International marketing may be defined as an activity related to the sale of goods and services of one country in the other, subject to the rules and regulations framed by the countries concerned.
In simple words, it refers to marketing activities and operations among the countries of the world following different political and economic systems.
International marketing is marketing abroad i.e., beyond the political boundaries of the country. International marketing brings countries closer due to economic needs and facilitates understanding and co-operation among them.
It is essentially a constructive economic and commercial activity which is useful and beneficial to all participating countries. International marketing act as an instrument of global growth and development.
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Learn about:-
1. Definitions of International Marketing 2. Scope of International Marketing 3. Characteristics 4. Significance 5. Factors Affecting 6. Strategy 7. Distribution Channel 8. Decisions 9. Present Scenario 10. Trade Barriers/Restrictions.
What is International Marketing? – Definitions, Scope, Factors, Significance, Strategy and Characteristics
Contents:
- Definitions of International Marketing
- Scope of International Marketing
- Characteristics of International Marketing
- Significance of International Marketing
- Factors Affecting International Marketing
- International Marketing Strategy
- Distribution Channels in International Marketing
- Decisions in International Marketing
- Present International Marketing Scenario
- International Marketing Trade Barriers/Restrictions
What is International Marketing – Definitions Provided by Eminent Authors: Philip Kotler, J.B. Mckitterick, Hess and Cateora
International marketing, though it has certain distinct characteristics, is similar to domestic marketing in terms of certain technical attributes. Marketing can be concerned as an internal part of two processes, viz. technical and social. International marketing and Domestic marketing are identic.al, so far as technical process is concerned.
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It includes non-human factors such as product, price, cost, brands etc. The basic principles regarding these variables are of universal applicability. But the social aspects of marketing are unique in any given stratum, because it involves human elements, namely, the behaviour pattern of customers and the given characteristics of a society, such as consumers attitude, values etc. It is obvious that marketing, to the extent it is visualized as a social process, will be different from domestic marketing.
Kotler has defined marketing as, “Marketing is the analysis, planning, implementation and control of programmes designed to bring about desired exchanges with target audiences for the purpose of mutual or personal gain. It relies heavily on the adoption and coordination of product, price, promotion and place for achieving effective response.”
There are two sets of variables in this definition. One is markets and other one is human needs and wants and a process or techniques to convert potential exchanges into realized exchanges. The techniques involved are more or less similar in both domestic and international marketing. But the variables involved are totally different in case of International Marketing.
International marketing can, therefore, be defined as, “marketing carried on across national boundaries.”
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The International marketing is different from domestic marketing both in the way of exchange and needs and requirements of international buyers. Therefore the knowledge of and the ability to perceive basic pattern in consumer behaviour in different environments is a particularly vital element in the makeup of the international marketing.
The role of marketing manager becomes very important in this context. To work successfully in an international environment, the marketing manager must have the ability to seek to understand the environment and way of thinking regarding the consumers, competitors, suppliers or employees in the new country.
There must be at least three major dimensions to the spills of international marketing:
1. Competence in marketing, with a sound grasp of marketing concepts, tools and techniques.
2. Ability to perceive patterns of consumer behaviour in different countries and the ability to evaluate the essential differences and similarities between markets.
3. Management skill to organise, plan, co-ordinate and control an operation of considerably greater complexity particularly in its human relationships – than that involved in the home market.
The skills involved in marketing have been aptly summed up by J.B. Mckitterick of the General Electric Company as, ” the principal task of the marketing function in a management team wedded to the marketing concept is not so much to be skillful in making the customer to what suits the interests of the business as to be skillful, in conceiving and then making the business to what suits the interests of the customer.”
Therefore it is apparent that the job of International marketing involves an additional dimension and requires a unique combination of skills.
International marketing is the marketing across the national frontiers. It refers to the strategy, process, and implementation of the marketing activities in the international arena.
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International marketing may be defined as an activity related to the sale of goods and services of one country in the other, subject to the rules and regulations framed by the countries concerned. In simple words, it refers to marketing activities and operations among the countries of the world following different political and economic systems.
International marketing is marketing abroad i.e., beyond the political boundaries of the country. International marketing brings countries closer due to economic needs and facilitates understanding and co-operation among them. It is essentially a constructive economic and commercial activity which is useful and beneficial to all participating countries. International marketing act as an instrument of global growth and development.
According to Hess and Cateora international marketing is ‘the performance of business activities that direct the flow of goods and services to consumers or users in more than one nation.’ Marketing may be understood as human activity directed at satisfying needs and wants through exchange process.
It means working with markets. It means attempting to actualise potential exchange for the purpose of satisfying human needs and wants. It includes analysing the markets for their potentials in order to assess the needs of the customers. International marketing is a part of total marketing process.
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It is marketing activities carried on by a marketer in more than one nation. It may be defined as – ‘marketing carried on across national boundaries.’ Marketing activities, i.e., buying, selling, transportation, storage and warehousing, financing risk bearing, pricings, standardising, advertising and sales promotion etc., may be called international marketing when performed in foreign markets across the national border.
What is International Marketing – Scope: Establishing, Joint Ventures and Collaboration, Licensing Arrangements, Consultancy Services and a Few Others
The scope of international marketing essentially includes exporting of goods and services in foreign markets. The exporter performs various activities, other than exporting the goods and services.
These activities are:
1. Establishing:
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A branch in foreign market for processing, packaging or assembling the goods according to the needs of the markets. Sometimes complete manufacturing is carried out by the branch through direct investments.
2. Joint Ventures and Collaborations:
International marketing includes establishing joint ventures and collaboration in foreign countries with some foreign firms for manufacturing and/or marketing the product. Under these arrangements, the company works in collaboration with the foreign firm in order to exploit the foreign markets.
3. Licensing Arrangements:
The company, under the system, establishes licensing arrangements with the foreign term whereby foreign enterprises are granted the right to use the exporting company’s know- how, viz., patents, processes or trademarks according to the terms of agreement with or without financial investment.
