MBA in Marketing Management Semester 4

MK0018: International Marketing

(4 credits)
(Book ID: B1199)

ASSIGNMENT- Set 1
Marks 60
Note: Each Question carries 10 marks. Answer all the questions.

Q1. Explain how Letter of Credit acts as an appropriate mode of

payment for both exporter and importer.
Answer : Any exporter will perhaps tell you that the most important aspect in
the export-import business is finding a payment mode which is secure and safe,
and all the more, acceptable to both parties. I strongly believe that it is of utmost
importance for each and every exporter to have extensive knowledge of export
payment mechanisms and extend credit cautiously. Whenever I'm asked as to
which I believe is a relatively cheap and uncomplicated method of payment for
both importers and exporters, I invariably go with Letter of Credit.

Although I always advocate Letter of Credit, with the world turning into a digitally
connected global village, both the buyer and seller have, however, found various
means of transacting commensurate with their needs and comfort.

For newbies to the export-import business, I would like to introduce Letter of

Credit (also known as L/C, LC, or LOC) as a letter from a bank guaranteeing that
a buyer's payment to a seller will be received on time and for the correct
amount. L/Cs are ideally used in international transactions to ensure that
payment will be received by the seller.

The reasons why I feel a L/C is a very important tool for export-import
transactions is primarily due to the factors involved in international dealings such
as distance, different laws in respective countries and absence of face to face
interactions between the buyer and seller sitting in two far-flung areas on the

globe. It is a fact that the exporter or importer, who are located in different
countries, may not know each other. As such many a time the problem of buyer's
creditworthiness hampers trade between the two.

At various platforms in the past, I have discussed with several exporters on

whether L/Cs are indeed the safest and secure payment mode. They opined that
being an exporter, L/Cs amount to guaranteed payment upon presentation of
certain documents, thus reducing production risk, for situations when the buyer
cancels or changes his/ her order.

Moreover, they felt that it gives them the ability not only to structure the delivery
schedule according to their interests, but also in obtaining pre-export finance to
finance the production or the purchase of the goods.

Perhaps the single-most advantage as a seller or exporter in using L/C as a

payment mode is that the buyer cannot refuse to pay due to any complaints
about the goods and the buyer has to raise his/ her complaint or claim separately
from the Letter of Credit. This, I think, gives the exporter a significant advantage
in resolving such issues related to delayed payments.

However, many importers whom I have met were unanimous on the benefits of
L/Cs because the bank acts on behalf of the buyer who is the holder of Letter of
Credit by ensuring that the seller or the exporter will not be paid until the bank
receives a confirmation that the goods have been shipped.

Having said that, several exporters and importers have been successful too
without Letter of Credits. Cash in advance, documentary collection or draft, open
account, and other payment mechanisms are also popular amongst the exim
community.

Since I always argue for L/Cs as the safest and more secure payment mode, I
would definitely like readers to share their views on: 'Do you really think L/C is
the safest and secure means of transaction?' or 'Which payment method do you
mostly use?' or 'What according to you is the safest means of export-import
payment method?'

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Q2. International distribution decisions are critical decisions.

Substantiate.
Q3. Discuss the EPRG orientations and give the differences between
international and domestic marketing.
Q4. How is international marketing segmentation helpful in making
strategies?What are the bases of the segmentation?
Answer : International market segmentation

About forty years ago, segmentation was viewed as an imperfection in market

structure rather than as a more precise adjustment to consumer or user
requirements. From this time, the benefits of adapting marketing resources to
the heterogeneous needs and wants of customers is recognized. Nowadays, in
the context of globalization, the focus has shifted towards looking for similarities
and the search for global segments. As a result of these changes, Hassan and
Katsanis defined (global) market segmentation as follows:

Global market segmentation is the process of identifying specific segments,

whether they be country groups or individual customer groups, of potential
customers with homogeneous attributes who are likely to exhibit similar
behaviour (Hassan & Katsanis, 1991).

This trend of globalizing economies raised a new question: how should a

company segment a global/international market? Segmentation of a international
market implied the addition of another, country specific, dimension.

In domestic markets customer characteristics such as age, sex, social class, etc.
and attitudes toward a certain product or brand are often used as bases for
segmentation. In international markets an extra dimension has to be considered,
i.e. country characteristics. For instance, every country has its own specific
social, cultural, economic, technological, political, legal and environmental
characteristics affecting marketing strategies and customer/market responses.

The different perceptions and approaches of multinational companies determined

their segmentation approach. Besides the shift from looking for differences
towards the focus on similarities mentioned above, one can observe the
influence of the internationalizing environment and the evolvement of global
strategies.

Frank, Massy and Wind proposed three approaches to international market

segmentation (Frank, Massy & Wind, 1972):
- Approaching each country as a individual segment;
- Approaching groups of countries with similar characteristics as individual
segments;
- Approaching the entire world as one segment.

