International Marketing - Theory-1

International Marketing (TYBMS – Sem 6) For Private Circulation Only
INTERNATIONAL MARKETING: Syllabus:
Unit I: Introduction
1.1: Definition of international marketing-
1.2: Important features of international marketing-
1.3: Need for & advantages of international marketing-
1.4: Difference between international & domestic marketing, Basis of International trade.
1.5: International Business Environment
1.6: External factors: Social/ Demographic /Economic/ Commercial / Political & legal –
1.7: Trade Barriers – Meaning & Objectives,
1.8: Effect of barriers on international trade,
1.9: Types of barriers: Tariff & Non-Tariff barriers-
1.10: Trading Blocs & Growing intra-regional trade-
1.11: WTO & trade liberalization-latest developments at WTO including Doha Round-
1.12: Role of MNCs in International trade,
1.13: Foreign Direct Investment (FDI)
Unit II: Product Packaging and Distribution

2.1: Packaging as a part of product planning-
2.2: Functions of packaging-
2.3: Factors for package design in international markets-
2.4: Criteria for export packing (transport packing) - role of Indian Institute of packaging
2.5: Export marking on outer packing-
2.6: Purpose of export marking,
2.7: Selection of overseas distribution channels and factors influencing selection of
distribution channels,
2.8: Types of foreign intermediaries.
Prof. Abdul K Khan Page 1

Unit III: Pricing Policy in International Markets

3.1: Factors determining price-
3.2: Export costing methods –
3.3: Elements of cost-
3.4: Factors influencing pricing policy
3.5: Information required for export pricing –
3.6: Export pricing strategies –
3.7: Break even pricing –
3.8: Impact of contract conditions on export price offers –
3.9: INTCOTERMS –
3.10: Export assistances, incentives, Govt. of India's initiatives –
3.11: Impact of export incentives on export pricing.
Unit IV: Overseas Market Selection

4.1: Methods of market entry,
4.2: Identifying foreign markets and selecting potential markets –
4.3: Constraints in entering in some global territories –
4.4: Market selection process –
4.5: Objectives entering into international markets -
4.6: Setting parameters,
4.7: Preliminary screening of the probable markets –
4.8: Sources of information –
4.9: Short listing of markets, evaluation & selection of potential markets –
4.10: Market segmentation based on overall market profile,
4.11: Bases for segmentation,
4.12: Factors for segment selection,
4.13: Essential characteristics of market segments
4.14: Preferences available to Indian exporters

Recommended Books:
1. International Business, Justin Paul, Tata McGraw-Hill Publishing Company Limited, New
Delhi
2. International Marketing, Francis Cherunilam, Himalaya Publishing House, Mumbai
3. International Marketing Management - An Indian Perspective, Varshney RI,
Bhattacharya B, Sultan Chand & sons. New Delhi
4. International Marketing, P.K. Vasudeva, Excel Books, New Delhi
5. International Marketing (SIE), Cateora and Philip, Tata McGraw-Hill
6. Globalization of Business, Abbas J. Ali, Jaico Pubishing House, Mumbai, 3rd Edn., 2009

Unit I: Introduction
1.2: Important features of international marketing-
1.3: Need for & advantages of international marketing-
1.4: Difference between international & domestic marketing, Basis of International trade.
1.6: External factors: Social/ Demographic /Economic/ Commercial / Political & legal –
1.11: WTO & trade liberalization-latest developments at WTO including Doha Round-
1.13: FDI
International Marketing can be defined as exchange of goods and services between

different national markets involving buyers and sellers.
According to the American Marketing Association, “International Marketing is the multi-

national process of planning and executing the conception, prices, promotion and
distribution of ideal goods and services to create exchanges that satisfy the individual and
organizational objectives.”

