regions, countries and nations beyond their
political boundaries.

Usually, private companies undertake such transactions for profit;

government undertake them for profit and for political reasons.

It refers to all those business activities which involve cross border

transactions of goods, services, resources between two or more nations.

Transaction of economic resources include capital, skills, people, etc for

international production of physical goods and services such as finance, DOMESTIC VS. INTERNATIONAL MARKETING
banking, insurance, construction, etc.

International business conducts business transactions all over the world.

These transactions include the transfer of goods, services, technology,

managerial knowledge and capital to other countries.

International business involves exports and imports.

INTERNATIONAL MARKETING ACTIVITES
International business is also known, called as a GLOBAL BUSINESS or an
INTERNATIONAL MARKETING.

An international business has many options for doing business, it includes:

exporting goods and services
giving license to produce goods in the host country
starting a joint venture with a company.
PHASES OF INTERNATIONAL MARKETING
WHAT IS INTERNATIONAL MARKETING?
Companies may get involved in a market to a certain extent. They
Cateora, Gilly and Graham (2011) - define international marketing as can choose to be a domestic exporter, regional exporter, exporter,
the performance of business activities that direct the flow of a international exporter, international to global exporter and global
company's goods and services to consumers or users in one or more exporter.
than one nation for a profit.

CAVUSGIL (1980)
International marketing is not for every firm.
Some necessary conditions such as a high-quality product which is
competitively-priced- have to be met before a firm can engage
marketing in international

Cateora, Gilly and Graham (2011) - state that the primary obstacle to
success in international marketing is a person's self-reliance criterion
(SRC) in making decisions.

SRC define as the unconscious reference to one's cultural values,

experiences, beliefs, and knowledge as bases for decisions.
SRC can cause misunderstandings between different cultures.
The most way of handling SRC is to recognize that it exists. A firm also
needs to understand the culture of its target market when it engages in
international marketing.
Many factors may push a firm to international. One important reason is to
utilize excess production capacity which the domestic market cannot Labor and raw materials costs are inexpensive in developing
absorb. countries. Thus, firms in developed countries may set up
assembly and manufacturing plants in these countries.
Another reason is that when there is no domestic market for a product,
exporting becomes an option. 3. To take advantage of access to new technologies in foreign
countries
In contrast, it may also happen that there is a domestic demand but there is
no local supplier, and thus importing is the only viable option. A firm may have more opportunities to be exposed to new
technologies in foreign countries vis-à-vis in the home market

REASONS WHY COMPANIES VENTURE INTO INTERNATIONAL 4. To take advantage of the governments import promotion drive
MARKETING
Firms are encouraged to import to improve the country's balance
In contrast, it may also happen that there is a domestic demand but there is of payments.
no local supplier, and thus importing is the only viable option.

A. INTERNAL REASONS FACTORS INFLUENCING INTERNATIONAL MARKETING

1. To utilize the firms excess capacity - If the domestic market cannot fully Cateora and Graham (2011) have designed a framework of factors
absorb the firm's optimal production capacity, selling the surplus confronting or influencing international marketers.
production overseas will give the firm an opportunity to generate more
profits. (Cateora & Graham 2011) These factors are either controllable or uncontrollable.

2. To take advantage of higher purchasing power in overseas market - when INTERNATIONAL MARKETING VARIABLES
the domestic market is experiencing an economic recession and the
consumers purchasing power is greatly affected, a viable option is to find
an overseas market that can afford to purchase the firms product for a
higher price.

3. To take advantage of the government's export promotion drive - Many

governments encourage and support firms to become involved in
international marketing to generate foreign exchange.
FACTORS INFLUENCING INTERNATIONAL MARKETING
4. To find other markets as the firm's product experiences a decline in sales
in the home market If the firm experiences continuous decline in sales in The four P's of marketing are the controllable factors.
the home market, it may be forced to find an overseas market for its
product to survive. These are the variables that you can easily manipulate to achieve
your objectives and enable you to adjust to changing marketing
5. To find other markets as stiff competition in the domestic or home market conditions
has reduced the firm's sale.
For one, you can dictate which product to sell, its function, design
If the competition in the foreign market is not too fierce, firms may engage and characteristics; you can decide on the selling price as well as
in overseas sales instead of concentrating in the home market. the distribution outlets and you can choose the sales promotion
strategy.
This firms may not be able to withstand the competitions posed by other
local manufacturer or importers. On the other hand, the uncontrollable factors are those inherent in
However, this is a tough choice to make since the firm that will venture the home country or those present in the importing countries:
into international marketing may lose its homegrown advantage.  Existing law on investment that forbids 100% company
ownership by a foreigner
6. To diversify the firm's power base in different geographic locations  Those which cannot be predicted what will happen to the
country or to the economy
A firm may resort to this action to prevent vulnerability in a specific
geographic base which may be experiencing political and economic
instability.