In their approaches they do not take into account that there may be groups of
customers in different countries that are alike and can form one cross-national
segment. However, this is recognized by Hassan and Katsanis who identified
three main segmentation methods (Hassan & Katsanis, 1991):

The country cluster segmentation strategy;

The cross-national segmentation strategy;

The world segment strategy.

In the remaining part of this paragraph the following segmentation strategies will
be discussed:

1. Local segmentation strategy;

2. Country cluster segmentation strategy;
3. Cross-national segmentation strategy;
4. World segment strategy.

The local segmentation strategy

When the local segmentation strategy is used, every single country is viewed as
a separate market with its own unique characteristics, making adaption of
marketing necessary. No relation with other countries/markets is made, neither in
the field of segmentation, nor in the organizational field of responsibilities and
strategy.

At first sight, this segmentation strategy leaves little room for standardization of
the international marketing strategy.

The country cluster segmentation strategy

Sethi & Holton (1973) propose a method for clustering countries. They mention
that as companies grow, the every country is different approach might turn out
to be less usable and a grouping device might increasingly necessary. They
recognize the possibilities standardization offers as part of a global strategy.

The Middle East or the developed countries are often used by managers to
address specific groups of countries. Sethi and Holton, however, question the
way country groups are identified. They propose a two-step method. In the first
step variables that could describe countries are grouped in clusters which must
have within group similarities and between group differences. The second step
is comparing and grouping the countries based on variable cluster score, that is
clustering the countries based on the variables distinguished in step one.

Frank, Massy and Wind (1972) proposed a slight modification towards a Cross
national segmentation strategy. In two steps they identify segments of both
countries and customers.
First, individual or groups of countries are identified. This composition of socalled macro-segments enables an initial screening and selection of countries,
which on the basis of national market characteristics, legal and political
constraints, provide potentially attractive market opportunities. The analysis of
buying patterns is limited to only these macro-segments which passed this initial
screening. Then within each macro-segment the market can be subdivided based
on customer characteristics such as social classes, age, sex, etc. The appropriate
bases for segmentation may be the same across all macro-segments, but may
also differ from macro-segment to macro-segment. In the first case segments are
similar and thereby form an adaption to the international environment and
homogenization of customers preferences.

It should be noted that defining segments in this way ignores the differences that
exist between countries in terms of possible micro-segments. The next approach
pays attention to this problem.

The cross-national segmentation strategy

Jain (Jain, 1984) defined market segmentation as a technique of dividing different

countries into homogeneous groups, hereby focusing on country segmentation.
Jain also provided a number of steps that should be followed in order to gain
insight into the segmentation criteria suitable for classifying world markets:

1. Develop a market taxonomy for classifying the world market.

2. Segment all countries into homogeneous groups having common
characteristics with
reference to the dimensions of the market taxonomy.
3. Determine theoretically the most efficient method of serving each group.
4. Choose the group where the marketers own perspective (its product/service,
strengths, etc.) is in line with the requirements of the group.
5. Adjust this ideal classification to the constraints of the real world (f.e. legal
and political
restrictions).

This country approach incorrectly assumes that countries are indivisible.

According to Jain, this imperfection can be solved by making use of so-called
inter-country segments. These segments are formed by groups of customers
who are alike and can be identified in several different countries. These similar
segments in different countries may be combined to form one viable intermarket/country segment.

To identify these inter-country segments, the following three steps can be used:

1. Select countries.
2. Select in-country segments.
3. Select inter-country segments.

The first two steps are discussed earlier, but the third step, search for
comparable in-country segments across boundaries which can form one intercountry segment, is new.

Note that Jains approach is still very country oriented. The following approach of
Kreutzer is more focused on customer similarities across boundaries.

In 1988, Kreutzer was one of the first to argue that segmentation should be
incorporated in the process of standardizing marketing programs and marketing
processes (Kreutzer, 1988). He argues that before it is possible to determine a
companys or products standardization potential, a standardization-oriented
segmentation has to be accomplished. This segmentation centres on the tracking
down of the target group to be handled by standardized marketing.
Segmentation has to answer two important questions:

1. Which countries, already handled and/or potentially interested, show the

conditions for global marketing (standardization)?
2. Of these, are there, trans-nationally, customers who are comparably
structured with respect to their expectations of consumption and use and/or
habits?

In terms of Kreutzer, this means starting with country segmentation, followed by

the stage of customer segmentation. Trans-nationally homogeneous target

groups are formed and handled trans-nationally with the same marketing
concept. Kreutzer noted that trans-national does not necessarily mean global,
but rather a large regional unit, for example Europe.

