Chapter 3

The International Environment:
culture; economic forces; and

competition
Export Marketing
Introduction
• Four major components that affect markets everywhere:
• Culture and societal structure
• Economic forces
• Competition and
• Political and legal forces

Introduction
• The international marketer needs to operate in both domestic
environment and one or more foreign environments.
• Different marketing activities for different environments.
• The environment in the home market is usually well

understood, but cannot be assumed to be the same in foreign
markets.
Cultural Forces
Cultural Forces: Introduction
• Culture and the socio-cultural environment influence the
behaviour of:
• Customers
• Managers
• Employees
• Marketing intermediaries
• Understanding and dealing effectively with the pervasive effects

of culture on export management and international marketing is
both interesting and challenging.
• In order to be successful in the international marketplace,

marketers need to develop an understanding of the foreign culture.
• How ?
• Cultural Intelligence:
• Definition:
“Multifaceted competency consisting of cultural knowledge, the
practice of mindfulness, and the repertoire of behavioral skills”
• How can managers develop cultural intelligence?

The nature of culture
• Cultural factors exert major influence on consumer behavior.
• Homogeneity of characteristics that separates one group of people from

another
• To understand culture, one must understand its origins, history, structure

and functioning.
• Undergoes change overtime; rapid changes are due to outside pressures.

• Social Change
• When religious leaders gained control of Iran’s government
Culture and Communication
• Communication is both by language and behavior .
• Knowing what people mean by their behaviors, and how they

view time, space, things, friendships and agreements is
essential for the international marketer.
Self-reference criterion (SRC)
• Most people initially define problems in terms of their own culture.
• The SRC effect, or likely cultural bias, occurs when an individual is only able to define problems
in terms of his/her own culture.
• E.g. taking a wrong decision that would have been right in home country
• A well educated American psychology professor referred to India’s culture a sick, because the
Hindu religion did not allow eating cows despite the severe food shortages.
• The international marketer should learn how to define problems in terms of the local culture as
well as his/her own culture. The comparison can then indicate possible areas for mutually
agreeable solutions.
Economic Forces
Market development
• The extent of economic development of a country may be

classified in various ways, such as:
• Developed or developing-By income level

• Other Classifications
• By risk
Classification by Income
• The extent of economic development of a country may be

classified in various ways, such as:
• Developed or developing-By income level

• Low-income economies (GNI per capita < US$ 1,025)
• Lower middle-income economies (GNI per capita US$ 1,026 – US$ 3,995)
• Upper middle-income economies (GNI per capita US$ 3,996 but < US$ 12,375)
• Upper-income economies (GNI per capita > US$ 12,376)
Developed Economies
Classification by Other Factors
• An emerging market is a market that has some characteristics of a developed market, but does
not fully meet its standards. This includes markets that may become developed markets in the
future or were in the past.
• Emerging markets generally do not have the level of development of market and regulatory
institutions as found among developed nations.
• Market efficiency and strict standards in accounting and securities regulation are generally not on
par with advanced economies (such as the United States, Europe, and Japan), but emerging
markets typically have a physical financial infrastructure, including banks, a stock exchange, and a
unified currency.
• Brazil, Russia, India, and China (BRIC)
• Argentina, Brazil, China, India, Indonesia, Korea, Mexico, Poland, South Africa, and Turkey (BEM)
Classification by Other Factors
• The index is based on the MSCI Global Investable Indexes (GIMI) Methodology —a
comprehensive and consistent approach to index construction that allows for meaningful global
views and cross regional comparisons across all market capitalization size, sector and style
segments and combinations.
• This methodology aims to provide exhaustive coverage of the relevant investment opportunity set
with a strong emphasis on index liquidity, investability and replicability
Classification by Risk
• Countries differ widely in risk to business profitability
• The Economist on its website www.economist.com makes available to
subscribers a number of country
• Security, political stability, government effectiveness, legal and regulatory,
macroeconomic, foreign trade and payments, tax policy, labor market,
and infrastructure.
• Another type of index, the Country Risk Classification, is prepared by
the Organization for Economic Development (OECD).
• This classification is based on a country’s credit risk – i.e., the likelihood
that a country will service its external debt
Country Risk Classification
Classification by Risk
• Human Development Index which is calculated by the United Nations
for its members. The rankings are based on life expectancy, education
enrolments, literacy and GDP
Note:
• These types of classification are of only limited usefulness to an
international marketer
• Such classifications rest upon many factors involving trade-offs within
this system.
Some areas of change
• China:
• is the world’s largest exporter
• is attracting additional producers and marketers of consumer goods as
economy grows rapidly.
• Market opening in some Latin American countries are

