International trade- need for trade

 All countries are not gifted with same production

facilities, there are differences in resource base,
geographic location, labor supply etc.

 International trade helps more effective use of global

resources ( buyers find foreign markets cheaper to buy
and sellers find it more profitable to export their produce
outside domestic market).

 Trade allows a country to specialize in production and

export of a commodity-leads to higher efficiency and
price drop(‘ gains from trade’) .

 Domestic demand may be limited in a year, while

production increases-leading to high stock. This stock can
be exported to enhance export balance & foreign
exchange.

 No single nation can produce all for its survival, trade is

the only solution.

 Japan exports cars to U S, US exports bulldozers to

Saudi and Saudi exports oil to Japan-this is ‘multilateral
trade’.

Scope of international marketing

Several reasons to seek business opportunity elsewhere in the
world.
1.Market saturation: consumer goods (TVs,cars, freeze. w/mc)
already outnumber u.s. households. Slow growth of US.
population. Hence co. must develop new markets to operate
successfully. International market where market saturation
is a distant threat is only alternative.
Cigarette sale in USA third world (Indonesia/ Kenya)
lesser restriction in LDC , no restriction on TV. / Radio /
paper ad.

2. US. trade deficit : US. business face regular trade deficit,

declining exports and BOP problem .

- For US marketers, rising pacific power holds a threat and

promise . Threat-- increased competition for sales and
market share at home / abroad. Promise --as wealth grows
for agrarian LDCs and Asian , they expand business
possibilities for us goods . (KFC, Coca cola, PepsiCo ,Kodak,
levis) in Asia and Latin America . Population of third world
of growing, adding more to potential buyers .

Few new industries are global at birth - robotics, videodisks,

fiber optics, satellite network ,artificial diamonds , computer
hardware .

5. Opportunity via foreign aid : us foreign aid program for

developing countries during 1960s provided billions of
dollars to undertake program of economic build-up , but
aid recipients spend us money on goods and services from
us corporations . Thus foreign aid money created new
markets in LDCs .

6. Other reasons : (a) in industries where economics of scale

are feasible , a large market is essential . if home market is
not large , then international mktg is only alternative .

Advantages of international. mktg

(a) International business provides a ‘ safety net’ during
recessions. During US recession , multinationals shifted
marketing focus to middle east .

(b) Lesser labor cost in third world countries. So it is

economically attractive to expand foreign operation . labor
cost account for half of cost of TV & computer sets (young
ladies do this ) assembling . So HP, Intel, ITT had gone as
far as Malaysia to save labor cost and earn higher
profits .

(c) For developing and testing new products outside us to

avoid exposure , keep secrecy .

(d) Many international markets are less competitive than us

market .

(e) Finally international presence gives higher access to –

advance in technology frontier , access to raw material ,
R&D, international economic groups linkage.

Absolute advantage
Adam smith observed the need for trade in his book wealth of
nations.
A country should export a commodity that can be produced at
a lower cost than can other nations converse is the case of
import.
Consider the case of USA and Japan for PCs and cars(Given
L&K).
US can produce 20 computers but 10 cars. In contrast
Japan can produces 10 computers but 20 cars.
So USA is more efficient in producing computers with better
skills.
It has absolute adv in making computers. Oppositely it has
absolute disadvantage in making car.
Japan’s case is just the reverse.
If both can now specialize in the product it has absolute adv,
then both are gainer
Since US can make computers with less resources, so it will
only specialize in PCs for home and export to japan but import
cars from japan. Japan will do the reverse.

Relative advantage
The earlier theory never tells if trade will take place if one
country(say USA) has absolute adv in both products. And the
other having disadvantage in both.
Apparently it appears that USA has nothing to gain from
trade.

product USA JAPAN

PC 20 10
car 30 20

Ricardo observed that relative costs are more important, not

absolute costs. This is called comparative adv.
This is done by ratio of PCs to cars. For USA
The adv ratio of PCs is 2:1(20:10) in favor of USA, but
This adv ratio is less for cars 1.5:1(30:20).
These ratios indicate USA has 100% adv over Japan for PCs
but only 50% adv in cars.

Political & Legal Environment-3 Dimensions

Home country environment.

Host country environment.

General international environment.

Home country environment: example is South Africa (Home
country’s political pressures forced US / German firms to
leave South Africa). When Japan became South Africa's
leading trading partner then Japanese Govt. was extremely
embarrassed.
Third country marketing :A firm having no problem with
home Govt. or South African Govt. , could be bothered /
boycotted due to their South African operation in a third
country (USA/ Germany ). European firms face same
problem in USA if they do trading in Cuba.
Bribery / Kick Back / Corruption: Some Govt’s may restrict
global marketing due to bribery and corruption. In many
countries favors are a way of life, in others it is unethical
even criminal offence. Global Marketers must carefully
distinguish between reasonable ways of doing business
internationally- including adaptation with foreign
expectation and bribery & corruption.

General and political environment

Political Risk: Applicable to all the countries. Risk lowest in

countries with a history of stability & consistency. 3 types
risks -
1. Ownership risk - Exposes life & property.
2. Operating risk – Interference with company’s existing
operation.
3. Transfer risk - Interference while transferring capital.

General International (Political) Environment: Apart from

home country & host country relation, international firm
becomes somewhat involved with host country’s
international relation (in spite of its neutrality ). So apart
from bilateral relations even multilateral agreements
influencing relations among groups is important.
Regional group: When country is a member of regional group
SAARC, EU, OPEC. This influences firm’s evaluation of the
host country. There may be a particular friend/enemy even
within the group.

International Group: Other factor is membership of

international organization like IMF/World bank who may
provide loan but puts restrictions on country’s trade /
marketing (patent, transport, payment, communications).

General and political environment

More membership of international body - more acceptances of

regulations.
Political risk analysis method - ratio of the return to risk.

1. Assess issues of relevance and the magnitude of their

importance to the firm (for one firm shifting profits and
policies relating to that, tax law etc. may be important. For
other, product quality and policies & changes relating to
labor law, technology, pollution that may be highest
concern).