A global firm may pull out from a restive or politically unstable country and
transfer its headquarters to a more peaceful location.

B. EXTERNAL REASONS

1. To take advantage of tax incentives and promotional packages offered by

certain countries to foreign investors.

Firms in developed countries may take advantage of incentives and

promotional packages offered by governments of developing countries to
foreign investors.

2. To take advantage of law labor and raw material cost in foreign countries.
LESSON 2:THEORIES AND POLICIES IN INTERNATIONAL This balancing act is often managed through individual countries
MARKETING trade and tariff policy, which forms a part of each country's foreign
trade policy that governs its approach to global trade and
INTRODUCTION commerce.

The nations export and import goods and then examine barriers to trade and Post Second World War, World Trade Organization has been
various steps that have been taken to lower barriers to trade. playing major role in facilitating and attempting to streamline the
international market and tariff structures with an aim to move
Economist almost universally believe that foreign market in a free global towards free trade. However in reality, free trade may just be a
marketplace will create the greatest good for the greatest number of people. dream as long as there is no parity between developed and
developing economies,
It provides an introduction to the core of international trade theory and policy.
Attention is paid to the use and relevance of various economic models. In the last few decades one has seen the emergence of service
export and imports and it is continually growing. Developing
countries and harnessing their intellectual capital to provide
THE INTERNATIONAL MARKET software services to the developed countries.

International market between countries and across continents have existed Today's international market has many more new dimensions like
for centuries including previous civilization. intellectual property, a variety of services, trade related investments.
Bilateral and multilateral; trade agreement, establishing terms for
Traditionally, international market consisted of traded goods like textile, food trade in services. Investments as well as creating climate for
items, spices, precious metals, precious stones and objects of arts and disputre settlement.
various items across the borders.
Managing international trade has multi-dimensional aspects, which
Everybody has heard of the silk route as well as amber road and other need to be considered, by each country. Any political economic or
famous routes that existed and the ports and settlements that flourished due other events anywhere in on the earth have been an impact on each
to trade which was carried on through land route as well as sea routes. countries global market. One has been the impact of recession in
one country affecting across the globe. One has also seen impact of
One has come a long way since the earlier times and International Market financial markets crash in one country having ripple effects all over
today has taken on new dimension. It was a fact earlier that impact of trade the world.
between two countries was not limited to economics alone, but fueled
political, social ambitions too. Any business manager holding responsibility of a business function
in an organization today would have to be equipped with the macro
Today with the advancement of technology and impact of GLOBALIZATION level understanding of the world trade. macroeconomics, macro
has made it necessary for all countries to engage necessarily in global trade finance and its impact. He needs to be understand as the micro level
for their survival. export and import policies and procedure of various countries to be
able to steer his business ahead in accordance with the existing
GLOBALIZATION is the process of global integration arising from the environment.
interchange of world views, ideas and other aspects of culture.
It is his ability to for see the risks, assess the impact and manage the
Various factors including but not limited to INDUSTRIALIZATION, risk that is going to be detrimental to his organization's success.
development of transportation, globalization, technology that enables trade
and communication has contributed to change in the format of business PROCUREMENT is the acquisition of goods, services or works form
organizations as well as trade practices. an external source.

Companies and organizations today are no longer entities with a local

identity. Multinational organizations have emerged through the previous MERCANTILISM THEORY
century with footprints all over the globe. They have in fact shrunk the earth
and changed the way businesses are conducted. The mercantilist proposed theory of mercantilism. They were a
group of economist who preceded Adam Smith The foundation of
INDUSTRIALIZATION is the period of social and economic change that economic thought between 1500 and 1800 were based on
transforms a human group from an agrarian theory into an industrial one. mercantilism.