Vern Terpstra defines International Marketing as “Marketing carried on across National

Boundaries”
We can define the term as: International marketing means to produce products (goods and
services) for the foreign customers and to make necessary arrangement to supply them.
International marketing concerns with marketing products in foreign counties. In this

reference, we can define it as: Marketing activities across the border can be said as
international marketing. Marketing activities among the countries of the world can be
turned as international marketing.
Finally, it can be said: International marketing is the marketing for the customers of other
countries. It involves designing marketing programme (4P’s) to arrive at desired exchange
with foreign customers that satisfies their needs and wants.
International marketing is simply the application of marketing principles to more than one
country. However, there is a crossover between what is commonly expressed
as international marketing and global marketing, which is a similar term. For the purposes of
this lesson on international marketing and those that follow it, international marketing and
global marketing are interchangeable.
1.2: Important features of international marketing

We can identify following simple features of international marketing:
1. Marketing activities are undertaken across the borders.

2. It is directed to facilitate exchange between the firm and the customers of foreign
countries.
3. It is aimed at satisfying needs of international/global customers.
4. International marketing decisions are taken with reference to the global business
environment.
5. It involves two or more nations.
6. Tailor-made marketing mix is necessary for each of the nations.
7. It is more complex and, hence, difficult.
8. Role of international trade agencies seem very critical in marketing products in other
countries.
9. It offers attractive opportunities along with challenges and threats.

10. All other characteristics of modern marketing are also applicable to international
marketing, etc.
1.3: Need for & advantages (importance) of international marketing-

In relation to the need or importance of international marketing, views of Philip Kotler are
worth noted. According to him, two forces essentiality the international marketing are pull
forces and push forces. Push forces lead to force the nation to sell its goods and services in
other nations.
The push forces include lower national income, low per capita income, low domestic demand,
unfavourable approach of government, high rates of tax and duties, government force to
export to earn foreign exchange, tough local market, etc. These forces force the marketer to
opt for international market.
Another set of forces is pull forces. The pull forces pull (attract) businessmen to sell their
products in the foreign market to exploits attractive opportunities in the foreign countries. To
take benefits of more profitable opportunities, they are pulled to business in other nations. The
variable lead to international market may fall either in pull forces or push forces or both.
Let’s have brief explanation of several benefits available due to international

marketing:
1. It ensures survival for a company and a country.
2. Nations can get benefits of division of work and specialization.
3. It also helps in balancing unequal distribution of natural resources.
4. Extending product life cycle by selling products in other nations.

5. It is important for controlling inflation and achieving price moderation.
6. Balancing demand and supply.
7. Promotion of invention and innovation globally.
8. Companies can take benefits of taxes and duties.
9. Technological transmission among countries of the world is easily possible.
10. International marketing can improve standard of living of people.

11. Growth of international marketing results into social and cultural development.
12. Worldwide peace is possible due to interdependency among countries of the world

13. Global employment opportunities can help ease unemployment problems.

14. Growth of overseas market leads to global prosperity.
Forces/Variable Leading to the Need of International Marketing:

The world has become the global market. The opportunities emerging in any nation are not
enjoyed by the nation only. Other nations of the world can take benefits of them. Due to
global thinking, liberal dealings with others, positive attitudes toward privatization, available
of necessary guidelines, facilities, and encouragement have ultimately resulted in growth of

international marketing.
Main forces led to need of international marketing are:

1. Unequal distribution of natural resources
2. Specialization and need for marketing surplus
3. Craze for global political empowerment
4. Rapid means of communication and transportation
5. Liberalization
6. Globalization or global thinking
7. Trend for privatization
8. Improved understanding and cooperation among nations for mutual benefits
9. Satisfactory functioning of several international organisations or agencies such as
International Monetary Fund (IMF), World Bank, United Nations Organisation (UNO),
UN Security Council, etc.
10. Growth and Development of Multinational Companies (MNCs)
11. Emergence of global marketing opportunities