2. Assess political instability & effects of severe depression-

Try to assess sequence of political events not a single event.
Instability in Russia replacement of Yeltsin comes Putin
,Treaty with India - effect on trade/tax/visa.

Entry strategies
Different strategies –
1) Exporting-a. co. can minimize the risk of dealing
internationally by exporting domestically manufactured
items.
Adv- capital requirement minimum, easy to initiate and
good for gaining experience.
2) Contractual agreement :
a) Patent licensing agreement : based on either a fixed fee or
a royalty basis and includes managerial training.

b) Turnkey operations: based on a fixed fee or cost plus

arrangement and include plant construction, training and
production trial run.

c) Co-production agreement: followed in socialist nations.

Plants are built and then paid for with (part) of output.

d) Management contracts : used in middle east . An MNC

provides key personnel to operate foreign co for a fee till
local people gain the ability to manage independently.

e) Licensing:it encompasses a variety of contractual

agreement whereby a multinational marketer makes
available tangible assets like – patents, trade know-how,
trademark, co. name etc. to foreign cos in return for
royalties.

Advantages –
i) Needs little capital but gives easy and quick entry.
ii) In communist countries licensing is only way of entry.
Gives life extension for products on maturity stage.
It is good alternative to foreign production and mktg. when
there is global inflation, skilled labour shortage, growing
govt. regulation and international though competition.
v) Licensing royalties are guaranteed and periodic.
vi)Domestically based firms benefit from product
development abroad without research expense.

vii) When export not profitable due to competition, then it is

alternative.
 viii) Help overcome high transport cost.
ix) Licensing is immune to expropriation.

Disadvantages :-
i) Licensor has no control over prodn / mktg by licensee.
ii) Licensing royalties are low (less than 5% due to govt.
restrictions) .
iii) Licensee may lose interest in renewing contract unless
there is new tech / innovation .
iv) To all are licensees a firm must have distinctive brand
name, tech , trade mark etc .

3) Joint venture :
Represents a higher risk alternative because it needs
various levels of direct investment . when a firms moves
beyond the exporting stage to a more regular overseas
involvement then jv is most common form of entry . these
are designed to take advantage of strong functions
(management , R&D ,Mktg ) .

Major problem of j.v. is – there is more than one partner and one of
the partners should play a key role .

Advantages –
Saving tech – helps devloping nations by j.v.
Saving risk –risk saved by partners (good for politically
sensitive areas) .
preferred treatment – presented by govt. since locally
controlled .
Easier access to mkt &mkt information .
raw material use - countries with oil / mining do not allow
foreign firms but allows j. v.

4) Manufacturing :
An MNC can establish itself in overseas mkt by direct
investment in mafg / assembly subsidary . due to volatility
 of social / econ / political condition it is risky . cull in
Bhopal suggested that an mnc should not manufacture
overseas where risk of a mishap may jeopardize the
survival of total enterprise . factory risk relates to 5
factors –

a) Type of product .

b) Econ / political factors (business in pakistan)

c) Firm’s competitive position , products life cycle .

d) Dynamic capital budgeting - cost and availability.

e) Distance between firm’s decision makers and target

customers .

Contract manufacturing
Only possible only when firm can locate a foreign produce
with capacity to produce
the product in satisfactory quantity &quality.

Enables firm to avoid labor& legal problems in an unknown

country.
Firm can advertise its products being locally made.
If mktg is too small/risky it is easier to terminate contract than
to shutdown plant.
Saving transportation costs& lower prodn Cost outside.
It is profitable if firm is strong in mktg than manufac.

Disadv :
Difficult to find good manufacturer.
Quality control difficult due to distance.
Manufacturing profit goes to a local firm.
 International marketing – segmentation
Market segment: it refers to a group of countries that are
alike in respect of their responsiveness to some aspect of
marketing strategy. hence marketing segmentation may
be defined as a technique of dividing different countries
into homogeneous groups. a firm can not serve the entire
world with a single set of policies because there are
disparities among nations – economic and cultural. an
international marketer –therefore should pick out one or
more countries as target markets .
Due to severe global competition many firms are learning to
operate or dominate ‘niche markets’ ( niche is a relatively
small segment of market that major competitors may
overlook, ignore or have difficulty in serving ).

Segmentation process :
Develop a market formula for classifying the world markets.
Segment all countries into homogeneous group having
common characteristics.
Determine theoretically the most efficient method of serving
each group.

* Choose the group in which marketer’s

product/service/strength is in live with the requirement of
the group.
* Adjust this ideal classification to the real constraints (legal,
political, practical etc.).
Computer co. ( hp ) – 3 segments based on need.

1. Very simple (first generation m/c).

2. Medium sized computers ( second generation m/c ).
Large sophisticated computers ( third generation m/c ).

HP now selects second segment and finds it welled placed for

that.
•
 Countries in this segment – brazil, south Korea ,Taiwan,
Singapore, Mexico, Hong Kong and Nigeria.
HP establish 3 assembly plants Nigeria, brazil and south
Korea.

But computer industry often face lack of scientific

personnel, HP may consider establishing a plant in india,
not in south Korea ,since India has a large pool of
scientists.

INTERNATIONAL MKT. SEGMENTATION

The Firm The environment

Criteria Selection of relevant Segmentation criteria

Step-1

1. Measurability
2. Accessibility Development of appropriate
Step-2
Segments

3. Substantiality screening of segments to narrow down

Step-3
list of choice of target markets/ countries

Micro segmentation, develop segments in

Step-4
each qualified country /countries

4. Actionability
Market entry
How many markets?
When?
Sequence?
 Measurability - Degree to which size/purchasing power of
resulting segments can be measured.

Accessibility – The degree to which resulting segments can

be effectively reached / served.

Substantiality/Profitability – The degree to which segments

are efficiently large and profitable.

Actionability - The degree to which organization has

sufficient resources to effectively formulate marketing
programme(make things happen).

The basis of international marketing segmentation.