leading to rapid growth and attracting increasing investment
by Asian countries.
Big Max Index
Global price of a Big Mac as of July 2021, by country
• The Big Mac index, published The Economist, is a novel way of measuring whether the
market exchange rates for different countries’ currencies
• It does this by measuring each currency against a common standard – the Big Mac
hamburger sold by McDonald’s restaurants all over the world.
• Twice a year the Economist converts the average national price of a Big Mac into U.S.
dollars using the exchange rate at that point in time.
• As a Big Mac is a completely standardized product across the world, the argument goes
that it should have the same relative cost in every country.
• Differences in the cost of a Big Mac expressed as U.S. dollars therefore reflect differences
in the purchasing power of each currency.
Exports (Products) : Pakistan
Exports (Countries) : Pakistan
Exports (Continents) : Pakistan
Competition
Introduction
• Competition is one of the most dynamic forces affecting marketing strategy.
• A company entering foreign markets should never underestimate local

competition
• Differential advantages give an individual firm an edge over others.

• Effective use of information gives a tactical competitive advantage.
• Effectively managing cultural differences can lead to innovative business practices and sustainable
sources of competitive advantage.
Factors influencing competition
• Overall, competition is influenced largely by:
• General business conditions, culture, economic and social conditions.
• Costs.
• Laws and regulations and
• Actions of competitors.
• Competition may be on a price basis or a non-price basis.

Factors influencing competition
• Type of product determines type of competition:
• Homogeneous products have intense competition on price.
• Differentiated products use non-price competition.
• Companies try to differentiate their products to permit higher

prices and profits.
Coopetition and competition
• Emerging facet of global market:
• Coopetition i.e. simultaneous cooperation and competition of two rivals in global market
• Rivals cooperate in some areas while competing in others.
• Coopetition may occur at corporate, division, or subsidiary levels.

Coopetition and competition
• Four coopetition situations:

• Contending: High competition and low cooperation.
• Isolating: Low cooperation and competition.
• Partnering: Voluntary high cooperation and low competition to form

synergies.
• Adapting: Mutually depend on each other to achieve respective goals

maintaining high competition and cooperation.

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The International Environment:

culture; economic forces; and

• Culture and societal structure

• Political and legal forces

• Different marketing activities for different environments.

• The environment in the home market is usually well

• Understanding and dealing effectively with the pervasive effects

• In order to be successful in the international marketplace,

• How can managers develop cultural intelligence?

• Homogeneity of characteristics that separates one group of people from

• To understand culture, one must understand its origins, history, structure

• Undergoes change overtime; rapid changes are due to outside pressures.

• Knowing what people mean by their behaviors, and how they

• The extent of economic development of a country may be

• Developed or developing-By income level

• The extent of economic development of a country may be

• Developed or developing-By income level

• Market opening in some Latin American countries are

• A company entering foreign markets should never underestimate local

• Differential advantages give an individual firm an edge over others.

• Competition may be on a price basis or a non-price basis.

• Companies try to differentiate their products to permit higher

• Rivals cooperate in some areas while competing in others.

• Coopetition may occur at corporate, division, or subsidiary levels.

• Four coopetition situations:

• Isolating: Low cooperation and competition.

• Partnering: Voluntary high cooperation and low competition to form

• Adapting: Mutually depend on each other to achieve respective goals

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