4. Consultancy Services:
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Offering consultancy services are also covered in international marketing scope. The exporting company offers consultancy services by undertaking turnkey projects in foreign countries. For this purpose, the exporting company sends its consultants and experts in foreign countries who guide and direct the manufacturing activities on the spot.
5. Technical and Managerial Know-How:
The scope of international marketing also includes the technical and managerial know-how provided by the exporting company to the importing company. The technicians and managerial personnel of the exporting company guide and train the technicians and managers of the importing company.
What is International Marketing – Characteristics: Different Legal System, Market Characteristics, Monetary System and Procedure and Documentation
1. Different Legal System:
Every Country has its own legal system. Some of the countries follow English Common Law while others follow the civil law. Some of the European countries are having their own legal system. This difference in the legal system among different countries increases the difficulties of businessmen.
It is not sure for the businessmen that which legal system will be applicable to their business transactions. There must be uniform legal system. However some of the agencies are trying to make it uniform for all countries. The United Nations Commission on International Trade Law is also supporting the opinion of uniformity and is doing, its efforts to bring uniformity in International trade Law.
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2. Market Characteristics:
The Market Characteristics of every Country is different due to the environmental factors, demand patterns, Government Controls etc. In some countries like India and USA the market characteristics are found different from state to state. It is because of all above factors responsible for the market characteristics.
3. Monetary System:
The monetary system of each country is decided by the government of that country and the exchange value of country’s currency is being determined by the forces of supply and demand.
4. Procedure and Documentation:
Every country has its own procedure of documentation requirements for the purpose of experts. Every business house has to comply with these rules and regulation for the purposes of export and imports.
What is International Marketing – Significance: Survival, Growth of International Market, Sales and Profits, Benefit from Diversification and a Few Others
The term International marketing refers to exchanges across national boundaries for the satisfaction of human needs and wants. International Marketing affects consumers in many ways, though its importance is neither well understood nor appreciated. The significance of international marketing may be explicitly in order to dispel such nations.
1. Survival:
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Most of the countries in the world are lacking of market size, resources and opportunities. Therefore it is their compulsion to trade with other countries for their survival. Since the European Countries are small in size therefore without overseas markets their firms would not have sufficient economies of scale to be competitive with U.S. based firms. It is pertinent to mention here that international competition may not be a matter of choice when the survival is at stake.
Will Mitchell, J. Myles Shaver and Yeung Bernard conducted a study on “Performance following changes in International Presence in Domestic and Transition Industries. In a study of five pharma-sector industries, he found that international expansion is necessary when overseas firms enter a domestic market. He revealed that the firms having substantial market share and international experience expanded their business activities successfully. And all those firms disappeared that retrenched after an international expansion.”
2. Growth of International Market:
Despite having numerous problems like economic and marketing problems, the developing nations are considered be an excellent market to do business. The vast potential of international markets can never be ignored. According to one survey total world market is four time longer in comparison to U.S. Market.
A slow growth of U.S. population and changing life style viewed the growth of other markets with a critical eye. It is evident that Russian smokers show no concern about the health risks. And International giants Philip Moris Co, R.J. Reynolds, Tobacco International SA and British-American Tobacco Co. have entered the market very aggressively.
3. Sales and Profits:
It is clear that there is a large potential to sell the products in the international market. The International Market constitutes a large amount of share of the total business of many firms. Further it is evident that many large U.S. based companies have performed very well in the overseas market. IBM and Compaq are the best examples in this regard.
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Both of them have maximized their sales in abroad in comparison to their domestic market. In case of coca-cola it is important to mention here that 80 percent of the total operating profit is contributed by the international sales account of the company. Thus market is on saturation level, where as there is still a great potential for its future growth in other countries. Thus it can be concluded that international market provides huge potential to increase sales value and profits of the firms.
4. Benefit from Diversification:
The investors can be benefited from global diversification. It is evident that the demand of certain products is affected by cyclical factors like recession and seasonal factors like climatic change. The sale of such products fluctuate adversely due to all these variables. It is the only solution for such kind of risks, to diversify a company’s risk and to consider foreign market as only solution to overcome with variable demand.
Such markets can provide outlets for excess production capacity and can easily counter such fluctuations. Seasonal factors, for instance, may affect consumption level of soft drinks. And keeping in mind such limitation, the soft drink industries are spreading their marketing activities throughout the global market. It has been observed that global selling has enabled the company to carry on with production throughout the year and help the companies to stabilize their business.
5. Inflation and Price Modernization:
The benefits of International trade are readily self-evident. Exports are always considered beneficial to a country. On the other hand imports can also be highly beneficial to a country. Because there is not any incentive for domestic firms to moderate these prices. The lack of alternatives in imported products may compel consumers to pay more for the products to local firms, resulting in inflation and excess profits for local firms.
It is evident that in Europe, when the prices of orange Juice were jumped up, their customers switched over to other alternative drinks. Finally it took ten years for citrus industry to win back these consumers. The U.S. orange growers finally compromised to live with import as they found that alternative juice is able to keep consumers by minimizing the price increases.
6. International Marketing and Standard of Living:
International marketing helps the countries and their citizens to increase their standard of living. On the other hand without trade, there may be product shortage and which may force people to pay more or less. International trade make easy for industries to get specialization and gain access to raw materials.
And at the same time it foster competition and efficiency. In overall it leads to the conclusion that international trade is helpful to provide their citizen higher standard of living.
What is International Marketing – Factors Affecting: Social Factors, Economic Factors, Competition, Political Factors, Legal Environment, Logistics and Risk
It is important at this stage to discuss various factors affecting international marketing.
These factors can be divided in two ways:
(1) Controllable factors
(2) Uncontrollable factors.
The controllable factors refer to those variables which are under the control of company’s management. It includes the control and design of elements of marketing mix. The Company is in a position to control and design product, price, place and promotion. All marketing activities relating to these factors can be well controlled and managed by the company’s management.
On the other hand uncontrollable factors are those, which are beyond the control of the company. It consists of total environment in which the marketing mix elements operates.