Now the focus is completely on identifying similarities in order to gain from

standardization and a global marketing strategy. However, adaption to present
differences should not totally be forgotten. Because, although a global market
exists, a company, in order to survive global competition, needs to target its
products at specific segments within different countries.

The world segment strategy

It was Levitt who basically initiated the world segment strategy (Levitt, 1983).
The idea that customers were becoming more and more homogeneous across
the globe, made him define one world segment, consisting of customers wanting
products and services of low price and high quality. Levitt assumed that
differences in perceived preferences for specific product or service features were
not of influence on the customers buying behaviour when a standardized high
quality/low priced product is offered.

In this view we can recognize the one extreme of the globalization-localization

continuum, i.e. a completely standardized, global marketing strategy.

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Q5. What are the factors that affect the pricing strategy of an
international firm? What different pricing strategies can the firms
adopt?

6.
What are star export houses? Mention the various special
strategic packages for status holders.

MBA in Marketing Management Semester 4

MK0018: International Marketing
(4 credits)
(Book ID: B1199)

ASSIGNMENT- Set 2
Marks 60
Note: Each Question carries 10 marks

Q1. Discuss briefly the steps involved in processing of an export

order.
Answer : Golden Rule: In order to be successful in exporting one must fully
research its markets. No one should ever try to tackle every market at once.
Many enthusiastic persons bitten by the export bug, fail because they bite off
more than they can chew. Overseas design and product requirements must be
carefully considered.

Always sell as close to the market as possible. The fewer intermediaries one has
the better, because every intermediary needs some percentage for his share in
his business, which means less profit for the exporter and higher prices for the
customer. All goods for export must be efficiently produced. They must be
produced with due regard to the needs of export markets. It is no use trying to
sell windows which open outwards in a country where, traditionally, windows
open inwards.
Sell Experience: If a person cannot easily export his goods, may be he can sell
his experience. Alternatively, he can concentrate on supplying goods and
materials to exporters' who already have established an export trade. He can
concentrate on making what are termed 'own brand' products, much demanded
by buyers in overseas markets which have the manufacturing know-how or
facilities.

Selling in Export: In today's competitive world, everyone has to be sold. The

customer always has a choice of suppliers. Selling is an honorable profession,
and you have to be an expert salesman.

On-Time Deliveries: Late deliveries are not always an exporters fault. Dock
strikes, go-slows, etc. occur almost everywhere in the world. If one enters into
export for the first time, he must ensure of fast and efficient delivery of the
promised consignment.

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Communication: Communication internal and external must be comprehensive

and immediate. Good communication is vital in export. When you are in doubt,
pick up the phone or email for immediate clarification.

Testing Product: The risk of failure in export markets can be minimized by

intelligent use of research. Before committing to a large-scale operation
overseas, try out on a small scale. Use the a sample test, and any mistakes can
then be corrected without much harm having been done. While the test
campaign may appear to cost more initially, remember that some of the cost will
be repaid by sales, so that test marketing often turns out to be cheaper.

Approach: If possible some indication of the attitudes towards the product

should be established, like any sales operation. Even if the product is successful,
to obtain reactions from the customer.

Preliminaries for Starting Export Business

Setting up an appropriate business organization.
Choosing appropriate mode of operations
Naming the Business
Selecting the company
Making effective business correspondence

Selecting the markets

Selecting prospective buyers
Selecting channels of distribution
Negotiating with prospective buyers
Processing an export order
Entering into export contract
Export pricing and costing
Understanding risks in international trade
Setting up an appropriate business organization

The first and the foremost question you as a prospective exporter has to decide
is about the kind of business organisation needed for the purpose. You have to
take a crucial decision as to whether a business will be run as a sole proprietary
concern or a partnership firm or a company. The proper selection of organisation
will depend upon

Your ability to raise finance

Your capacity to bear the risk
Your desire to exercise control over the business
Nature of regulatory framework applicable to you

If the size of the business is small, it would be advantageous to form a sole

proprietary business organisation. It can be set up easily without much expenses
and legal formalities. It is subject to only a few governmental regulations.
However, the biggest disadvantage of #138;sole proprietary business is limited
liability to raise funds which restricts its growth. Besides, the owner has
unlimited personal liability. In order to avoid this disadvantage, it is advisable to
form a partnership firm. The partnership firm can also be set up with ease and
economy. Business can take benefit of the varied experiences and expertise of
the partners. The liability of the partner though joint and several, is practically
distributed amongst the various partners, despite the fact that the personal
liability of the partner is unlimited. The major disadvantage of partnership form
of business organisation is that conflict amongst the partners is a potential threat
to the business. It will not be out of place to mention here that partnership firms
are governed by the Indian Partnership Act,1932 and, therefore they should be
form within the parameters laid down by the Act.

