International Marketing

International Marketing Prof. Kiran Sharma K.J.Somaiya Institute of Management Studies and Research

September 11th attacks on the World Trade Center and Pentagon Enron scandal The high-tech bust of 2001 Wars in Afghanistan and Iraq Global Perspective: Recent Events Information technology boom of the late 1990s

Global terrorism, e.g., Indonesia, London,India, and Pakistan Transcending these events, international commerce continued 2003 SARS outbreak in Asia International conflict among China, Taiwan, and the United States Global Perspective: Recent Events

Global Business Trends • The rapid growth of the • World Trade Organization • and regional free trade • areas, e.g., NAFTA and the • European Union 2. General acceptance of the free market system among developing countries in Latin America, Asia, and Eastern Europe 3. Impact of the Internet and other global media on the dissolution of national borders, and 4. Managing global environmental resources

International marketing is defined as the performance of business activities designed to plan, price, promote, and direct the flow of a company’s goods and services to consumers or users in more than one nation for a profit International Marketing: A Definition Marketing concepts, processes, and principles are universally applicable all over the world

The International Marketing Task Foreign Environment (Uncontrollables) 7 1. Competition 7. Structure of Distribution Domestic environment (Uncontrollables) Environmental Uncontrollables country market A (Controllables) 1. Competition Price Product 2. Technology Target Market 3. Political- Legal Environmental uncontrollables country market B 6. Geography and Infrastructure Place or Distribution Promotion Environmental uncontrollables country market C 2. Economy 5. Political- Legal 3. Economy 4. Culture

Continuum Adaptation (of Marketing Mix) Standardization (of Marketing Mix) INFLUENCED BY 7 ENVIRONMENTAL FACTORS Environmental Adaptation Needed Differences are in the uncontrollable environment of international marketing Firms must adapt to uncontrollable environment of international marketing by adjusting the marketing mix (product, price, promotion, and distribution)

To be globally aware is to have: Developing a Global Awareness 1. Tolerance of Cultural Differences, and • Knowledgeable of: • (a) Culture, (b) History, (c) World Market Potential, • (d) Global Economic, Social and Political Trends

No Direct Foreign Marketing Regular Foreign Marketing Infrequent Foreign Marketing International Marketing Global Marketing Stages of International Marketing Involvement In general, firms go through five different phases in going international:

EPRG Schema Orientation Strategic Orientation: EPRG Schema Domestic Marketing Extension (Ethnocentric) Multi-Domestic Marketing (Polycentric) Global Marketing (Regio/Geocentric)

2. Polycentric or Multi-Domestic Marketing Concept: 1. Ethnocentric or Domestic Marketing Extension Concept: Strategic Orientation: EPRG Schema Generally, four distinctive approaches dominate strategic thinking in international marketing: Home country is superior to rest of the world. Assumes that products and practices will succeed anywhere in the world as they have been in home country. Opposite of ethnocentrism Management believes that each country is unique and allows each to develop own marketing strategies locally. Leads to adaptation approach where products must be adopted in response to different market conditions.

4. Geocentric: 3. Regiocentric: Strategic Orientation: EPRG Schema Generally, four distinctive approaches dominate strategic thinking in international marketing: A region becomes the relevant geographic unit. Management’s role is to develop an integrated regional strategy. Company views the entire world as a potential market and strives to develop integrated world market wherein a uniform, standardized marketing strategy is used for several countries, countries in a region, or the entire world.

Foreign Market-Entry Strategies When a company makes the commitment to go international, it must choose an entry strategy The choice of entry strategy depends on: • market characteristics (such as potential sales, strategic importance, cultural differences, and country restrictions) • company capabilities and characteristics, including the degree of near-market knowledge, marketing involvement, and • commitment that management is prepared to make

Alternative Market-Entry Strategies • Import regulations may be imposed to protect health, conserve foreign exchange, protect home industry, or provide revenue in the form of tariffs • A company has four different modes of foreign market entry from which to select: • exporting • contractual agreements • strategic alliances, and • direct foreign investment

Exporting • Exporting can be either direct or indirect • In direct exporting the company sells to a customer in another country • In contrast, indirect exporting usually means that the company sells to a buyer (importer or distributor) in the home country who in turn exports the product • The Internet is becoming increasingly important as a foreign market entry method

Contractual Agreements Contractual agreements are long-term, non-equity associations between a company and another in a foreign market • Contractual agreements generally involve the transfer of technology, processes, trademarks, or human skills • Contractual forms of market entry include: • Licensing: A means of establishing a foothold in foreign markets without large capital outlays wherein patent rights, trademark rights and the rights to use technological processes are granted. • Franchising: A contract in which franchisor provides a standard package of products, systems and management systems and franchisee provides market knowledge, capital and personal involvement.

Strategic International Alliances • Strategic alliances have grown in importance over the last few decades as a competitive strategy in global marketing management • A strategic international alliance (SIA) is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective • SIAs are sought as a way to shore up weaknesses and increase competitive strengths • SIAs offer opportunities for rapid expansion into new markets, access to new technology, more efficient production and marketing costs • An example of SIAs in the airlines industry is that of the alliance partners made up of American Airlines, Cathay Pacific, British Airways, Canadian Airlines.