Some of the relevant factors to international marketing are given as under:
1. Social Factors:
The social factors of a nation determine the value system of the society, which in turn affect the International Marketing mix. Social factors are culture, caste, customs, languages, life style, standard of living, climate and marketing infrastructure etc. The demand for goods and services is affected by all these factors.
There is a lot of change in quality of life style of the people. They are willing to purchase many consumer durables like T.V., Fridge, Computer etc., even when they cannot afford to buy it. It became possible because of availability of hire purchase system or installment basis.
Cultural factors also influence every aspect of International Marketing. International marketing decisions are based on recognition of needs and wants of the customers. The cultural factors help to understand the behaviour patterns and life style of the societies culture, in which individual has grown up. Thus an individual’s perception is groomed and influenced by cultural factors.
2. Economic Factors:
The economic factors are the most significant determinants of International Marketing. They also affect the survival of a business organization and its success.
The economic factors can be studied under following categories:
(i) Exim Policy of the Country
(ii) Commercial Policy
(iii) Financial system
(iv) Monetary system
(v) Currency restrictions
(vi) Inflation/ Deflation.
The decision regarding international marketing mix is taken by keeping in mind the above stated economic factors which determine the economic environment of a country. Therefore before going for export business or before going for any decision regarding international marketing mix, it is necessary to examine the economic factors, which determines the economic environment of a country.
3. Competition:
Competition is an important determinant of international marketing mix. The business firm has to face competition in his home market as well as in the international market. The international marketing mix is decided by keeping in mind the strategies of the competitors for the product, price, place and promotion.
4. Political Factors:
The International Marketing mix is strongly affected by the political environment of the country. A marketer has to operate its business activities in a given political factors. The business operations are greatly affected by the political constraints at different levels. The change in political scenario leads to change in the government policies.
The following impact is associated with the political factors- (i) If the government is stable, it leads to stable policies relating to the business (ii) If frequent changes are there in the government, then it leads to frequent changes in the policies of the government relating to the business operations.
The political factors play a major role in deciding the operation of a business organization in the international business. Thus a business organization has to study and analyse the political environment of a particular country, if it has decided to carry out its business operations.
Before going for any decision relating to the International business the business organization has to carry out swot analysis and cost benefit analysis of International marketing mix. It must be analysed, keeping in mind the political scenario of a particular country. The government policy of a country must be assessed and the role of private sector, small scale industry is also important. Finally it must be analysed that what significant role of Multinational Corporation is there in the national economy.
5. Legal Environment:
International Marketing decisions are influenced by legal environment pertaining to competition, price setting, taxation, law etc. The legal system of a particular country should be studied well before doing business with that country.
6. Logistics:
International Marketing mix is influenced by the Logistics. It includes mode of transportation, cost of transportation, inventory management, material handling and warehousing etc. It is necessary to study all these factors, before go in for any decision regarding international marketing mix.
7. Risks:
The analysis of the risk factor is an important task to be performed before taking the decisions relating to the international marketing mix.
What is International Marketing – Strategy: Strategy Design, Implementation and Control and Adjustment
Many small and medium entrepreneurs wrongly think that an international marketing plan has to be carried out only by big-sized companies. This conclusion is based on wrong and simplistic ideas that relegate the small-sized company plan. Every enterprise that would like to internationalize must have its own plan of external business.
To design an adequate strategy, a number of steps relevant to any company will have to be followed, no matter its size.
Among them, there are:
i. Search for information to take decisions.
ii. Ordering of a series of stages (assignation of priorities and deadlines) to follow, in order to get access to external markets.
iii. Company internal resources (human, monetary, etc.) assessment for international penetration.
iv. Quantification of objectives and supervision of their observance.
v. Putting into practice of the different policies so as to accomplish the set goals.
vi. Strategy different steps adjustment throughout the implementation of the plan.
Step # 1. Strategy Design:
Strategy design stage includes a series of sub-stages:
a. Acquisition of Information about International Markets:
However, some aspects on the topic are going to duly discuss the subject in full.
This stage comprises a series of steps to follow:
i. Fixing of objectives about what the international market information wanted is.
ii. Information inquiry instruments design and definition of the research acting field.
iii. Determination of the different traditional and alternative sources of information (especially for informal market research).
iv. Acquisition of data elements (historical or current information and trends).
v. Analysis, comparison, register, accumulation and interrelation of the information obtained.
vi. Drawing of conclusions of the information obtained and analyzed.
The initial investigation on international market is going to throw light upon certain issues like:
i. Determination of the most attractive country-markets for a particular entrepreneur’s product. If there is a great number of equally attractive markets, and the budget assigned to international markets is meager, or the company wants to concentrate on a few markets, different factors will have to be considered to select them: similarity between external and national markets, number of legal regulations or cultural issues that imply product adaptation, and competition features, among other factors.
ii. Particular commercial mix policies (product, price, promotion, market) or penetration strategy to be used (agents, distributors, etc.).
International market acquisition of information has a value for the company, which is reflected in some features: exclusivity, reliability, precision, specificity, uncertainty reduction, etc. Information acquisition has a cost (in money or time). The entrepreneur must always make an adequate analysis of the value-cost ratio, when compiling international information.
This primary goal of this stage is the selection of the most adequate markets for the company products. Afterwards, the next stage will proceed.
b. Fixing of Objectives for Market Access:
i. Objectives as International Activity Conducting Structures:
These international strategy objectives are always determined in relation to a specific product and a particular market (or submarket).
In order to design them, the following aspects have to be taken into account:
(a) Company Internal Resources:
Funds bound for international operation development, personnel affected to the international undertaking (human talent development), productive structure capacity to satisfy international demand (process technological updating) and existence of company product differential elements (quality, costs, material and packaging innovation, popular brand name, patents and services offered).