Exporters Manual and Documentation

Company is another form of business organisation,which has the advantage of

distinct legal identity and limited liability to the shareholders. It can be a private
limited company or a public limited company. A private limited company can be

formed by just two persons subscribing to its share capital. However, the number
of its shareholders cannot exceed fifty, public cannot be invited to subscribe to
its capital and the member's right to transfer shares is restricted. On the other
hand, a public limited company has a minimum of seven members. There is no
limit to maximum number of its members. It can invite the public to subscribe to
its capital and permit the transfer of shares. A public limited company offers
enormous potential for growth because of access to substantial funds. The
liquidity of investment is high because of easiness of transfer of shares.
However, its formation can be recommended only when the size of the business
is large. For small business, a sole proprietary concern or a partnership firm will
be the most suitable form of business organisation.In case it is decided to
incorporate a private limited company, the same is to be registered with the
Registrar of Companies.

For details as to be procedures for registration with the registrar of Companies,

kindly refer to Nabhi's FORMATION AND MANAGEMENT OF A PRIVATE COMPANY
ALONG WITH PRACTICAL PROCEDURES.

Choosing appropriate mode of operation

You can chose any of the following modes of operations:

Merchant Exporter i.e. buying the goods from the market or from a manufacturer
and then selling them to foreign buyers.

Manufacturer Exporter i.e. manufacturing the goods yourself for export Sales
Agent/Commission Agent/Indenting Agent i.e. acting on behalf of the seller and
charging commission Buying Agent i.e. acting on behalf of the buyer and
charging commission

Naming the Business

Whatever form of business organisation has been finally decided, naming the
business is an essential task for every exporter. The name and style should be
attractive, short and meaningful. Simple and attractive name indicating the
nature of business is ideal. The office should be located preferably in a
commercial complex, in clean and workable surroundings. The letter head should

be simple and superb providing information concerning H.O., branches, cable

address, telephone number, fax number, banker's name and address etc. Pick up
a beautiful trade name and logo which reinforces your organisation's name and
image.

Open a current account in the name of the organisation in whose name you
intend to export. It is advisable to open the account with a bank which is
authorised to deal in Foreign Exchange.

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Selecting the Company

Carefully select the product to be exported. For proper selection of product,
study the trends of export of different items from India. The selected product
must be in demand in the countries where it is to be exported. It should be
possible to procure or manufacture the selected product at most economic cost
so that it can be competitively priced. It should also be available in sufficient
quantity and it should be possible to supply it repeatedly and regularly. Besides,
while selecting the product, it has to be ensured that you are conversant with
government policy and regulations in respect of product selected for export. You
should also know import regulations in respect of such commodities by the

importing countries. It would be preferable if you have previous knowledge and

experience of commodities selected by you for export. A non-technical person
should avoid in dealing in high tech products.

Making effective Business Correspondence

You should recognise the importance of business correspondence as it is an
introduction with the buyer in proxy which may clinch his response according to
the impression created by the correspondence. For creating a very favorable and
excellent impression, you must use a beautiful letter head on airmail paper and a
good envelope, nicely printed, giving fully particulars of your firm's name,
telephone, telex and fax number etc. Your language should be polite, soft, brief
and to the point, giving a very clear picture of the subject to be put before the
customer. Letters should be typed/ computer typed set, preferably in the
language of the importing country. Also make sure that the full and correct
address is written and the envelope is duly stamped. It should also be borne in
mind that the aim of your business correspondence is not only to clinch the
buyer's order but also to obtain the information on the following:

The specifications of the products already in use in the importing country.

Whether your product meets the above specifications. If not, Whether your
specifications offer any distinct advantages in terms of prices, quality, after-sales
service, etc. The import policy prevailing in the buyer's country (e.g. whether
there is any import licensing, any restrictions on remittances, any prequalification for product/supplier, etc.)

The trade practices in the buyers' country with special reference to your product,
information like whether importers import and distribute the product/high sea
sales, whether agent is required to book orders from actual users etc. In case
your item requires after sales service, the manner in which it can be offered. The
prices at which your product sells in the retail/wholesale market, the duty
structure and any other cost element to arrive at the landed cost. Information on
the margins at which the product is sold. This information will help you in
evolving a pricing strategy.

Study of various market segments viz. Importers, Supermarkets, Government

Suppliers, Institutional Sales, Tenders, Suppliers, etc.

The various factors that rule the market viz. Quality, Price, Delivery, Brand
Name, Credit Terms, etc. Role of advertising and publicity and reference to the
product and the country.

Q2. Discuss briefly the various techniques to assess country risk. Give
examples to illustrate your answer.

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Q3. Discuss fundamental methods of exchange rate forecasting. What

are the problems in forecasting exchange rates?

Q4.

What is the role and elements of culture?

Q5. Write a short note on International Advertising.How is it

important for international marketing?

Q6.

Describe the various modes of entries in international market.