Chapter – 02
Introduction:
When a company contemplates
marketing abroad or expanding existing international marketing activity,
management faces five major decisions:
- International marketing decision i.e. initial and fundamental decision on whether or not to market or expand abroad.
- The market selection decision i.e. determination of which market to enter.
- The market entry decision i.e. determination of the most appropriate methods of entry into those markets, e.g. exporting, licensing, manufacturing abroad.
- The Marketing Mix decision i.e. planning and implementing a marketing mix appropriate to the market environment.
- The Organization decision i.e. determining the appropriate organization structures.
After deciding on the above major
decisions, then it comes to the point of forecasting. Forecasting future market potential is inevitably more difficult
internationally than in the domestic market due to the lack of well
acquaintance of the international marketer with the external environment such
as economic, political and cultural background or the current business climate
and the impact of local competition. To the extent, therefore, the
international marketer must be prepared to allow a greater margin for error and
there is little he can do to remedy the situation.
To serve the international
markets effectively, a firm is in need of understanding international marketing
environment properly. The needs, preferences and expectations of buyers in
different overseas markets are not necessarily similar. The environmental
differences influence the international marketing decisions of a firm.
Marketing environment refers to
the controllable and uncontrollable forces that influence upon the marketing
decision making of a firm .International Marketing environment is comprised of
those components which shape policies, programs and strategies of an
international marketer. An international firm must resort to systematic study
of international marketing environment to collect the inputs of marketing
decision making.
Components of International Marketing Environment & importance:
The International Marketing
Environment consists of following elements:
- Economic Environment.
- Financial Environment.
- Cultural Environment.
- Social Environment.
- Political Environment.
- Legal Environment.
- Competition Environment.
- Technological Environment.
The various components of the
international marketing environment are the major determinants of marketing
opportunities. As such, it is the responsibility of an international firm to
have clear grasp of international marketing environment to formulate effective
marketing decisions regarding Marketing Mix variables.
The following point highlights the importance of understanding
international marketing environment:
1.
International Marketing opportunities vary among the
nations. Some economies have enormous potentials of growth while other has not.
The knowledge of economic environment helps an international marketer to
understand which market to select for reaping lasting benefits.
2.
Culture is a basic determinant of human behaviour.The
cultural norms and values may vary among the countries. That’s why knowledge on
cultural environment is utmost important to the international marketer.
3.
Political environment has a major influence on creating
sound investment climate. The law and order situation influences business
operations. International marketing operations can be smoothly conducted in a
country having political stability and healthy political situation.
4.
International marketing is affected by legal environment
of a foreign country in which a firm intends to operate. International
marketing transactions need compliance with legal provisions. So international
marketer should be familiar with the legal environment of foreign countries
where marketing efforts will be made.
5.
The state of competition prevailing in an international
market has great importance upon the strategic plan of the international
marketer.
6.
Technological changes have also great importance
because of its direct impact on product obsolescence issue. Up-to-date
knowledge about the state of technological environment is essential for the
firms associated with international marketing.
Brief discussion on the Components of
International Marketing Environment:
A) Economic Environment: The economic
environment is comprised of the following economic variables at least:
1. National Income.
2. Gross Domestic Product (GDP).
3. Industrial Structure.
4. Currency floating (Open/fixed) issue.
5. Demand patterns.
6. Balance of Payment (BOP) status
7. Economy base (Import/Export).
8. Rate of Economic Growth.
9. Occupational Pattern.
10. State of Inflation.
11. Consumer Mobility.
The international marketer tries
to understand economic environmental variables of the global markets for
identifying the right marketing opportunities for the enterprise. Following
analysis would be helpful to understand economic environment:
# based on economic systems: International economies are classified
into: a) Market. b) Planned & c) Mixed.
Market economy is an ideal place
for the international marketer due to consumer’s dominance in the market. On
the other hand, planned economy which typically allocate resources centrally
and Mixed economy, which basically a bridge economy between public and private
sectors is not same ideal place like the market economy.