(b) Selected Market Features:
Existing commercial barriers, regulations that affect the marketing of the product, local competition structure and behaviour in destination, dynamics in import, motivations and other features of demand in destination, market segments and niches detected, unsatisfied needs, among other issues to be considered.
ii. Objectives Features:
Objectives in general have the following features:
i. There is a time limit to their completion and evaluation.
ii. They fall into the frame of the company mission (coherence).
iii. They have to be quantified, that is, turned into goals, for the subsequent measurement of results. If the objective cannot be measured in numbers, there should be, at least, a valid parameter that could permit to easily verify its completion.
iv. They provide for an appropriate assessment of commercial and financial risks, which implies the development of activities for their completion.
v. They evaluate the existing restrictions in the company as regards assigned resources quantity and quality.
vi. They consider the different alternatives for process activities development. In practice, there is always more than one alternative for the company’s goals.
vii. When there is conflict among several objectives, priorities and considerations will have to be established, and they will have to be divided into main and secondary.
viii. When multiple objectives are established, it is important to analyze the degree of similarity, compatibility, as well as simultaneity or chronological arrangement.
ix. It is important to consider that some objectives can be autonomous and others are going to be conditioned by the previous completion of lesser objectives.
Examples of Internationalization Objectives:
Among objectives pursued by the company are:
i. Achieving certain exports percentage (estimated upon company total sales) for each market.
ii. Reaching a specific fixed amount of sales or certain amount of unities per market selected.
iii. Covering a particular market share, in a particular country.
iv. Acquiring a certain profit level (gross or after taxation) in international operations.
v. Achieving certain profitability from external market activities.
vi. Gaining access to particular cities or regions (submarkets).
vii. Fixing minimum or maximum amount of monthly exports.
viii. Carrying out a specific amount of shipments.
ix. Other objectives- performing a certain amount of promotional activities, making commercial and distribution agreements.
c. International Commercial Mix and Marketing Channel Design:
International marketing mix design comprises a series of different policies (product, price, distribution, communication policies) which are interrelated.
i. International Product Policy:
International product policy makes reference to all those attributes, functions and differentiated features that the product has, to satisfy international demand needs (consumers and users).
This important policy includes the following aspects:
i. Necessary materials and components for production.
ii. Design and international registration of one or more brands appropriate for the product line.
iii. Product colour, shape, style and aesthetic planning.
iv. Product forms of use or operating instructions.
v. Aspects of product quality and economic life (durability).
vi. Functional and communicational aspects related to packaging.
vii. Technical, material and logistic aspects of export packing.
viii. Services associated to the product (installation, training, parts replacement, reparation, warranty, etc.).
ix. Product adaptation according to destination market different factors- consumer purchasing power, government regulations, consumption patterns, external client behaviour and economic aspects, among others.
ii. International Price Policy:
Price policy comprises all those components that influence the determination of export final prices- costs, demand behaviour and competitors’ attitude in the external market.
This policy includes the following aspects:
i. Exported product production cost (with legal, cultural, economic or technological external market issues in mind).
ii. Financing costs.
iii. Administrative costs.
iv. Marketing costs (includes distributors’ margins and retributions of the other intermediaries that participate in product delivery).
v. Export costs (documents, customs formalities, carriage, etc.).
vi. Costs of product-related services.
vii. Other commercial issues (discounts and bonuses, advance or partial payments, etc.).
iii. International Distribution Policy:
The distribution policy comprises all the commercial, logistical and communicational issues among the different intermediaries that make up an international distribution channel.
i. Distribution channel structure.
ii. Distribution channel coverage.
iii. Functions at each distribution channel.
iv. Number of intermediaries at each channel level (density).
v. Communication styles within the channel.
vi. Contractual issues and retributions at each distribution channel level.
vii. Intervention of intermediaries who facilitate international distribution (carriers, warehouses owners, etc.).
iv. International Communication Policy:
Communication policy (or promotion) refers to different transmission aspects to various recipients (consumers, suppliers, employees and society) of different messages about the product and the company features and attributes that allow the building of a differentiated image of them-
I. Sales promotion.
II. Advertising activities.
III. Sales force.
IV. Public Relations.
V. Packaging visual features.
Every product, price, promotion and distribution policies are intimately linked with one another. For example, a product oriented towards a high purchasing power segment will need high quality components, and container and product intangible attributes will be highlighted, such as the status that promotes consumption.
In this case, the product price will fit a high level, and its distribution will not be massive, but exclusive of certain channels. Besides, advertising will be carried out in certain selected media, specialized magazines, and publications consumed by people with a high standard of life.
This commercial mix design for international market products is more complex than the one devised for the national market, because most variables (product, price, promotion and distribution) will be affected, in a greater or lesser extent, by economic, financial, political, legal and cultural environments differential features of each external market.
d. External Market Access Channel Selection:
International marketing channel design implies the selection of the most adequate company structure for external market access. When evaluating international market penetration policy, entrepreneurs will have to consider some factors that will affect their decision- size and knowledge of the market to be penetrated, tariff and paratariff barriers, consumer and competition features, type of product, segment orientation, among others.
The main marketing channels are:
i. Sellers.
ii. Agents and distributors.
iii. Brokers.
iv. International concession.
v. Export licensing and franchising.
vi. Manufacturing contract.
vii. Administration contract.
viii. Associative strategies (exports consortia and cooperative, joint ventures).
ix. Marketing companies.
x. Sale branches and subsidiaries.
xi. Foreign Direct Investment (FDI).
xii. Other channels (piggy backing, technology transfer administration contracts).
Step # 2. Implementation:
In this stage, the designed strategy is put into practice and the operationalization of all the variables involved in the strategy (commercial mix and marketing channels) is pursued in order to comply with the objectives. This strategic implementation will be developed according to international market information collected throughout the design stage and will be applied to all the selected external markets.
It is an operative or active stage, in which the company assigns material, human, monetary and productive resources, for the actual completion development of the different goals set in the previous stage. The entrepreneur transforms what has been planned, stipulated and projected in the marketing strategy into real, tangible activities.
An example of the activities at this stage could be: if an internationally market accessed product has been designed with a particular packaging to be manufactured by the company; suppliers who may offer material of the desired quality for that packaging will be required; meetings between the visual designers and the manufacturers will be held, pursuant to the set design stage stipulations. Once manufactured, durability and functionality tests will be carried out.
Step # 3. Control and Adjustment:
This is a fundamental stage in international activities, because feedback from the implementation stage actions is necessary.