They no longer depend upon local resource. These companies set up Mercantilist believed that the world had a finite store of wealth,
manufacturing wherever it is conducive in terms of cheaper resource therefore, when one country got more, other countries had less.
availability as well as support from local government and in terms of markets, Mercantilist restricted imports and encouraged or subsidized
geographical boundaries do not bother them. They are present everywhere. exports as a conscious policy to make their citizens better off.

Technology in terms of communication as well as software technology has Mercantilist judged the success of trade by the size of the trade
changed the way business organizations manage activities be its balance.
manufacturing, procurement, finance or sales. Today software applications
drive the processes and work at the speed of thought. Mercantilism was a sixteenth-century economic philosophy that
maintained that a country's wealth was measured by its holding of
In present scenario, no country can afford to remain from and not gold and silver. This required that the countries to maximize exports
participate in globalization. While countries do open their economies to and minimize imports.
global competition, they need to tread very carefully not to upset their
domestic economy and protected industries. The logic was transparent to sixteenth-century policy makers that if
foreigners bought more goods from us than one bought from them,
then the foreigners had to pay us difference in gold and silver, enabling us commodities in the production of which it has maximum comparative
to cost advantage or minimum comparative disadvantage.
amass more treasure. With that treasure one could expand the nation's
global influence. Similarly the country's imports will be of goods having relatively less
comparative cost advantage or greater disadvantage.

THEORY OF ABSOLUTE ADVANTAGE RICARDO'S ASSUMPTIONS:

The real wealth of the country consists of goods and services available to its Ricardo explain his theory with the help of the following
citizen, If any country can produce a particular commodity, more and more assumptions.
cheaply than other countries. It has an absolute advantage. Some countries  There are two countries and two commodities.
can produce goods mare efficiently than others. Resources countries spill  There is a perfect competition both in commodity and factor
over into profitable industries, as the country as well as workforce skills, market.
lengthy periods of production of the country provided for more efficient  Cost of production is expressed in terms of labor i.e. value of a
working methods. commodity is measured in terms of labor hours/days required to
produce it. Commodities are also exchanged on the basis of labor
Natural Advantages: content of each good.
 Climate  Labor is the only factor of production other than natural resources
 Area  Labor is homogeneous i.e. Identical in efficiency, in a particular
 Resources country
 Labor is perfectly mobile within a country but perfectly immobile
between countries
ACQUIRED ADVANTAGES  There is free trade i.e. the movement of goods between countries
is not hindered by any restrictions.
 Production technology - the ability to produce various products  Production is subject to constant returns to scale
 There is no technological change.
A country is said to have an absolute advantage over another country in the  Trade between two countries takes place on barter system.
production of a good or service if it can produce that good or service using  Full employment exist in both countries.
fewer real resources.  There is no transport cost.