# based on industrial structures: International markets can be
classified into: a) Subsistence economy. b) Raw material exporting nations. c)
Industrializing economy. d) Industrial economy.
# based on national income: International markets can be classified
into: a) Very low family income. b) Mostly low family incomes. c) Very low and
very high incomes d) Low, medium and high incomes. e) Mostly medium family
incomes.
# To know economic environment in proper perspective, the international
marketer should also analyse the following factors:
a)
Size of the market.
b)
Purchasing power of the people.
c)
Commercial policy of the country.
d)
Demand for foreign goods.
e)
Credit and interest policy.
B) Cultural Environment:
Culture is everything that people
have, think and do as members of the society. It is the sum total of knowledge,
beliefs, arts, morals, laws, customs and any other capabilities and habits
acquired by humans as members of the society. The environment which is
comprised of norms, folkways, taboos, religious sentiments, habits that
determines the lifestyle, attitude towards different goods and buying decisions
is regarded as cultural environment.
Since consumer behaviour is
highly influenced by cultural environment, a firm pursuing international
marketing must know the cultural differences in which international efforts are
made. In a bid to acquire first hand knowledge about other cultures, procedure
such as collection of secondary data about the cultural traits of other nations
is very much helpful in this regard. Such data provide information regarding
language, interest of people, demographic characteristics of people, education
and income level of individuals.
One of the important objectives
of studying cultural environment is to ascertain the similarities in respect of
consumer behaviour.The similarity in beliefs, values and customs that govern
the use of the products/services provide the essence of global standardization
of products. Straight extension of products/services to overseas market is
possible when similarities in the consumer behaviour of the nations exist.
Another salient objective behind
analyzing the international marketing environment is to identify differences
among nations in respect of consumer needs, preferences, buying habits and
attitudes toward foreign goods. An understanding of the differences among
nations assist the international marketer is to devise appropriate strategies
to reach consumers in specific foreign markets.
A checklist is provided below to cope with the different cultural
environment:
a) Be culturally
prepared, forewarned is forearmed.
b) Learn the
local language and its non-verbal elements.
c) Mix with the
host nationals, including socially.
d) Be creative
and experimental without fear of failure.
e) Be culturally
sensitive, do not stereotype or criticize.
f) Recognize
complexities in the host culture.
g) Perceive
yourself as a culture bearer and ambassador.
h) Be patient,
understanding and accepting of your hosts.
i) Be most
realistic in your expectations.
j) Accept the
challenge of intercultural experiences.
C) Social Environment:
Human beings live in a society. A
contemporary society is comprised of various social classes depicting a wide
range of values, attitudes and behaviour.Each class is shown in terms of social
status, relative wealth and prestige. Individuals belonging to a particular
class are found to lead their lives as per the norms and values of the
concerned class. Thus social environment refers to social stratifications of a
society and its behavioural implications. The international marketer intends to
provide an insight into the social environment to know the constituents of a
foreign society and to understand how social classes differ in their buying
habits, brand choice and living patterns.
Research on social environment
has come out with the following social classification and their
buying/consumption pattern which are helping international marketer to decide
about their strategy:
a)
Upper Class:
Consumers belonging to Upper Class serve as a reference group for others to the
extent that their consumption decisions trickle down and are imitated by other
social classes. They constitute a good market for jewellery, antiques, homes
and vacations.
b)
Lower Upper
Class: This class tends to show patterns of conspicuous consumption to
impress those belonging to less than their social position. They seek to buy
the symbols of status for themselves and their children, such as, expensive
homes, schools, automobiles etc.
c)
Upper Middle
Class: This class is a quality market for good homes, clothes, furnitures
and appliance. They seek to run gracious home, entertaining friends and
clients.
d)
Middle
Class: This class constitutes a major market for do it yourself products.
This group is involved in religious activities and tries to avoid highly styled
clothings.
e)
Working
Class: This class basically aims at meeting salient human needs. They also
strive for security and interested in items that enhanced their leisure.
f)
Upper lower
Class: The upper lowers are found to be sports fan, heavy smokers. In view
of their financial conditions, they tend to show interest in the low priced
consumer goods.
g)
Lower-lower
Class: Individuals belonging to this class usually have broken down homes,
dirty clothes and raggedy possessions.