In this stage, information about the results of the international marketing strategy put into practice is analyzed and these features may be verified:
i. Degree of completion with objectives;
ii. Correct international marketing channel functioning and structuration;
iii. Consistency and adequation of each of the marketing mix variables.
From this analysis, it may turn out that all the objectives (fixed in the first stage of the strategy called design) may have been totally met, and this will allow the entrepreneur to establish higher objectives for the next period according to the experience gained through internationalization activities.
The fixed goals may not have been satisfied or they may have been met partially, which leads to two subsequent analyses:
i. Evaluating whether operative activities have been correctly carried out;
ii. Considering whether the chosen objectives are too ambitious for this stage. In this case, the entrepreneur will have to consider the creation of more realistic and easier to achieve goals.
As to the marketing channel and the international commercial mix, necessary adjustments may be detected at this stage. This redesign may appear as a consequence of new information accessed during the implementation stage (for example, consumers’ reaction to the product, competitors’ reaction, etc.) which was not available to the company during the strategic design stage.
Usually, the enterprise gets information about its international activities constantly, in each stage, and this information provides various adjustments to the designed strategy. With this in mind, marketing strategy main quality must be flexibility, in order to produce the different modifications, according to the entrepreneur’s results in the external market operations.
What is International Marketing – Distribution Channel (With Types and Relation to Promotion)
Export management, after making product planning decisions, must plan the export channels of distribution. An export channel of distribution is the chain of marketing agencies linking the producer with the final buyers in the target market.
Distribution channels negotiate sales transactions, and they direct the physical movement and storage of the product in order to place the product in the hands of the final buyers, where, when, and in the quantities they want. The agencies comprising a given channel of distribution may be agencies owned by the producer or independent middlemen, and they may be many or few in number.
The type of distribution channels used will depend on many factors, including availability, type of product, the desired degree of penetration into the foreign market, and the evolutionary level of retail trading in the particular country.
The ability of an exporter to attain reasonably full and efficient distribution of his product is almost directly proportional to the degree of development of modern retailing methods in the foreign markets. The basic problem is adjusting to foreign distribution methods; trading efficiencies in foreign countries have not reached the levels found in the United States, and many foreign countries are years behind our present structure of product distribution.
Further, no two countries are alike in terms of the development of distribution channels. Even in Western Europe, differing rates of growth are noticeable, with the stores of the United Kingdom and France still ranking behind German and Swiss stores in average size and turnover. Italy’s growth has been slow, and Spain is just beginning to develop efficient distribution channels.
Types of Distribution Channels:
Different types of distribution channels are called for in marketing different types of products in foreign markets. Product distributors are independent merchant dealers, export houses, commission or commercial agents, or wholly owned subsidiaries and branches. In foreign markets, channels of distribution range from direct sale through single or multiple distributors or wholesalers, to a combination distributor-retailer.
Larger companies exporting several product lines may use their foreign distribution subsidiaries or affiliates, while smaller companies generally set up one distributor for numerous retailers. Some companies which have limited capital, or which have little, if any, opportunity in a world market, may work through export houses which buy a firm’s products outright and then distribute them through their own channels.
We will not attempt to cover in depth the many types of channels that exist, but we will describe the functions that may be performed by these channels. These descriptions will give help in evaluating the suitability of each of the channels. In reviewing these functions the exporter can note the different factors which he must consider if he is to succeed in the foreign market.
1. Physical Distribution:
The first function of the distribution channels is the physical distribution of the product. Physical distribution involves the physical movement of the exporter’s product and, when necessary, its storage at appropriate places.
Physical distribution, however, does not involve transportation alone. There are other factors which should be considered in relation to foreign consumers – How much of the product do they bay at one time? How often do they buy? What services will they need?
To illustrate, foreign distribution channels are generally characterized by their relative smallness as compared to distribution channels in the United States. Expressed in terms of sales per retail store, overseas sales are much smaller. In the United Kingdom the average retail store does about one-third the volume of business done by the average American store. We are talking in terms of averages.
While there are stores in Britain which probably do an annual volume of business as large as that of some of their American counterparts, there are a great many small retail stores which exist on very small annual sales. In general, as an economy grows, the volume of business transacted per retail unit also grows. One history of retailing in the United States reveals that, although the total number of retail stores has declined, the total volume of retail sales per store has risen. This aspect of evolution is found in all markets.
2. Service:
Another aspect of retailing evolution is the provision of service. Before the innovation of supermarkets, the grocer dealt personally with his customers, packaging many of the items he sold. Since the self-service supermarket first appeared, self-service has become a widespread, acceptable form of service in most of developed nations.
In most retailing institutions in other parts of the world we still find that the relationship between buyer and seller is personal, but it is probable that self-service will become the method of retailing in most other countries as they become more industrialized.
3. Class Structure:
Management should be aware of the stratification of retail outlets overseas a factor related to the stronger class structure that exists in most foreign countries. For management the basic significance of the class concept in foreign markets points out that product markets and consumers’ shopping habits and preferences should be researched and analyzed.
During the market survey the exporter must exercise care in gathering material that will help him understand the nature of the channel structure in the foreign market he is investigating.
The exporter must make a decision as to the extent of market penetration he intends to achieve, and he must determine the distribution channels do not provide blanket coverage of a market, the exporter may have to switch channels in order to achieve his plan. If a company is planning a major marketing effort, it may be best for the company to establish its own sales organization, especially for the distribution of industrial goods.
Also, because of the relatively small size of most overseas channel units, financing problems will arise, particularly with respect to inventory and payment. The limited capital structure of many channel units may require the exporting firm to deal more liberally with channel members overseas than it does with its domestic distributors. Thus credit in foreign countries may have to be extended over substantially longer periods than is usual in the domestic country.
4. Controlling Channel Performance:
Market intelligence merits consideration in foreign markets. In American distribution channels, when intermediaries deal directly with the target consumers, they report on what they learn. Thus American manufacturers utilize their distribution channels to obtain feedback on consume acceptance. In some cases they organize advisory committees made up of channel representatives.
