SOCIAL AND CULTURAL

ENVIRONMENT
The development of successful international
marketing strategies is based on a sound
understanding of the similarities and
differences that exist in different countries
around the world.
Difference in language can alter the
intended meaning of a promotional
campaign and the differences in the way a
culture organizes itself socially may affect
the way a product is positioned in the
market and the benefits a consumer may
seek from that product.
 Western European Business Cultures,
Practices and Etiquette:
 Our Western European neighbors have
solid education systems and management
is usually educated to university level.
Academic titles are not generally
important except in Germany and Austria.
Be sure you get the name and title right.
 In Germany, companies are quite
hierarchical and task-orientated with a
structured approach. Punctuality is highly
valued and seen as a sign of respect.
 In France the business culture is very hierarchical
and the French take a flexible and dynamic
approach
 In the Netherlands and Scandinavia
hierarchical systems are flat and boundaries
between management levels are flexible. People
will cut across reporting lines if necessary and the
boss is ‘one of the team
 In Italy it is advisable to confirm meetings in
writing well in advance, as Italians tend to prefer
this to a phone call. The pace of meetings and
negotiations is generally slower than elsewhere in
Europe
 Toestablish a business relationship
in Spain takes time, and may involve
long lunches and dinners, and a
readiness to accept local eating
hours
 What is culture?
 THE WAY WE DO THINGS AROUND HERE.
 Culture establishes a unique set of formal
and informal rules for how we think, and
behave and what we assume to be true.
Each nation has values and beliefs which
are passed from generation to generation
and shape our social and business
behavior.
 The sum total of learned beliefs, values
and customs that serve to direct consumer
behavior in a particular country market.
COMPONENTS OF CULTURE

Language
Technology
and Material
Aesthetics
Culture

Law and
Religion CULTURES Politics

Values & Social

Attitudes Organization
s

Education
COMPONENTS OF CULTURE
 Education: The level of formal primary
and secondary education in a foreign
market will have a direct impact upon the
sophistication of the target customers.
 Social Organization: This relates to the
way a society organizes itself. How
important the status group, interest
groups and social institutions are given.
 Technology and material Culture: It
means local market’s ability to handle and
deal with modern technology.
 Law and Politics:
COMPONENTS OF CULTURE
 Aesthetics: Local Culture’s perception of
things such as beauty, good taste and
design and dictates what is acceptable or
appealing to the local eye. E.g.: Brand
Names and Color:
 Values and Attitudes: The values
consumers from different countries place
on things such as time, achievement,
work, wealth and task taking will seriously
affect not only the products offered but
also the packaging and communication
Activities.
 Values and Attitudes
Value General Features Relevance to
consumer behavior
Achievement and Hard work is good, Acts as a justification for
Success success flows from acquisition of goods (You
hard work. deserve it)

Efficiency and Admiration of things Stimulates purchase of

Practicality that solve problems products that function
(E.g. Save time and well and save time.
effort)
Progress People can improve Stimulates desire for
themselves; Tomorrow new products that fulfill
should be better than unsatisfied needs, ready
today acceptance of products
that claim to be new or
improved.
 Values and Attitudes
Value General Features Relevance to
consumer behavior
Material Comfort The good life Fosters acceptance of
convenience and luxury
products that make life
more comfortable and
enjoyable.
Individualism Being oneself (E.g.: Stimulates acceptance of
Self-Reliant, Self- customized or unique
esteem, self-interest) products that enable a
person to express his or
her own personality
External Uniformity of Stimulates interest in
Conformity observable behavior, products that are used or
desire for acceptance owned by others in the
same peer group?
 Values and Attitudes
Value General Features Relevance to
consumer behavior
Youthfulness A state of mind that Stimulates acceptance of
stresses being young products that provide the
at heart and a youthful illusion of maintaining or
appearance fostering youthfulness.
 Religion
 Religion
is a major cultural variable
and has significant if not always
apparent effects on marketing
strategy. E.g.: Saudi Arabia: Islamic
Market.

 Language: Spoken Language and

Silent Language
 TRANSLATION ERRORS
In Germany a General Motors
advertisement mentioned a ‘body by
Fischer’ which became ‘corpse by
Fischer.
The Hertz Company strap-line: ‘Let
Hertz put you in the driving seat’
became” Let Hertz make you a
chauffeur”
 Silent Language
Silent Language Implications for Marketing and business

Time Appointment scheduling. The importance of

being on time. The importance of deadline

Space Sizes of office. Conversational distance

between people

Things The relevance of material possessions, The

interest in the latest technology.