D) Political Environment:
Political environment refers to
the variables like below:
a)
Stability of Government Policies.
b)
Philosophies of the political parties.
c)
State of Nationalism.
d)
Kinds of Political risks.
e)
State of bureaucracy.
f)
Economic Risks.
g)
Attitude toward foreign investment.
The political environment is a
critical concern for the international firm that desires to operate in a
country having stable and friendly government. The hostile political
environment may create various risks for an export firm threatening its existence.
E) Legal Environment:
The legal system of this Universe
derives from several sources. One is ‘Islamic Law’ which is derived from the
interpretation of Quran, ‘Socialist Law’ derived from the interpretations of Marx
and Lenin, ‘Common Law’ has its roots in English law as used in UK, USA and
Canada. An International Marketer intends to provide an insight into
international legal environment to conduct marketing operations in compliance
with international laws, originate from the various sources. Proper
understanding of legal environment may assist an international firm to handle
legal disputes effectively.
Following are some variables
which constitute the legal environment:
a)
Rules for exporting and importing goods.
b)
Rules for People
c)
Rules for Services
d)
Rules for money across national boundaries.
e)
Health regulations
f)
Safety Standards
g)
Product Packaging and labeling
h)
Product Advertising and promotion etc.
International Marketer also needs
to understand the legal dispute settlement process to protect his justifiable
interest. We know that legal disputes can arise in three situations such as: a)
Between Governments b) Between Company and a Government c) Between Two
Companies.
Dispute between Governments can
be settled by the International Courts but disputes of other two categories
must be settled through Arbitration or in the courts of the country of one of
the parties involved in the dispute.
Most International Marketing
disputes can be settled by any of the following three methods: a) Conciliation b) Arbitration & c) Litigation.
F) Competitive Environment:
To plan effectively international
marketing strategies, the international marketer should be well-informed about
the competitive situation in the international markets. By Competitive
environment we mean the following variables:
a)
Nature of competition
b)
Players in the competition
c)
Strategical weapons used by the participants
d)
Competition regulations
Following are the ways an
international marketer can handle competition:
a)
Proper knowledge about the competitors
b)
Knowledge of Competitor’s objectives
c)
Competitor’s strategies
d)
Competitor’s reaction patterns
e)
Knowledge of Competitors strengths and weakness.
G) Technological Environment:
The most dramatic force that shaping
the destiny of an international firm is technological environment.
Technological know-how impacts all spheres of an international marketer’s
operations including production, information system, marketing etc.The
international marketers must understand technological development and its
impact on its total operations. The marketing intelligence system may help the
international firm to know technological orientations of other enterprises and
to update it’s own technologies to remain competitive. Research and Development
(R&D) has a vital role to play in increasing technological ability of a
firm.
H) Financial Environment:
Financial environment refers to
the financial system study of a country in which the international marketer
intends to operate. A financial system of a country refers to the following two
variables such as: a) Money Market. b) Capital Market
In addition to that financial
system also need to comply with the mechanism of the global financial system
which was originally became effective through ‘Bretton Woods Agreement’, signed
in 1945.The two fundamental institutions were created through this agreement,
that is, ‘’International Monetary Fund (IMF)’’ and ‘’Bank of Reconstruction and
Development (World Bank)’’.The international trade which is now regulated by
World Trade Organisation (WTO),also has a great impact on the financial system
of a country. Financial systems of any country who basically signed the treaty,
conventions of the above noted global structure are to be in line with their stated
requirement.
As soon as a domestic firm begins
to internationalize its activities, it encounters foreign financial markets.
It’s first encounter is likely to be with the global foreign exchange market
which has two main purposes: the first is currency conversion and second is the
reduction of foreign exchange risk.In addition to that a government can also
impose currency exchange controls to restrict or suppress the use of it’s
currency in international transactions.
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