General characteristics.
1. Geographic High degree of
measurability, Accessibility& Action ability
2. Language
3. Political factor
4. Demography
5. Economy
6. Industrial Structure
7. Technology
8. Social organization
9. Religion
10. Education
11. Cultural factor
12. Life style Low degree of
measurability
13. Personality Accessibility &
Actionability
14. Test / Attitude
 1. Geographic location – Market location is critical for
segmenting. Middle eastern countries, far eastern countries-
high degree of similarity.

2. Language – Mirror of the culture. Advertisement brand

names. In local language for acceptability. Negotiation
without interpreter.

3. Political factors – Countries may be grouped & markets

segmented according to political factors – a company
producing good quality textiles may find many markets
difficult to enter govt. regulation.

4. Demography – Critical factor for segmentation . Proportion

of old / infant important.Europe – infant rate in falling –
baby food & toy game company will not enter there.

5. Economy – Econ development critical factor.Electric

dishwashers require a certain level of economic development
in India no marketing but in western Europe basic need
societies with high income spend more in service recreation /
health.

6. Industrial structure – One country may rely on many small

retailers, others depend on departmental store. Similarly,
small manufacturers & large retail activities may have
critical role for international marketer.

7. Technology – Technological advancement may be a basis of

segmentation. Software companies may segment markets on
the basis of PC/ thousand . Pakistan/Iran – unsuitable.

8. Social organization - Nuclear family or extended family of 3

generations. In USA socio economic grouping 6 important
 for mkt. Segmentation. Upper- Upper, Lower Upper, Upper
Middle, Lower Middle, Upper lower&Lower Lower.

9. Religion – Religion is important for segmentation. Gift

exchange at Christmas in Europe. Islamic laws & econ.
Activity can not be ignored in middle east.

10. Education – Main- aspects – potential of youth mkt. & level

of literacy. Industrialized nations- literacy is near 100% and
all communication media is open to international marketers.
In LDC with 20% literacy, visual media (TV) or radio may
be more relevant promotional tool.

Int. mkt. Entry.- Factors influencing- Firms choice of

entry mode for a given product/target country is
net result of several conflicting forces.
Anticipation of strength / direction of three forces leads to
several trade off among alternative entry mode.
Internal factors

Firm size
Product
International experience

1. Firm size – Size is indicators of firms resource availability

small & medium enterprises(SMEs)because of their low
resources, enter through export mode. As the firm goes it
will use gradually hierarchical mode and will desire high
level of control over international operations and wish to
make heavy resource commitments to foreign markets.

2. Product -Physical quality of the product/service such as

value, weight(ratio), perish ability, composition are
important factors. Products with high value (weight ratio)
 like costly watches are not directly exported similarly soft
drinks/Beer companies.Try to establish licensing agreements
or local bottling arrangement.
Products distinguished by physical valuation, brand
name, advertisement & strong after sales service(warranty,
repair,replacement) promote preference for one product
over another and may help price rise exceeding costs by
more than normal profits. These help develop entry barriers
and limit, competition. These product differentiation
advantage create natural monopoly.
3. International experience – Here influencing factor is
experience of managers/firm.To what extent firm is involved
internationally in one country or in general international
environment is important. International experience reduces
cost & uncertainty in such cases. Direct experience with
foreign markets will increase extra resource commitments to
foreign markets.

Economic union
–Integration of economic policy + Free movement of good
services, factors of production, harmony in taxation &
monetary policy, common currency- fixed exchange rates.

Group of economics. Low income-GNP per capita < $

725
(1994 study) Middle income- < $
8955
High income - >
$8956

International marketing & cultural environment.

Language - It is is a mirror of the culture. 1) Verbal language
(vocal sound in pattern) 2) nonverbal language (more
 powerful, body language, silences, social distance).
Pronunciation /accent of language important. Language is
key to culture,4 key roles

* Information gathering (Mkt. Related)

* Comfort in dealing-without interpreter.
Guess politics & risk analysis
Access to local society – Pop in local language(serious
MNC )

Explicit Communication- Say what you mean and mean

what you say (No vague directives/instructions). Burden
of effective communication is on the speaker.

Implicit communication – (High context language culture)-

Speaker & listener both share burden of effective
communication can avoid unpleasant or direct
confrontation.

Manners & customers – Extremely vital in negotiation and

knowledge about manners & customs may narrow
cultural differences. In some cultures managers &
subordinates are separated, in others they work together.
Ad in close touch in perfume ad for Europe, Low touch in
Saudi Arabia.

International Mktg. & Economic environment

Market size/growth/buying capacity/infrastructure.
Classification by national income & degree of
industrialization.

Less developed country (LDC)

- Low GDP per capita (Less than $ 3000). –Limited
manufacturing
- Poor infrastructure. – Reliance on one product / one partner.
 Newly industrialized countries (NICS)
- High growth(Tigers of S.E.Asia-
S.Korea,Taiwan,Singapore,Hong Kong)
- Developed infrastructure– DD>SS, Ever growing demand,
Diffi.to match.
Advanced industrialized countries
High gdp. –Solid industrial base. –Developed service
sector(Tourism, Insurance, health care).- Developed
infrastructure.
Regional economic integration
- Economic cooperation. – More effective use of resources. –
Provide larger markets
Free trade area- No barrier for members. Least respective
and loosest form of economical integration. EFTA-
European free trade area. EU-European union.NAFTA-
North American free trade agreement.
Custom Union. Goods & services are freely traded among
members. Common trade policy to non-members.
Common market – Same as customs union.Mobility of
factors of production (L,K,Tech).Restrictions on
immigration & cross border investment abolished.

Entry strategies
different strategies –
1)exporting : a. co. can minimise the risk of dealing
internationally by exporting domestically manufactured
items.

adv- capital requirement minimum, easy to initiate and good

for gaining experience.