Equivalently, using the same inputs, the country can produce more output.
The concept of absolute advantage can also be applied to other economic NEO-CLASSICAL TRADE THEORY
entities, such as regions, cities or firms but one will focus attention on
countries specifically in relation to their production decision and international Although Ricardo's theory of comparative advantage has been a
trade flows. core concept in international trade, it is considered as unrealistic
because it determines price based on labor productivity.
 Global trade - is the exchange of capital, goods and services across
international borders or territories. The theory of comparative advantage does not consider demand,
transportation costs, trade barriers, competition, etc. The theory
does not explain why none country could have a labor productivity
CLASSICAL THEORY OF GLOBAL TRADE advantage in the production of certain goods over another country.
(Parrish, 2004).
The classical theory of comparative advantage also called comparative cost
theory is regarded as the classical theory of global trade. Thus economist furiously debated over these issues in what we
became known as the Neo-Classical theory. In 1933, two
According to the classical theory of global trade, every country will produce economists, Eli Hecksher and Bertil Ohlin, developed the concept
theory commodities for production of which it is most suited in terms of its that a country will export goods that are intensive in production in its
natural endowments climate quality of soil, means of transport, capital, etc. abundant factors and import goods intensive in its relatively scarce
factors (2004)
It will produce these commodities in excess of its own requirement and will
exchange the surplus with the imports of goods from other countries for the
production of which it is not well suited or which it cannot produce at all. HECKSHER-OHLIN TRADE THEORY OF FACTOR
PROPORTIONS
Thus, all countries produce and export these commodities in which they
have cost advantage and import those commodity in which they have cost The Hecksher-Ohlin theory explains why two countries trade goods
advantages and import those commodities in which they have cost and services with each other (Parrish, 2204).
disadvantages.
According to this theory, one condition for trade is that the countries
Remember: differ with respect to the availability of the factors of production. They
Today, most of the countries are party to several bi-lateral as well as differ if one country, for example, has many machines(capital) but
multi-lateral tariff and trade agreements like GATT (General Agreement on few workers, while another country has a lot of workers but few
Tariffs and Trade) though which they regulate imports and exports to and machines.
from specific countries.
The production of goods and services requires capital and workers.
Some goods require more capital - technical equipment and
RICARDO'S THEORY OF COMPARATIVE ADVANTAGE machinery and one considered capital intensive.
Examples of these goods are cellular phones and computers.
David Ricardo, an English political economist, stated a theory that other
things being equal a country tends to specialize in and exports those
Other goods require less equipment to produce and rely mostly on the LESSON 3: EASING WORLD TRADE TRANSACTIONS
efforts of the worker. These goods are regarded as labor-intensive on the
efforts of the workers. These goods are regarded as labor-intensive. INTRODUCTION
Example of these goods are furniture and home furnishings.
A trade agreement is a contract/agreement/pact between two or more
The Hecksher-Ohlin theory suggests that a country specializes in the nations that outlines how they will work together to ensure mutual
production of goods that is particularly suited to produce. Countries where benefit in the field of trade and investment.
capital is abundant and workers are few should specialize in the production
of goods that, in particular, require capital. Such trade agreements may involve cooperation in the field of R&D,
the lowering of import duties to be levied on the other partners'
On the contrary, countries where workers are abundant and capital is exports, guaranteeing any investments made by the partner (s) in the
scarce should specialize in labor-intensive goods. home market, cooperation on the tax front, etc.

Specialization in production and trade between countries generates

according to this theory, a higher standard of living for the countries WORLD TRADE ORGANIZATIONS
involved.
The World Trade Organization (WTO) is a global organization that
establishes rules for global trade through consensus among its
PORTER'S DIAMOND OF NATIONAL ADVANTAGE members which are all signatories to its set of agreements.

Classical theories of global trade propose that comparative advantage WTO is an intergovernmental organization which regulates
resides in the factor endowments that a country may be fortunate enough international trade.
to inherit. Factor endowment include land, natural resources, labor and the
size of the local population. The WTO states that it aims to increase global trade by promoting
lower trade barriers and providing a platform for the negotiation of
Michael Porter argued that a nation can create new advanced factors trade and to their business.
endowments such as skilled labor, a strong technology and knowledge
base, government support and culture. The WTO, which is based on Geneva, Switzerland was established
on January 1, 1995.
Porter used a diamond shape diagram as the basis of a framework to
illustrate the determinants of national advantage. It succeeded the General Agreement on Tariffs and Trade (GATT)
which was the interim world trade body since 1948.
This diamond represents the national playing field that countries establish
for their industries. The WTO is the only global organization dealing with the rules of
trade between and among nations. It is a member driven organization
as all decisions are made by member governments.

All WTO rules are the outcomes of negotiations among members.

These rules help exporters and importers conduct free trade.

The WTO aims to ensure that trade flows smoothly and freely, it has
the following functions:
 Administers WTO agreements
Porter's diamond of national advantage advantage chart  Serves as a forum for trade negotiations
 Handles trade disputes
 Monitor national trade policies
The individual points on the diamond and the diamond as a whole affect  Provides technical assistance and training for developing
four ingredients that lead to a national comparative advantage. countries
 Cooperates with other international organization
These ingredients are:
 The availability of resources and skills
 Information that firms use to decide which opportunities to pursue PRINCIPLES OF TRADING SYSTEM
with those resource and skills
 The goals of individuals in companies The WTO discussions should follow these fundamental principles of
 The pressure on companies to innovate and invest trading:

1. A trading system should be free of discrimination in the sense that

one country cannot privilege a particular trading partner above others
within the system, nor can it discriminate against foreign products and
services.

2. A trading system should tend toward more freedom that is toward

fewer trade barriers (tariff and non-tariff barriers)

3. A trading system should be predictable, with foreign companies

and governments reassured that the trade barriers will not raised
arbitrarily and that markets will remain open.