Friendship The significance of trusted friends as a social

insurance in times of stress and emergency

Agreement Rules of negotiations based on laws, moral

practices or informal customs
 Consumer buying process is
consistent across cultures
 Consumer Involvement
 Perceived Risk:

 Cognitive Style
 HALL’S HIGH/LOW CONTEXT
APPROACH:
 This main thesis was that one culture
will be different from another if it
understand and communicate in
different ways. He therefore saw
languages as the most important
component of the culture.
 LOW CONTEXT CULTURES
 They rely on spoken and written language for
meaning. Senders of messages encode their
messages expecting that the receivers will
accurately decode the words used to gain a good
understanding of the intended message.
 Messages are explicit; words carry more of the
information in communication.
 More legal paperwork
 High Context Cultures
They use and interpret more of the elements surrounding the
message to develop their understanding of the message.
In High Context Cultures the social importance, knowledge of
person and social setting and extra information and will be
perceived by the message receivers.
 Less information is contained in the message.
 ⇒ A man’s word is enough proof of his commitment,
written agreement is only incidental.
 ⇒ Much more information is contained in the context of
communication, including the background associations, and
the basic values of the communicators.
 ⇒ Much less legal paperwork.
 ⇒ Japan, Saudi Arabia and other high context cultures
place a great deal of emphasis on person’s values and
position or place in the society.
 With the Swiss, in particular, having a high
explicit content in their communications at one
extreme are the low context cultures of northern
Europe.
 At the other extreme are the high context
cultures. The Japanese have subtle and complex
ways of communicating with people according to
their age, sex and the relative and actual social
positions of the people conversing.
 The greater the contextual difference between
those trying to communicate, the greater the
difficulty firms will have in achieving accurate
communications
 CHANGE IN GLOBAL ENVIORNMENT
 Demand for convenience foods, luxury consumer
products, disposable products, and soft drinks in
the U.S., Europe, Asia, Africa, and the Middle
East suggests that most consumer products have
broad, almost universal appeal.
 Communications continue to bring the nations
closer to each other with the result more and
more products will be marketed globally.
 Increasing travel and improving communications
mean many national attitudes towards style in
clothing; colour, music, food, and drink are
converging.
 In future, culture will not limit the global reach of
companies that want to extend their operations
globally.
DIFFERENCE IN BUYER-SELLER
RELATIONSHIPS STYLES
 POLITICAL ENVIRONMENT
 The study and assessment of the
political environment include the
following:
 a. Political System:

 b. Philosophy of the Government:

 c. Permanency and Stability of

the Policy of the Government:
The policy of a government in the field
of trade may be rendered unstable,
because of any one of the following
factors:
2. Change in Governments.

3. Growing aspirations of nationalism.

4. Shifting of political parties reaching

the government at different levels
Important political perspectives of a
nation for examination
 Type of government
 Stability of government
 Quality of host government’s economic management
 Change in government policy
 Host country’s attitude toward foreign investment
 Host country’s relationship with the rest of the world
 Host country’s relationship with parent company’s home
Government
 Attitude toward assignment of foreign personnel
 Extent of anti-private-sector influence or influence of state
controlled
 Industries
 Fairness and honesty of administrative procedures
 Closeness between government and people
 Government Stability
Public unrest (demonstrations, riots, or
other demonstrations of social tension)
 Government crises (opposition forces
trying to topple the government)
 Armed attacks by one group of people on
another, or by
 groups from a neighboring country
 Guerrilla warfare
 Politically motivated assassinations
 Irregular change in top government
leaders
 Government Stability
Government Economic Management:
 The ability of the government to sustain its
internal and external debt.
 The country’s pursuit of stable and
diversified economic growth
 The country’s ability to generate an
adequate amount of foreign exchange.
 The nature of the various fiscal and
monetary means used to steer the
economy.
 The quality of the long-term planning of
economic policy and its implementation
 Government Stability
 Change in Government Policy
 Attitude toward Foreign Investment

 International Stand of Government

 Relationship with Parent Company’s

Home Government
 Attitude toward Foreign Managers

 Anti-Private-Sector Influence
 Government’s Attitude
 Sovereignty

 Political risk
 Taxes

 The threat of equity dilution, and

 Expropriation
 Sovereignty
– A sovereign state is free and independent;
regulates trade, manages the flow of people into
and out of its boundaries and exercises undivided
jurisdiction over all persons and property within
its territory.
⇒ Criteria for Government actions
– Stage of economic development
– Political and economic system in the country.
⇒ Govt. actions in the name of sovereignty
 Many governments in developing countries
exercise control over their Nation’s economic
development by passing protectionist laws and
regulations.
 In contrast, nations at advanced stage of
economic development take policy decision that
any practice restraining free trade is illegal.
 In a predominantly command economy the
government interferes a lot in the economic
development of the country, while in a market
oriented democracy the government actions are
designed to reduce direct involvement as a
supplier of goods and services.

⇒ Mexico is one such economy where two airlines,

mines, banks and many other enterprises have
been privatized.
 POLITICAL RISK
– The risk of a change in government policy adversely
impacts company’s ability to operate effectively and
profitably.
– Lower is the perceived level of political risk more likely is
the country to attract the investment.
⇒ Level of economic development & political risk.
– Level of political risk is inversely proportion to a country’s
stage of economic development.
– All other thing being equal, the less developed country, the
greater is the political risk.
– The political risk of triad countries is limited as compared to
country in early stage of development in Africa, Latin
America or Asia
⇒ Changes in Central & Eastern Europe

– Current political climate of Eastern Europe is

characterized by high degree of uncertainty in
Belarus and stability in Estonia.
– Russia and members of CIS are subject to
substantial political risk.