2)contractual agreement :

a)patent licencing agreement : based on either a fixed fee or a

royalty basis and include managerial training.
b) turnkey operations : based on a fixed fee or cost plus
arrangement and include plant construction, training and
production trial run.
c)co-production agreement : followed in socialist nations.
plants are built and then paid for with (part) of output.
d) management contracts : used in middle east a. mnc
provides key personnel to operate foreign co for a fee till
local people gain the ability to manage independently.

advantages –e) licencing : it encompasses a variety of

contractual agreement whereby a multinational marketer
makes available tangible assets like – patents, trade
knowhow, trademark, co. name etc. to foreign cos in return
for royalties.

i) needs little capital but gives easy and quick entry.

ii) in communist countries licencing is only way of entry.

gives life extension for products on maturity stage.

iii) it is good alternative to foreign production and kmtg.

when there is global inflation, skilled labour shortage,
growing ovt. regulation and international though
competition.

v) licencing royalties are guranteed and periodic.

vi) domestically based firms benefit from product development

abroad without research expense.

vii) when export not profitable due to competation , then it is

alternative .
viii) help overcome high transport cost .
ix) licencing is immune to expropritation .
disadvantages :-
i) licensor has no control over prodn / mktg by licensee .
ii) licensing royalities are low (less than 5% due to govt.
restrictions ) .
iii) licensee may lose interest in renewing contract unless there
is new tech / innovation .
iv) to all are licensees a firm must have distinctive brand
name , tech , trade mark egc .
3) joint venture :
represents a higher risk alternative because it needs various
levels of direct investment . when a firms moves beyond the
exporting stage to a more regular overseas involvement then
jv is most common form of entry . these are designed to take
advantage of strong functions (management ,r & d ,mktg ) .

major problem of j.v. is – there is more than one partner and one of
the partners should play a key role .
advantages –
saving tech – helps devloping nations by j.v.
saving risk –risk saved by partners (good for politically
sensitive areas) .
prefered treatment – presented by govt. since locally controlled
.
easier access to mkt &mkt information .
raw material use - countries with oil / mining do not allow
foreign firms but allows j. v.
4) manufacturing :
an mnc can establish itself in overseas mkt by direct
investment in mafg / assembly subsidary . due to volatility of
social / econ / political condition it is risky . ucil in bhopal
suggested that an mnc should not manufacture overseas
where risk of a mislap may jeopardise the survival of total
enterprise . factory risk relates to 5 factors –
a)type of product .
b)econ / political factors (business in pakistan)
c)firm’s competitive positioon , products life cycle .
d)dynamic capital budgeting - cost and availibility.
e) distance between firm’s decision makers and target
customers .
international marketing – segmentation ---
market segment: it refers to a group of countries that are alike
in respect of their responsivences to some aspect of
marketing strategy. hence marketing segmentation may be
defined as a technique of dividing different countries into
homogeneous groups. a firm can not serve the entire world
with a single set of policies because there are dispasities
among nations – economic and cultural. an international
marketer –therefore should pick out one or more countries
as target markets .
due to severe global competition many firms are learning to
operate or dominate ‘niche markets’ ( niche is a relatively
small segment of market that major competitors may
overlook, ignore or have difficultym in serving ).
segmentation process :
devlop a market formula for classifying the world markets.
segment all countries into homogeneous group having common
characteristics.
determine theoritically the most efficient method of seving each
group.

* Choose the group in which marketer’s

product/service/strength is in live with the requirement of
the group.
* adjust this ideal classification to the real countraints (legal,
political, practical etc.).
* Computer co. ( hp ) – 3 segments based on need.
1. very simple (first generation m/c).
2. medium sized computers ( seccond gneration m/c ).
3. large sophisticated computers ( third generation m/c ).
* hp now selects second segment and finds it welled placed for
that.
countries in this segment – brazil, south corea ,taiwan,
singapore, mexico, hong kong and nigeria.
hp establish 3 assembly plants nigeria, brazil and south corea.
but computer industry often face lack of scientific personel, hp
may consider establishing a plant in india, not in south
corea ,since india has a large pool of scientists.
Contract manufacturing only possible only when firm
can locate a foreign produce with capacity to produce
the product in satisfactory quantity &quality.

Enables firm to avoid labor& legal problems in an unknown

country.
Firm can advertise its products being locally made.
If mktg is too small/risky it is easier to terminate contract
than to shutdown plant.
Saving transportation costs& lower prodn Cost outside.
It is profitable if firm is strong in mktg than manufac.
Disadv :difficult to find good manufacturer.
 quality control difficult due to distance.
 manufacturing profit goes to a local firm.

Firms choice of market-Market selection

Basically two determinants – 1) Environmental 2) Firm
characteristics.
1)International mkt may consist a country or group of
countries. OR
2) International mkt may be a group of customers with
nearly same characteristics. So a market can consist of
customers from several countries, since, -i)International data
are more easily available on a nation by nation basis ii)
Distribution magt. and media have been organized on a
nation by nation basis. Most of the agents / distributors still
 represent their manufacturers only in one country. Only a
few sell their products on cross-border basis.
However boundary lines are in many cases result of
political arrangement/war and do not reflect a similar
separation in buyer characteristics among people on either
side of border.
Determinants of a firms choice of foreign mkt.
↓
FIRM LEVEL
-Degree of internationalization & overseas experience
-Size/amount of resourses
- Type of industry/Nature of business
-Goals of internationalization
- Existing network
↓

ENVIRONMENT LEVEL
-International Industry structure
-Degree of internationalization of market
-Host country market potential
-Host country competition
-Host country geographic distance.
- Host country market similarity
↓
International market segmentation
↓
International market selection(IMS)

Product policy & planning

Must be made on careful analysis and review. The nature,
depth and breadth of the product line, possibilities of new
product development & product innovation, the importance
attached to product design (to suit local need). The decision
on foreign R&D and a planned screening & elimination of
unsuccessful products bear heavily on success in foreign
mkt.-Subhas Jain.
Def – A product can be defined as a bundle of attributes that
satisfies a customer demand.
International product involves determining which products to
introduce into which countries, what modifications to make,
what new products to add, what brand names to use, what
package design to use, what guarantee/ warranty to give,
what after sales service to offer and finally when to enter the
market.

Product objective : Product objectives emerge from host

country & corporate objectives combined. Co’s goals goals
usually are stability, growth, profits, & ROI. It is a
combination of various stake holders interests for which it is
accountable.Oppositely host country objective depends on its
economic, political & cultural environment.(for LDC-faster
growth, balanced industrial sector, more
employment,earning more foreign exchange etc.).