4. A trading system should tend toward greater competition

 governments themselves, the agreements are the outcomes of
5. A trading system should be more accommodating for less developed negotiations among members.
countries, giving them more time to adjust, greater flexibility and more
privileges Ultimate responsibility for setting disputes also lies with member
governments, through the dispute settlement body.

SUBJECTS OF WTO First, the complaining party request formal consultations with the
1. Agriculture other WTO member country (or countries) involve in the dispute. All
2. Services such requests for formal consultations must be notified to the WTO's
3. Non-agriculture Dispute Settlement Body (DSB), which consists of representatives
4. Intellectual Property rights from all WTO member countries and administers the rules and
5. Trade investments, competition, policy, government procurement and procedures governing the dispute settlement process.
trade facilities
6. Trade rules The consultation period can last up to 60 days. If the consultations fail
7. Dispute settlements to resolve the problem, the complaining party can then request that
8. Trade and environment the DSB establish a panel of experts to adjudicate the merits of the
9. Trade, finance and debt case.
10. Trade and technology transfer
11. Electronic commerce Panelists are normally selected in consultation with the parties to the
dispute. If the parties cannot agree on panelists, the WTO will appoint
them. The panel selection process can take up to 45 days.
ROLE OF WTO IN GLOBALIZATION
The panel process in many ways resembles a typical court case. Both
WTO plays an important role in the principle of trade without discrimination parties to the dispute submit written briefs and present oral
in the free market trade. arguments before the panel. After hearing arguments from both sides
and after examining all the evidence, the panel makes its decisions
 Most-favored-nation (MFN) - treating other people equally. Under the and prepares a draft report which is reviewed by both parties to the
WTO agreements, countries cannot normally discriminate between their dispute, who are given an opportunity to comment on it
trading partners. Grant someone a special favor (such as a lower
customs duty rate for one of their product) and we have to do the same The panel then issues its final report, which includes its findings and
for all other WTO members. recommendations. The final report should be issued as a general rule
within six months of the start of the proceedings
 National Treatment: Treating foreigners and locals equally. Imported
and locally- produced goods should be treated equally at least after the Parties to dispute have the right to appeal a panel's decision. This
foreign goods have enter the market appellate process must be completed within 90 days. Appeals are
heard by a separate group of experts who review issues of law
 Free Trade: Gradually, through Negotiations: Lowering trade barriers is covered in the panel report and then issue their own report with their
one of the most obvious means of encouraging trade. The barriers own findings and recommendation,
concerned include custom duties (or tariffs) and measures such as
import bans or quotas that restrict quantities selectively. In all, it can take about 15 months to settle a dispute in the WTO

 Predictability: through binding and transparency: With stability and A party that loses a case in the WTO is supposed to follow the
predictability, Investment is encouraged, jobs are created and recommendations of the panel report, and it must also state whether
consumers can fully enjoy the benefits of competition choice and lower it intends to follow the panel's recommendations at a meeting of the
prices. The multilateral trading system is an attempt by governments to DSB. If the party found in violation of a WTO agreement cannot
make the business environment stable and predictable. immediately comply with panel's recommendations, it will be given a
"reasonable period of time" to comply.
 Promoting Fair competition: The WTO is sometimes described as a
"free trade" institution, but that is not entirely accurate. The system does If the losing party fails to comply with panels recommendations within
allow tariffs and, in limited circumstances, other forms of protection. the allotted time, it must enter into consultations with the winning
More accurately, it is a system of rules dedicated to open, fair and party to seek agreement on compensations
undistorted competition.
Compensation may be granted in a variety of ways (e.g. tariff
 Encouraging Development and Economic Reform: The WTO system reductions or the lifting of quotas on certain products.)
contributes to development. On the other hand, developing countries
need flexibility in the time they take to implement the system's If an agreement on compensation cannot be reached within 20 days
agreements. of the expiration of the allotted time, then the DSB can authorize the
winning party to apply equivalent trade sanctions (e.g. increased tariff)
against the losing party.
WTO DISPUTE SETTLEMENT UNDERSTANDING

The WTO procedure for resolving trade quarrels under the dispute
settlement understanding is vital for enforcing the rules and therefore for
ensuring that trade flows smoothly.

A dispute arises when a member government believes another member

government is violating an agreement or a commitment that it has made in
the WTO. The person behinds of these agreements are the member