However, consume information is clearly understood only in the most advanced economies, in economies characterized by a sellers’ market there is an attitude of scorn toward consumers, despite the fact that the distributor’s livelihood depends on them. The exporter must, therefore, educate channel members with respect to their role in obtaining consumer information. This will not be easy, because a strong feeling of secretiveness is a cultural characteristic in many foreign markets.
Such secrecy reflects the age-old conflict between buyer interests and seller interests, and it often causes businessmen to refuse to give information to their suppliers, or they may give misleading information. For this reason, the exporter may have to rely on market research for feedback—at least until he can establish more satisfactory communication with his distribution channels.
Distribution Channels in Relation to Promotion:
Distribution channels perform an important promotion function for a manufacturer, but few generalizations can be made with respect to overseas markets. The role played by promotion is directly related to the degree of competition; in a buyers’ market, for instance, impersonal promotional activities, particularly with respect to the products of oligopolistic industries, are of considerable importance.
In less developed economies the role of impersonal promotion is reduced, with personal selling playing a critical role in the promotion function. Also, cultural attitudes toward promotion differ considerably in foreign markets. In many countries both the people and the government have a negative attitude toward advertising, which may limit is effectiveness and, therefore, its use by channels. However, these cultural attitudes are subject to change if the rewards of promotion are clearly understood.
Distribution policy decisions stem from the identification of market targets and from a thorough appreciation of the role delayed by channels of distribution in a particular market. The role performed by the various channels will help determine the role played by distribution in the marketing mix.
The exporter will have to make a decision with respect to the levels of distribution that will be utilized. Will distribution go through all channels? Will sales be made direct to users or tailors? Will sales be made to intermediary distributors? If roles are made to interim diary distributors, the extent of distribution will have to be decided upon. To a certain degree case decisions will be determined by the types of outlet available and by the services they can perform for the exporter.
Exporters should establish a distribution control system. Manufacturers should develop feedback devices and build a satisfactory relationship with channel members if they want to low what is going on in the channels. By analyzing channels by acting in the interest of all the members, the manufacturer can influence his channels. Because distance is a significant variable in the overseas distribution pattern, the exporter take great care when directing the behaviour of channel members who have their own interests and outlooks.
What is International Marketing – Major Decisions: Looking at the Global Marketing Environment, Deciding Whether to go Abroad and a Few Others
Marketing is the art of finding the needs and wants of the customers, then to provide the required product or service in order to satisfy the customer as well as the company. When this process of satisfaction and business activities expands from one country to another countries it takes the shape of international marketing.
International marketing is going global.
Major Decisions in International Marketing:
1. Looking at the Global Marketing Environment:
A company looking abroad must start by understanding the international trade system.
Two economic factors reflect the country’s attractiveness as a market:
(i) The country’s industrial structure
(ii) Its income distribution.
Types of Industrial Structures:
a. Agricultural economies consume most of what they produce and barter the rest for simple goods and services.
b. Offer few market opportunities
(ii) Raw Material Exporting Economies:
These economies are rich in one or more natural resources but poor in other ways.
(iii) Industrialising Economies:
a. Manufacturing accounts for 10-20% of the economy.
b. Needs more raw material imports but less of foreign goods.
c. Gives rise to new rich and middle class who need more imported goods.
(iv) Industrial Economies:
Major exporters of manufactured goods and invest funds.
Countries with subsistence economies may have little surplus income, hence reduced buying capability. Industrial economies have much more surplus funds to spend.
(b) Political / Legal Environment:
Political / Legal factors to be considered in deciding whether to do business in a given country include:
(i) Attitude towards international buying – Some nations are receptive others are hostile.
(ii) Government bureaucracy:
The extent to which the host government runs an efficient system for helping foreign company.
(iii) Political stability – Changing governments may mean change in policies.
(iv) Monetary regulations – Sellers want to take their profits in a currency of value to them.
(c) Cultural Environment:
(i) Each country has its own folkways, norms and taboos.
(ii) The seller must examine the ways consumers in different countries think about and use certain products before planning a marketing program.
(iii) Business norms and behaviour also vary from country to country.
2. Deciding Whether to go Abroad:
(a) Learning new laws
(b) Learning new language
(c) Dealing with volatile currencies.
(d) Facing political and legal uncertainties.
(e) Redesigning their products to suit different customer needs and expectations.
Factors that Attract Companies to Go International:
(a) Counterattack on global firms in their home market to counter their attack in our market.
(b) High profit opportunities are available in some countries.
(c) To get a larger customer base to achieve economies of scale.
(d) To reduce its dependency on one market
(e) If company’s customers are going abroad and require international servicing.
(a) Failure to understand the preferences of foreign customers.
(b) Failure to offer a competitively attractive product.
(c) Failure to understand the foreign country’s business culture or know how to deal effectively with foreign nationals.
(d) The company might underestimate foreign regulations and incur unexpected costs.
(e) Lack of managers with international experience
(f) The foreign country might change its laws etc. or there may be a political change etc.
Challenges in International Marketing:
(a) Huge foreign indebtness (May lead to unstability of political environment and may lead to nationalisation or limits on profit).
(b) Unstable Government.
(c) Foreign exchange problems.
(d) Foreign Government entry requirements and bureaucracy.
(e) Tariffs and other trade barriers.
(f) Corruption.
(g) Technological pirating.
(h) High cost of production and communication adaptation.
3. Deciding which Market to Enter:
Decisions that must be taken are:
(a) What proportion of foreign to total sales will it seek?
(b) Whether to market in a few countries or many countries.
(c) How fast to expand.
(d) Types of countries to enter.
Generally speaking it makes sense to operate in fewer countries with a deeper commitment and penetration in each.
Companies should enter fewer countries when:
(i) Market entry and market control costs are high
(ii) Product and communication adaptation costs are high.
(iii) Population and income size and growth are high in the initial countries chosen.
(iv) Dominant foreign firms can establish high barriers to entry.