 Companies wanting to expand their markets in

such countries need to apprise themselves of the
political parties especially those with anti-western
orientation.
 Taxes
– Companies having diverse geographical
activity need to pay special attention to
tax laws.
– Many companies doing business in foreign
shores reduce their earnings by providing
loans to their foreign affiliates rather than
using direct investment to finance their
activities of their foreign subsidiary.
– As per OECD, foreign companies are taxed
by the host nation up to the level imposed
in the home country to control the tax
burden of such companies.
 Dilution of equity control
– Political pressure for national control of
foreign-owned companies is a part of the
environment of global business in lower-
income countries in order to protect the
right of national sovereignty in respect of
domestic business activity.
– Political pressures frequently cause
companies to take local partners.
→In India FERA restricted foreign equity
participation in local projects to 40 percent
 Options to face the Threat of
Dilution
• Follow the law. Colgate-Palmolive (India)
became an Indian company and maintained its
dominant position in a growing market.
• Leave the country. This was IBM’s response.
After negotiations, IBM concluded that it would
lose more in shared control than it would gain
from continued operations under the new rules.
• Negotiate under the law. Companies may
use equity dilution to raise funds for growth and
diversification by issuing fresh equity to local
investors.
⇒ Ciba-Geigy increased its equity base by 27% and negotiated an
increase in production doubling the sales of Hindustan Ciba-Geigy.

4. Take preemptive action. Foreign firms initiated proactive

diversification to take advantage of investment incentives, gradual
“Indianization” of the company, and continuously updating
technology and maintaining export sales.
⇒ To face the threat of equity dilution, companies operate in host
nations via joint ventures or strategic alliances.

 Care should be taken to include clauses in joint venture or alliance

agreement regarding its subsequent dissolution.
 Care also needs to be taken regarding ownership of patents,
trademarks, technology and intellectual property rights developed
under joint operations after dissolution.
 Expropriation
– Refers to governmental action to
dispossess a company or investor.
– Generally compensation is provided to
foreign investors but often not adequate
by international standards.
→ referred to as “Nationalization” if
ownership of property/assets in question is
transferred to the host government.
→ if no compensation is provided; the action
is referred to as confiscation.
⇒The other forms of creeping expropriation
are as under
 Limitations on repatriation of profits,
dividends and royalties etc.
 Increased local content requirements
 Quotas for hiring local nationals
 Price controls.
 Discriminatory tariffs and non tariff
barriers limiting market entry of certain
industrial and consumer goods.
 The Legal Environment

International Law

Private Law or
International
Law of Nations
Commercial Law
 The Legal Environment

International law is amalgamation of treaties, and

agreements.
– With increase in trade, commercial affairs gained
importance and led to emergence of international
commercial law.
– Private international law applies to interpretations
of and disputes arising from commercial
transactions between the companies of different
countries.
– International public law pertains to trade that is
under the jurisdiction of individual nations.
How “Acts of God” get interpreted?
(a) Under common law this phrase refers only to
floods, storms, and other acts of nature.
(b) In code-law countries, an “unavoidable
interference with performance” can
be considered as an act of God.

Countries following different legal systems

 U.S., Canada, Australia, New Zealand, India, Hong Kong,
and English speaking African colonies founded their system
on common law.
 Japan, Korea, Thailand, Taiwan, Indonesia, and China are
civil-law jurisdictions.
REGULATORY ENVIRONNMENT
– Consists of variety of agencies both governmental and
nongovernmental that enforce laws or set guidelines for
conducting business.
– A few of the regulatory agencies also referred to as
International Economic Organizations are as under:
• Asian Development Bank
• Caribbean Development Bank
• Food and Agricultural Organizations
• Islamic Development Bank
• United Nations Conference on Trade & Development
(UNCTAD)
• World Health Organization (WHO)
• World Meteorological Organization
 Issues Addressed
– Price control
– Valuation of imports & exports.

– Packaging & labeling

– Food & Drug regulations.

– Employment conditions

– Advertising content.

→The decisions of IEOs are binding and are

carried out by member states.
 Examples of common laws in
European Union
Italy-Bans all types of Tobacco Advertising
Greece- Bans all advertising of toys
Finland: Bans speed as a feature in car advertising
Sweden-Bans television advertising directed at children
under age 12
Netherlands: Bans claims about automobile fuel
consumption.

Regional Market Characteristics

From marketing perspective, up-to-date economic,
demographic, and cultural information must be
analyzed to either introduce new products or to
develop existing markets.
 Reference Books

 Global Marketing Management by Warren

K Keegan
 International Business by P. Subba Rao

 International Marketing Management by R.

L. Varshney and B. Bhattacharyya
 International Marketing Strategy by Isobel
Doole and Robin Lowe
 Presentation Topics
 Alternatives to enter the market in
developing countries
 Cultural Differences between China and
Germany
 Cultural differences between European and
Latin-American Companies
 International Risk management ins small-
and midsize export Companies
 The trade in a third world country -
example Surinam