Generally these two objectives are poles apart, however no

company can hope to succeed without aligning itself with
national concern of host country.
Foreign exchange shortage (host country)→ help export promotion
(MNC objective).

Product design strategy

1) Standardization –Means offering common product on
national ,and world wide basis.

2) Customerisation – Means making appropriate changes in a

product to match local perspectives (also called adaptation).
The goals of reducing costs and complexity lead firms to
consider standardization, while a customer orientation sways
them towards customerisation.

Factors encouraging standardization :

A) Economies of scale- If a product has only one production
source, by standardizing it gains economics of high vol.
Production.
B) Economies in R & D – Less research need will be there
uniformity yield a similar advantage in product development
expenses.
C) Economies of mktg. – Sales literature, training needs, AD.
Plans are similar when product is uniform.
D) Consumer mobility – If product is same, consumers may
purchase when traveling (Gillette blade, Kodak film,
etc.)product standardization is necessary here to retain
their loyalty.
E) Home country image – Items considered typically of a
country gets, advantage from standardization.
US character - Coca cola, French character - Perfumes,
wines
Japan character - Electronic goods, small cars
F) Industrial products – Product for which technical
specifications are critical tend to be uniform internationally.

Product Policy
Product policy goes, beyond the product itself, Attributes such
as
Brands,
Trademarks,
Origin,
Packaging,
Labeling,
Warranty & service policies represent key decision areas.

1) Extension of domestic line- The extension of domestic

product to foreign markets follows the logic of the concept of
international PLC. A firm may initially export a few
products overseas. As those mkts. Grow or change, an
opportunity may emerge to expand the line by selecting
 additional products from domestic line for overseas
distribution. Coca cola began mktg in 1958 in Japan. Fanta
was added in 1968, Sprite in 1970.

2) Additional products to international line- Two reasons-

To serve unfulfilled customer need in a particular market or to

optimize the existing mktg capacity. A chemical/pesticide
company selling overseas in developing countries may
discover a high demand for quality seed and then may add
seed to its line.
. A good distribution system to serve rural customers overseas.
The co. then start distributing to its rural customers. Such
products may or may not be related to co’s business. Coca
cola markets potato chips in Japan but not at home.

The decision to add a product to the line is influenced by mktg

compatibility, finances, organization & environment. The
closer the proposed product to the current mktg perspective,
it is easier to market the product successfully.

A low compatibility financial risk analysis necessary to secure

profitability & cash flow. Similarly environmental
compatibility includes competition, legal & political
problems.

3) Introduction of a new product to a host country – Here new

product is defined as a new product to the host country but
not to international mkt. Kodak started selling pocket
camera to Sri lanka, Pakistan, Thailand in 1982, which was
new to the region but not in western countries. The main
points are which products? About timing & sequence of
introduction and whether in standardized form or to adapt
peculiar changes.
4) Alternative ways of seeking new products for overseas -Co
can develop a new product internally (by R & D) or by
acquisition from another co. Colgate-Palmolive developed in
USA a manual washing device- an all plastic, hand powered
washers for LDCs. On the other hand Gillatte acquired
Braun AG of Germany to add electric shavers to its line.

5) Operating via exports – If a firm reaches foreign mkt. Only

through exports, it will be selling uniform products only.

Factors encouraging adaptation –

A) Profit max – Economies referred above are cost
minimization not profit maximization.

B) Differing use conditions – The conditions under which a

product is used vary greatly from country to country. For
cars, trucks, tyres different road & traffic conditions may
product changes.

C) Other mkt factors – Consumer tastes are not identical

around the world- food, fashion etc differ in neighboring
countries. French prefer 4 door car, Germans 2 door cars.

D) Influence of Govt. – Nation may forbid few goods to be

imported/ manufactured. Govt. regulation on product,
packaging & labeling are an important cause for product
variation among nations-mainly food/drugs.

E) Co history & operations – Some firms have foreign

operations before world war-II. These self- contained
subsidiaries developed products for their mkts without
regard to global product uniformity.
Product policy goes, beyond the product
itself, Attributes such as brands, trademarks, origin,
packaging, labeling, warranty & service policies
represent key decision areas

•A perspective on branding

•Advantages
•Single brand(in one mkt)
•Mktg efficiency.
•More focused mktg.
•Brand confusion eliminated.
•Local brands
•Meaningful name
•Local identification
•Avoid tax on international brand
•Easy mkt penetration
•Variations in quality across mkts
• allowed
•World wide brands
•Max mktg efficiency
•Reduction in ad cost
•No brand confusion
•Advantage for culture free product
•Adv for prestigious product
Disadvantages
Mktg homogeneity assumed
Exiting brands image hurt
Limited shelf space
Higher mktg cost
Higher inventory cost
Loss of economics of scale
Diffused image
Mkt homogeneity assumed
Problem with black/gray mkts
Danger of negative meaning
Quality consistency needed
LDC’s opposition
Legal complication.

Product revitalization-
If profits, sales, vol, mkt share all fall below expectation, then
either revitalize or drop the product. Strategic alternatives
—

1) Maintain the product& its mktg strategy in present

form.
2) ,, ,, & change mktg strategy.
3) Change the product & change the strategy.
4) Drop the product/ product line.
5) Add new products or product lines.
Perceptual mapping to study strength/weakness of a
product vis a vis competitors.

Product elimination check list—

Corporate image

Sales of other products

Customer relationship

Effect on profitability

Any product to replace

Employee relationship

Profitability of other products (tyer /tube)

8)Competitor’s move.

International pricing strategies (price sensitivity)

Pricing strategy-
Gain mkt share.
Short run gain(milk the business).
Discourage competitors.
Forestall other’s entry.
Hold high price(to keep less efficient active for antitrust).