4. Deciding How to Enter the Market:
Modes of Entry into Foreign Markets:
(a) Indirect export
(b) Direct export
(c) Licensing
(d) Joint ventures
(e) Direct investment
(f) Contract manufacturing
(g) Management contracting
(h) Joint ownerships
(i) Occasional exporting is a passive level of involvement in which the company exports from time to time either on its own initiative or as a response to unsolicited orders from abroad.
(ii) Active exporting takes place when the company makes a commitment to expand its exports to a particular market.
(iii) Indirect exporting i.e. they work through independent intermediaries to export their product.
Companies handle their own export.
A company can carry on direct exporting in several ways:
(i) Domestic based export department or division.
(ii) Overseas sales branch or subsidiary.
(iii) Travelling export sales representatives.
(iv) Foreign based distributors or agents – They have exclusive rights to represent the company in that country or only limited rights.
Licensing is a method of entering a foreign market in which the company enters into an agreement with a licensee in the foreign market offering the right to use a marketing process, trademark, patent, trade secret, or other item of value for a fee or royalty.
Entering foreign markets by joining with foreign companies to produce or market a product or service.
Joint venture differs from exporting in that the company joins with a host country partner to sell or market abroad.
Entering a foreign market by developing foreign based assembly or manufacturing facilities.
(f) Contract Manufacturing:
A joint venture in which a company enters into contracts with manufacturers in a foreign market to produce the product.
(g) Management Contracting:
A joint venture in which the domestic firm supplies the market knows how to a foreign company that supplies the capital. The domestic firm exports management services rather than products.
A joint venture in which a company joins investors in a foreign market to create a local business in which the company shares joint ownership and control.
5. Deciding on the Global Marketing Programme:
Companies that operate in one or more foreign markets must decide how much, if at all, to adapt their marketing mixes to local conditions.
At one extreme are global companies that use:
(a) Standardised Marketing Mix:
An international marketing strategy for using basically the same product, advertising, distribution channel and other elements of the marketing mix in all the international markets.
At the other extreme are:
An international marketing strategy for adjusting the marketing mix elements to each international target market bearing more cost but hoping for a larger market share and return.
Product and Promotion:
(b) International Product and Promotion Strategies:
(i) Straight extension – Marketing a product in a foreign market without any change.
(ii) Communication adaptation – A global communication strategy of fully adapting advertising messages to local markets.
(iii) Product adaptation – Adapting a product to meet local conditions or wants in foreign markets.
(iv) Dual acceptance – Adapting the existing product and also the promotion strategies to meet the requirements of the specific foreign market. Such adaptations would differ from market to market.
(v) Product invention – Creating new products or services for foreign markets.
(a) Companies have to set their international prices.
(b) Foreign prices mostly will be higher than their domestic prices due to addition of tariffs, importer margin, wholesaler margin, and retailer margin to its factory price.
The international company must take a whole channel view of the problem of distributing products to final consumers.
Designing international channels that take into account all the necessary links in distributing the seller’s products to final buyers including the seller’s headquarters organization, channels among nations and channels within nations.
6. Deciding on the Global Marketing Organization:
Companies manage their international marketing activities in at least three different ways:
(a) Most companies first organise an export departments.
(b) Then create an international division.
(c) Finally become a global organization.
What is International Marketing – Trade Barriers/Restriction: Host Government, Home Government Trade Restriction, Formal and Informal Restriction and a Few Others
The national boundary is a single and most important element that separates domestic trade from International trade. No country applies the same degree of restrictions within its domestic boundaries as it does when dealing with international business firm. Each nations, approach to their domestic and foreign markets is dictated by its needs and requirements.
The following are some trade barriers faced by the business firms while operating its business activities internationally:
1. Host Government Trade Barriers:
The host Government can impose various trade barriers in the way of export business.
The following barriers can be imposed by the host governments:
(i) Import tariffs – This is a form of taxation and also a source of income to host government. It may be levied in the form of custom duty etc. as to control the inflow of foreign goods to its boundaries. It may restrict the entry of certain products completely as to safeguard the interests of certain domestic products.
(ii) Import Licensing – The import license is a function to be performed by the government. The product should be licensed by the importer’s government and a fee is paid by the importer. It is used to control those involved in both sides of transactions.
(iii) Environmental Control – The host Government protect its boundaries from environmental factors. Some restrictions can be imposed on foreign exporter before granting them license to trade in their country. It may be restrictions on product, product contents and pollution control etc. No such permission is granted to those exporters who are not meeting the minimum norms fixed for the goods or services.
(iv) Technology Transfer – The host government may put the condition of transfer of technology if certain product is being sold by the exporters, within their boundaries. This type of condition of technology transfer is levied mostly by the developing nation as to equip themself with the latest and new technology with having least expenditure to have it.
(v) Quotas – Quota is a non-tariff barrier imposed by the host government as to restrict the quantities of imports to their country. This process can also be used as to protect the domestic product from the imported products.
(vi) Anti-Dumping Laws – Anti-dumping law is confined to present foreign exporters to sell their product at very low prices. Sometime the aim of such business firm is to drive out the local manufacturer or other foreign exporters from the market. Such types of legislation can be used only by those nations, who are having sophisticated commercial law.
2. Home Government Trade Restrictions:
It is rare for a country to stop its local companies from exporting.
It is true in case of import laws that all export requirements are not written down in all countries and it is always subject to negotiation and arbitrary enforcement.
(i) Issues related to the National Security – The Countries may restrict the entry to trade in those sectors which are considered to be reserved from national security point of view. These may include nuclear materials, strategic minerals, defence strategic material, etc.
(ii) Export Tariffs – Export tariffs are primarily considered to be a source of revenue for the government. These are used as a means of promoting certain trades or to discourage certain industries. In many countries a separate export processing zones have been established for the foreign manufacturers. These export processing zones are promoting investment in the country and are helpful in protecting domestic manufacturers from direct competition.
(iii) Anti-Rerouting Measures – Some time when the export restrictions like quotas are strictly applicable, the exporters try to change the “Country of origin” to some comfortable areas. The exporters reroute their product by this tactics. In case it has been caught by the home country, the firm may be in a big trouble with his home country and can be punished severely.