International Joint Ventures • International joint ventures (IJVs) have been increasingly used since 1970s • a means of lessening political and economic risks by the amount of the partner’s contribution to the venture • a less risky way to enter markets • A joint venture is different from strategic alliances or collaborative relationships in that a joint venture is a partnership of two or more participating companies that have joined forces to create a separate legal entity

International Joint Ventures (contd.) • Four factors are associated with joint ventures: • JVs are established, separate, legal entities; • they acknowledge intent by the partners to share in the management of the JV; • they are partnerships between legally incorporated entities such as companies, chartered organizations, or governments, and not between individuals; • equity positions are held by each of the partners

Consortia • Consortia are similar to joint ventures and could be classified as such except for two unique characteristics: • They typically involve a large number of participants, and • They frequently operate in a country or market in which none of the participants is currently active • Consortia are developed to pool financial and managerial resources and to lessen risks.

Direct Foreign Investment • A fourth means of foreign market development and entry is direct foreign investment • Companies may manufacture locally to capitalize on low-cost labor, to avoid high import taxes, to reduce the high costs of transportation to market, to gain access to raw materials, or as a means of gaining market entry. • Firms may either invest in or buy local companies or establish new operations facilities

Export Procedures and Documentation

Export procedures and documetation • Export procedures and documentation are crucial to • international marketing, as both exporters and • importers are situated in two different countries and • are governed by different legislative frameworks • Export documentation facilitates international • transactions and protects the interest of the • exporters and importers

Types of export documents • Commercial documents are used by ‘custom of trade’ • in international commerce by exporters and importers • in discharge of their respective legal and other • incidental responsibilities under sales contract.

Regulatory documents are prescribed by different • government departments / bodies for compliance of • formalities under relevant laws • Eg: Commodities ( Agri) – PHYTO certificate • Pharmaceuticals – • PLANT approval( US FDA, UK MHRA, TG Australia, WHO GMP) • PRODUCT – • Free sale certificate issued by FDA India, validity 3 years • EXPORTS Manufacturing License (Domestic) + Certificate of Pharmaceutical Product(COPP) • Quality Control Labs Must follow GLP (Good laboratory Procedures) • Certificate of Analysis mentioning heavy metal content (Pb, Cd, As, Hg) • Material Safety Data Sheet (MSDS) asked by carrier • Bioequivalence Studies ( Atorvastatin vs. Lipitor) • Stability/ Efficacy Studies in different temperature zones

Commercial documents • Commercial invoice is a document of content that provides: • - identification of shipment • - detailed description of goods • - description of quantity • Packing list provides details of how the goods are • packed, the contents of different boxes, cartons, or • bales, and details of the weights and measurement of • each package in the consignment • Transport documents that evidence shipment of goods, such as bill of lading, combined transport document.

Bill of lading • Marine bill of lading (B/L) • - a transport document issued by the shipping company to the shipper for accepting the goods for the carriage of merchandise • Airway bill (AWB) • - issued by the carrier as an evidence of contract of carriage • Bill of lading serves three purposes: • - it is the receipt of cargo by the shipping company • - a contract of carriage (or transport) • - a document of title

Types of Bill of lading • On board or shipped bill of lading • Received for shipment bill of lading • Clean bill of lading • Dirty (clause) bill of lading • Through bill of lading • Trans-shipment bill of lading

Certificate of origin • used as an evidence of the origin of goods in the • importing country • includes the details of the goods covered and the country • where the goods are grown, produced or manufactured

Other Documents of Importance • Inspection certificate is related to quality of goods • Insurance certificate provides protection to the cargo-owner, an • insurance cover is necessary while the cargo is in transit from the • consignor to the consignee • Mate’s receipt is a cargo receipt issued by the master of the vessel • for every shipment taken on board • Bill of exchange is an unconditional order in writing prepared and • signed by the exporter addressed to the importer requiring the • importer to pay a certain sum of money to the exporter or his / her • nominee • Shipment advice is sent to the importer informing of the details of • the shipment

Shipping bill / bill of export is the principal document • required by customs authority mentioning details of • shipment for exports • Bill of entry is a document needed for customs • clearance of imported cargo

Procedure for export-import • compliance with legal framework • obtaining import-export code number • registration with export promotion council • registration with sales tax and central excise authorities • concluding an export deal • arranging export finance • appointing C& F Agent • manufacturing of goods • arranging cargo insurance • port procedures and customs clearance • presentation of documents at the negotiating bank • claiming export incentives( Duty Drawback) • receiving payment and export incentives

Electronic processing of export documents • use information technology in the field of international • business has facilitated computerized generation and • processing of export documents • for electronic filing and processing of documents, • Indian customs and central excise electronic commerce • / electronic data interchange (EC /EDI) gateway has been • created, popularly known as ICEGATE

Terms Of payment in International transactions

Terms Of Payments • Advance payment • Open account • Consignment (Payment after sale of goods) • Documentary credit • Documentary credit without Letter of Credit • Sight Drafts (Documents against payment) • Usance or time Draft (Documents against acceptance)

Types of credit according to methods of payments • Documentary credit with letter of credit • Irrevocable- No change, modification or cancellation) • Revocable – Change possible • Confirmed • Unconfirmed • Revolving Credit • Back to back

International Marketing