Price sensitivity depends on-

Whether buyer can pass on cost of purchase to the customers.
Uncertainty in switching to low priced item.
Value performance over cost-high quality, good service, timely
delivery will pay premium.
 A) Skimming Pricing
1. Skim the cream from the top end of the market.
2. Realise highest profit in short run.
3. Unique product feature, extra comfort, ease of operation.
4. Designed to appeal affluent & demanding.
5. ‘Trade off between’ low mkt share against high profit.

Drawbacks
“ Small mkt share – High vulnerability to local competition.
“ High quality product needs huge resources(for
promotion/service)
“ Difficulty to keep visible presence in distant markets.
“ If P is very low in home country/another country – grey
mktg.
“ Ultimately success of skimming depends on ability seed of
competition.

B) Penetration Pricing
1. To stimulate mkt growth and capture mkt share.
2. Successful for mass mkt P sensitive customers & cost
reduction economies of scale.
3. Lower income levels of local customers
4. R & D and overhead cost covered by home sales, export
represents marginal activity.
5. Japanese firms use this to gain mkt share leadership ( cars,
TV, W/M, electronic goods ).

Pricing policy

Cash discount-given for prompt payment(7/10

days),applicable on gross amt(basic+taxes) and given in bill.
For bad paymaster give CN after payment release.

Geographic pricing-
1)ex factory-prices prevailing at factory gate, buyer pays
transport + freight.

2)FOB(free on board)/ FOR(free on road)destination. Freight

costs are absorbed by seller& included in quotation. Nominal
transit insurance is borne by seller. If open insurance policy of
buyer then damage/ theft in transit is settled by buyer with
GIC.

Direct payment-goods dispatched directly to the customers

and invoice sent with gate pass/challan/consignee copy of
LR/RR.sometimes for safety ,seller sends consignee copy of
LR/RR to branch rep who collects DD and hands over
consignee copy to collect material.

The experience curve-

Cost (variable)declines as production vol
increases(Boeing exp in 1950)
No of hours needed to build Boeing decreases 20%,
each time cumulative prodn doubled.
GM, GE,IBM also found vol related cost factors
(procurement cost, defective parts, down time,
distribution cost, mkt cost) all decline.
Impact of improvement is due to learning process.
Diff between learning curve &economies of scale-LC
deals with accumulation of quantity over time and is
independent of rate of production. On the other hand
economics of scale shows the impact that diff levels of
prodn have on unit costs at a specific time.

Promotional strategies – for int mktg

Sales promotion is defined as those selling activities that do not
fall directly into the advertisement/personal selling category.
It relates below the line activities – display, demonstration,
leaflets, free trials, contests, premium (buy one get one) etc.
factors contributing to the expansion of sales promotion
include ---

# Greater competition among retailers ( increasingly

sophisticated relating method).

# Improved retail technology (instant coupon redemption

electronically).

# Consumer higher brand awareness (need to defend brand

share).

# Greater integration of sales promotion / public relation and

traditional media campaign.

# Mkts where due to media limitation it is hard to reach, there

sales promotion budget is high.

* Price discounts – Price reduction technique.

* Catalogue/brochures – Foreign catalogue for a far off

customers.

* Coupons – Door to door, on pack, in news paper(for FMCG).

* Samples – Samples gives foreign customer idea of size, model,

style etc.

* Gift – Some countries have limitation / restrictions on gift

value.

* Competition – on pack, in store via leaflet or by media.

It is impossible to know specific laws of each and every country
so international marketer must consult local lawyers and
authorities before launching.

Direct Marketing:
For soliciting direct response from customers by direct mail
(through database ), telephone selling and via internet,
reasons of expansion

Development of mailing technology has reduced time/cost.

Cost escalation of media / sales promotion.

Ready availability of good quality prospective customer list.

Development of it – solid data base and desk top publishing for

even small firms.

Increasing use of interactive TV facility – customers can order

through teletext system from remote country.

Mode of payment-direct&
through bank

Direct payment-goods dispatched directly to

consumer & invoice sent with gate pass/
challan/consignee copy of LR/RR. Credit offered
30/60 days for good payment master.
Throuhg bank-letter of credit(LC), doc against
payment(DP)
 Supplier sends bill,LR/RR, inspection certificate via
bank.
LC may be with credit or at sight(without credit). It
is safest if no mistake is there.
Next safe is DP, doc is sent to customer’s bank
(without credit). Only if customer pays, doc is
given. Suppliers transporter should be honest
(otherwise they will handover goods without
consignee copy)

North American Free Trade Agreement

Implementation of the North American Free Trade Agreement
(NAFTA) began on Jan. 1, 1994. This agreement will remove most
barriers to trade and investment among the United States, Canada, and
Mexico.

Under NAFTA, all non-tariff barriers to agricultural trade between the

United States and Mexico were eliminated. In addition, many tariffs
were eliminated immediately, with others being phased out over periods
of 5 to 15 years.

All agricultural provisions will be implemented by the year 2008. For

import-sensitive industries, long transition periods and special
safeguards will allow for an orderly adjustment to free trade with
Mexico.

The agricultural provisions of the U.S.-Canada Free Trade Agreement

(CFTA), in effect since 1989, were incorporated into the NAFTA. Under
these provisions, all tariffs affecting agricultural trade between the
United States and Canada, with a few exceptions for items covered by
tariff-rate quotas (TRQ's), were removed before Jan. 1, 1998.
Mexico and Canada reached a separate bilateral NAFTA agreement on
market access for agricultural products. The Mexican-Canadian
agreement eliminated most tariffs either immediately or over 5, 10, or
15 years. Tariffs between the two countries affecting trade in dairy,
poultry, eggs, and sugar are maintained.

Under NAFTA, all non-tariff measures affecting agricultural trade

between the United States and Mexico were eliminated on Jan. 1, 1994.
These barriers, including Mexico's import licensing system (which had
been the largest single barrier to U.S. agricultural sales), were converted
to either tariff-rate quotas or ordinary tariffs.

All agricultural tariffs between Mexico and the United States will be
eliminated. Many were immediately eliminated and others will be
phased out over transition periods of 5, 10, or 15 years. The immediate
tariff eliminations applied to a broad range of agricultural products. In
fact, more than half the value of agricultural trade became duty free
when the agreement went into effect. Tariff reductions between the
United States and Canada had already been implemented under the
CFTA.