3. Formal and Informal Restrictions:
The formal restrictions, the governments control the marketing decisions of their domestic products as well as that of foreign companies. As far as informal barriers are concerned, they are more difficult to detect and, in many cases, harder to overcome than their more official counter parts.
Some of the informal restrictions are listed below:
(i) Religion and Cultural – Religion and Cultural factors play an important role in international business. The religious and cultural restrictions carry such an emotional impact, that a factual presentation will do only a very little to get your product on the right track.
(ii) Social restrictions – It is observed that many times the social structure do not accept the product in their society. It may be because of their tare or other societal restrictions. Sometime the industries are not bound to promote their product in the foreign market, because of their societal constraints.
(iii) Environmental – If there is any ill effect of the product being produced by the business firms, they can expect a big market resistance. Such ill effects are including water pollution, global warming, environmental pollution etc. Once such effects are brought in to the light, the business firm will be in a big trouble. They are to follow all such standard norms fixed by the concerned authority.
(iv) Educational – Many sections of the world are still illiterate. Big informal barrier is the educational level of the large sections of the target market population. Therefore training should be a part of marketing plan when educational level is the key for the acceptance of the product.
4. Trading Blocs:
The trading blocs essentially restrain foreign traders from assailing the weaker members by protecting them with strength. Those who join such trading blocs have recognized the inter dependence of trade among their immediate neighbours and use the blocs to prevent outside marketers from regional free flow. The trading blocs work as to control and sometimes eliminate trade in certain products or sectors.
Some of the major trade organizations are listed below:
(i) AFTA – (Asean Free Trade Association)
(ii) ASEAN – (Association of Southeast Asian Nations)
(iii) APEC – (Asia-Pacific Economic Co-Operation)
(iv) EU – (European Union)
(v) NAFTA – (North American Free Trade Agreement)
(vi) OPEC – (Organisation of Petroleum Exporting Countries)
(vii) SAARC – (South Asian Association for Regional Cooperation)
5. WTO and International Interventions:
WTO is one of the most influential international body to affect international marketing mix. World Trade Organisation and its enforcement arm, the world court has been established as to rule on International trade dispute. The companies or those countries, involved in unfair trading practices can be brought before the court and the decision of the court is ruled strictly.
It is pertinent to mention here that every country cannot be a member of world trade organizations. There are certain guidelines and conditions which must be satisfied prior to the membership. The main objective of the organization is the eventual removal of all export/import tariffs among member countries. The members and their companies must comply with Generally Accepted Accountancy Principles as laid down by the world trade organization. It is helpful to compare their books with other members and their Companies.
What is International Marketing – Present Scenario: Bilateral Trade Agreement and Multilateral Trade Agreement
When we look at the current international marketing scenario, the following points attract our attention:
(i) Free trade at the global level is the ideal situation and is beneficial to all countries. However, at present, various types of restrictions (tariff and non-tariff) are imposed on international trade by all countries developed and developing.
(ii) The GATT (now WTO) and other international organisations have failed to introduce new international economic order under which international trade will be free and fair to all participants.
(iii) Regional trade blocs (regional groupings) exist in the field of international marketing. Such blocs (e.g., EEC, EFTA, ASEAN, etc.) may be useful to members of the blocs but they create obstacles in the free movement of goods at the global level. Such blocs are harmful to less developed countries. There is growing trend for such regional groupings among less developed countries of the world.
(iv) In spite of trade restrictions, trade blocs and other obstacles, world trade is growing. World merchandise trade volume rose by eight per cent in 1995 and value of trade in goods and services over $6,000 billion for the first time as per the report of WTO.
(v) Rich and developed countries dominate present international marketing scene. They put pressure on less developed countries to accept certain decisions which are not a favourable but actually harmful to less developed countries.
(vi) The US is the world’s leading single goods exporter and also the top importer followed by members of the European Union.
(vii) International marketing is rapidly becoming global marketing. The countries of the world are coming closer under global village. This tendency will lead to integration of economies of different countries. As a result, rapid expansion will take place in the field of export marketing.
(viii) Efforts are urgently required (under the leadership of WTO) for the creation of new international economic order in which free trade in the world will be a reality and just and fair treatment will be given to all countries of the world irrespective of political and economic factors.
(ix) The domination of MNCs on export marketing is fast increasing. These corporations are making huge profits by planning their marketing activities to the global level. MNCs and TNCs are also creating many problems for developing countries as regards their export marketing plans and programmes.
(x) The setting up of the World Trade Organisation (WTO) would see a major shift in the style of the world trade ushering in a new era in which countries would be bound by common rules.
Bilateral Trade Agreement:
When two countries make agreement for mutual trade and commercial benefits their agreement is called bilateral trade agreement. The agreement contains all aspects governing import-export transaction and the measures to solve dispute arising therefrom if any. The developing countries do make such agreements.
Their agreement may be with another developing country or even with the advance country which may be of capitalist or socialist ideology. These agreements depend upon mutual trust and political relationship.
India, has entered into bilateral trade agreements with many countries in the world. India being the developing country still, she needs these agreements to meet the increasing demands of her industrialisation and economic development. India and Russia, India and Germany, India and South Africa are some of the best examples of bilateral trade agreements.
Multilateral Trade Agreement:
When more than two countries enter into trading agreement for the common benefit, the agreement is called multilateral trade agreement. After Second World War, multilateral trade agreements have been entered into to resolve the problems arising out of their trading relationships.
Maximisation of world welfare, uniform trading pattern and reduction in the duty so as to benefit more to the developing countries and related matters are the objectives of multilateral trade agreements. Multilateral trading agreements are also entered into to ease but the customs and non-tariff barriers which made free trade difficult.
The post war period is fast becoming a global village. Advancement in technology and transport vis-a-vis international communication have facilitated international trade. Restrictions once imposed by governments (communist governments) upon imports and exports have been relaxed, as a result of multilateral trade agreements.
Two important multilateral trading agreements are- General Agreement on Tariffs and Trade (GATT), and United National Conference on Trade and Development (UNCTAD).