Both Mexico and the United States protected their import-sensitive

sectors with longer transition periods, tariff-rate quotas, and, for
certain products, special safeguard provisions. However, once the 15-
year transition period has passed, free trade with Mexico will prevail
for all agricultural products. NAFTA also provides for tough rules of
origin to ensure that maximum benefits accrue only to those items
produced in North America.

Other Key NAFTA Provisions

Sanitary and Phytosanitary Measures: The NAFTA imposes disciplines

on the development, adoption, and enforcement of sanitary and
phytosanitary (SPS) measures. These are measures taken to protect
human, animal, or plant life or health from risks that may arise from
animal or plant pests or diseases, or from food additives or
contaminants. Disciplines contained in NAFTA are designed to prevent
the use of SPS measures as disguised restrictions on trade, while still
safeguarding each country's right to protect consumers from unsafe
products, or to protect domestic crops and livestock from the
introduction of imported pests and diseases.

Although NAFTA encourages trading partners to adopt international

and regional standards, the agreement explicitly recog-nizes each
country's right to determine the necessary level of protection. Such
flexibil-ity permits each country to set more strin-gent standards, as
long as they are scientific-ally based. NAFTA also allows state and local
governments to enact standards more stringent than those adopted at
the national level, so long as these standards are scientif-ically
defensible and are administered in a forthright, expeditious manner.

Export Subsidies: The three NAFTA countries will work toward the
elimination of export subsidies in North America, in pursuit of the
broader objective of eliminating such subsidies worldwide. The United
States and Canada will be allowed to provide export subsidies into the
Mexican market to counter subsidized exports from other countries.
Neither Canada nor the United States is allowed to use direct export
subsidies for agricultural products being sold to the other, and both
countries are required to consider the export interests of the other
whenever subsidizing agricultural exports to third countries.

Internal Support: Under NAFTA, the parties should endeavor to move

toward domestic support policies that have minimal trade or production
distorting effects, or toward policies exempt from domestic support
reduction commitments under the World Trade Organization.

Grade and Quality Standards: The United States and Mexico agreed that
when either country applies a measure regarding the classification,
grading, or marketing of a domestic product destined for processing, it
will provide no less favorable treatment for like products imported for
processing.

United Nations Conference on Trade and

Development
The United Nations Conference on Trade and Development (UNCTAD)
was established in 1964 as a permanent intergovernmental body,
UNCTAD is the principal organ of the United Nations General
Assembly dealing with trade, investment and development issues.

The organizations goals are to "maximize the trade, investment and

development opportunities of developing countries and assist them in
their efforts to integrate into the world economy on an equitable basis."
(from official website).

Currently, UNCTAD has 191 member States and is headquartered in

Geneva, Switzerland. UNCTAD has 400 staff members and an annual
regular budget of approximately US$50 million and US$25 million of
extrabudgetary technical assistance funds.

The Secretary-General of UNCTAD is Dr. Supachai Panitchpakdi

(Thailand), who took office on 1 September 2005.

The inter-governmental work is done at 4 levels of meetings [1]:

• The UNCTAD Conference - held every 4 years, the last one was
UNCTAD XI in Sao Paulo in June 2004 [2];
• The UNCTAD Trade and Development Board - the Board
manages the work of UNCTAD in between two Conferences and
meets up to three times every year;
• Four UNCTAD Commissions and one Working Party - these meet
more often than the Board in order to take up policy, programme
and budgetary issues;
• Expert Meetings - the Commissions will convene expert meetings
on selected topics in order to provide substantive and expert input
for Commission policy discussions.

UNCTAD produces a number of topical reports, including:

• The Trade and Development Report

• The World Investment Report
• The Economic Development in Africa Report
• The Least Developed Countries Report
• UNCTAD Statistics
• The Information Economy Report
• The Review of Maritime Transport

UNCTAD also conducts various technical cooperation programmes.

World Trade Organization
History

The Bretton Woods Conference of 1944 proposed the creation of an

International Trade Organization (ITO) to establish rules and
regulations for trade between countries. The ITO charter was agreed at
the UN Conference on Trade and Employment in Havana in March
1948, but was blocked by the U.S. Senate (WTO, 2004b). Some
historians have argued that the failure may have resulted from fears
within the American business community that the International Trade
Organization could be used to regulate, rather than liberate, big
business (Lisa Wilkins, 1997).

Only one element of the ITO survived: the General Agreement on

Tariffs and Trade (GATT). Seven rounds of negotiations occurred
under GATT before the eighth round - the Uruguay Round - concluded
in 1995 with the establishment of the WTO as the GATT's replacement.
The GATT principles and agreements were adopted by the WTO,
which was charged with administering and extending them. Unlike the
GATT, the WTO has a substantial institutional structure.

Mission

The WTO aims to encourage smooth and free trade by promoting lower
trade barriers and providing a platform for the negotiation of trade and
to resolve disputes between member nations, when they arise. The goal
is to help producers of goods and services, exporters, and importers
conduct their business.

Principles of the trading system

The WTO discussions should follow these fundamental principles of

trading.

1. A trading system should be discrimination-free in a sense that a

country cannot favour another country or discriminate against
foreign products or services.
 2. A trading system should be freer where there should be little
trade barriers(tariffs and non-tariff barriers).
3. A trading system should be predictable where foreign companies
and governments can be sure that trade barriers would not be
raised and markets will remain open.
4. A trading system should be more competitive.
5. A trading system should be more accommodating for less
developed countries, giving them more time to adjust, greater
flexibility, and more privileges

Structure

All WTO members may participate in all councils, committees, etc.,

except Appellate Body, Dispute Settlement panels, and plurilateral
committees.

Highest level: Ministerial Conference

The topmost decision-making body of the WTO is the Ministerial

Conference, which has to meet at least every two years. It brings
together all members of the WTO, all of which are countries or customs
unions. The Ministerial Conference can take decisions on all matters
under any of the multilateral trade agreements.

Second level: General Council

The daily work of the ministerial conference is handled by three groups

The General Council, The Dispute Settlement Body and The Trade
Policy Review Body.

1. The General Council- is the WTO’s highest-level decision-making

body in Geneva, meeting regularly to carry out the functions of the
WTO. It has representatives (usually ambassadors or equivalent) from
all member governments and has the authority to act on behalf of the
ministerial conference which only meets about every two years. The
council acts on behalf on the Ministerial Council on all of the WTO
affairs. The current chairman is Amina Chawahir Mohamed (Kenya).

2. The Dispute Settlement Body - Made up of all member governments,

usually represented by ambassadors or equivalent. The current
chairperson is Eirik Glenne (Norway).
3. The Trade Policy Review Body (TPRB) - the WTO General Council
meets as the Trade Policy Review Body to undertake trade policy
reviews of Members under the TRPM. The TPRB is thus open to all
WTO Members. The current chairperson is Don Stephenson (Canada).

Third level: Councils for Trade

The Councils for Trade work under the General Council. There are
three councils - Council for Trade in Goods, Council for Trade-Related
Aspects of Intellectual Property Rights, and Council for Trade in
Services - each council works in different fields. Apart from these three
councils, six other bodies report to the General Council reporting on
issues such as trade and development, the environment, regional trading
arrangements and administrative issues.

1. Council for Trade in Goods- The workings of the General Agreement

on Tariffs and Trade (GATT) which covers international trade in
goods, are the responsibility of the Council for Trade in Goods. It is
made up of representatives from all WTO member countries. The
current chairperson is Vesa Tapani Himanen (Finland).

2. Council for Trade-Related Aspects of Intellectual Property Rights-

Information on intellectual property in the WTO, news and official
records of the activities of the TRIPS Council, and details of the WTO’s
work with other international organizations in the field.

3. Council for Trade in Services- The Council for Trade in Services

operates under the guidance of the General Council and is responsible
for overseeing the functioning of the General Agreement on Trade in
Services (GATS). It’s open to all WTO members, and can create
subsidiary bodies as required. The current chairperson is Claudia Uribe
(Colombia).

Fourth level: Subsidiary Bodies

Under each of the three councils, there are subsidiary bodies under each
one.

1. The Goods Council- subsidiary under the Council for Trade in

Goods. It has 11 committees dealing with specific subjects (such as
agriculture, market access, subsidies, anti-dumping measures and so
on), which include the following. Again, these committees consist of all
member countries.

Information Technology Agreement (ITA) Committee

Apart from hosting negotiations on trade rules, the WTO also acts as an
arbiter of disputes between member states over its rules. And unlike
most other international organizations, the WTO has significant power
to enforce its decisions through the authorisation or trade sanctions
against members which fail to comply with its decisions. Member states
can bring disputes to the WTO's Dispute Settlement Body if they believe
another member has breached WTO rules.

Disputes are heard by a Dispute Settlement Panel, usually made up of

three trade officials. The panels meet in secret and are not required to
alert national parliaments that their laws have been challenged by
another country.

ADB Operations

ADB's development work is aimed at improving the welfare of the

people of Asia and the Pacific, especially of the 690 million poor living
on less than a dollar a day.

Within months of adopting its poverty reduction strategy in 1999, ADB

began focusing its work toward eliminating poverty in the region.

ADB's projects and programs, whether poverty interventions or

otherwise, emphasize one or more of the following priorities:

• ECONOMIC GROWTH
• HUMAN DEVELOPMENT
• GENDER AND DEVELOPMENT
• GOOD GOVERNANCE
• ENVIRONMENTAL PROTECTION
• PRIVATE SECTOR DEVELOPMENT
• REGIONAL COOPERATION

Each priority is related directly to the three pillars of the poverty

reduction strategy:
 • Pro-poor, sustainable economic growth
• Inclusive social development
• Good governance

Other crosscutting priorities are law and policy reform and social dimensions of
development

ADB's operations are diverse, covering Sectors

• Agriculture and natural resources

• Education
• Energy
• Finance
• Health, nutrition, and social protection
• Industry and trade
• Law, economic management, and public policy
• Transport and communications
• Water supply, sanitation, and waste management
• Activities involving multiple sectors

Development Tools

ADB lends to governments and to public and private enterprises in its

developing member countries. ADB's principal tools are loans and
technical assistance, which are provided to governments for specific,
high-priority development projects and programs. ADB's lending both
supports and promotes investment for development based on a
country's priorities.

In 2004, ADB approved loans worth $5.3 billion for 64 projects, most of
which went to the public sector. People's Republic of China was the
largest borrower, followed by India, Pakistan, Philippines, and
Vietnam. Grants worth US$99.4 million were provided, and technical
assistance, which is used to prepare projects and support advisory
activities, amounted to $197 million.

Important export doc

Commercial invoice- basic doc in export transaction. Gives
details of goods, price charged, terms of shipment, marks &
numbers of packages& Customs Cooperation Council
Nomenclature (CCCN). Several copies made for various
authorities.

•Certificate of origin-required by commonwealth nations.

Needed by importer to satisfy the requirements of his govt.

GR form,

•Letter of credit-LC is most important doc in international

trade. By LC the promise to pay is usually made by importer is
substituted by the promise to pay by his bank. It gives great
security to the exporter.

Bill of lading-doc issued by the shipping co mentioning that the

good have been placed on board the ship.
Gives an understanding that the goods in like order&
condition as received will be delivered to the consignee-
provided that the freight specified will be duly paid. Made in
sets with 2/3 originals. By air shipment B/L is called ‘airway
bill’.

If contract is FOB(free on board), it means that the

freight to be paid by the importer and shipping co will issue
a ‘freight collect bill of lading’ but if contract is CIF(cost
insurance freight ) then exporter makes the freight payment
and obtains ‘freight paid bill of lading’.

A clean B/L indicates no superimposed clause declaring a

defective condition of goods/package/other aspect.

If no direct link between buyer &seller ports, then goods are

transferred to another ship at another port, so exporter obtains
a through B/L covering whole voyage.

bill of exchange,
shipping bill,
marine insurance policy.