12. Technological advancement and transfer of technology.
1.4: Difference between international & domestic

marketing


INTERNATIONAL MARKETING DOMESTIC MARKETING
1. Meaning It refers to those activities which results into It refers to those activities which results
transfers of goods and services from one into transfers of goods and services
country to another. inside the country itself.
2. Barriers International trade is characteristics by tariff Domestic marketing has no such
and non-tariff barriers. restrictions.
3. Currencies It involves exchange on the basis of different It involves exchange in the basis of same
currencies. currencies.
4. Government Exchange takes place under government Government in interference is zero or
Interference rules and regulations. There is high degree of minimum only in case of essential
government interference. commodities.
5. Culture Trade should be done taking diverse into Culture does not affect in domestic
consideration. Even things like colour marketing.
combination can be affect the trade.
6. Mode of Letter of credit is normally as mode of Cash, Cheques, DD’s are the most
Payment payment. common.
7. Mobility of Factors of Production are relatively immobile Domestic Trade enjoys greater mobility
Factors of as compared to domestic marketing. in factors of production.
Production
8. Competition International Trade is subject to intense Competition is not as intense as it is in
competition. international marketing.
9. Documentation International Marketing is subject to Domestic trade does not involve much
complex documentation of documentation.
10. Risk International Marketing is subject to high Domestic Marketing is also subject to
risk. Political, foreign exchange risk, bad debt risk but not as high as international
risk are few of them. marketing.
Basis of International trade
The basis for international trade is that a nation can import a particular good or service at a lower
cost than if it were produced domestically.
In other words, if you can buy it cheaper than you can make it you buy it. This maxim is true for
individuals and nations – This is called specialization and exchange.


The international business environment can be defined as the environment in different

sovereign countries, with factors originating outside the home environment of the
organization, influencing decision-making on resource use and capabilities. This includes the
social, political, economic, regulatory, tax, cultural, legal, and technological environments.
International business environment is more diverse and complex than the domestic
business environment.
1.6: External factors: Social/ Demographic /Economic/

Commercial / Political & legal –
There are many external environmental factors that can affect your business. It is common
for managers to assess each of these factors closely. The aim is always to take better
decisions for the firm’s progress. Some common factors are political, economic, social and
technological (known as PEST analysis). Companies also study environmental, legal, ethical
and demographical factors.
Demographic Factors:
There are a number of demographics that can affect a business. Demographics are various traits that
can be used to determine product preferences or buying behaviours of consumers. Most companies
identify their key customers through these various traits. They then target consumers with like
characteristics in their advertisements and promotions. Targeting consumers with similar demographic
characteristics helps maximize a company's sales and profits.
Political Factors:
The political factors affecting business are often given a lot of importance. Several aspects
of government policy can affect business. All firms must follow the law. Managers must find
how upcoming legislations can affect their activities.
The political environment can impact business organizations in many ways. It could add a
risk factor and lead to a major loss. You should understand that the political factors have
the power to change results. It can also affect government policies at local to federal level.
Companies should be ready to deal with the local and international outcomes of politics.

Changes in the government policy make up the political factors. The change can be
economic, legal or social. It could also be a mix of these factors.
Increase or decrease in tax could be an example of a political element. Your government

might increase taxes for some companies and lower it for others. The decision will have a
direct effect on your businesses. So, you must always stay up-to-date with such political
factors. Government interventions like shifts in interest rate can have an effect on the
demand patterns of company.
Certain factors create Inter-linkages in many ways. Some examples are:
 Political decisions affect the economic environment.

 Political decisions influence the country’s socio-cultural environment.
 Politicians can influence the rate of emergence of new technologies.
 Politicians can influence acceptance of new technologies.
The political environment is perhaps among the least predictable elements in the business
environment. A cyclical political environment develops, as democratic governments have to
pursue re-election every few years. This external element of business includes the effects of
pressure groups. Pressure groups tend to change government policies.
As political systems in different areas vary, the political impact differs. The country’s
population democratically elects open government system. In totalitarian systems,
government’s power derives from a select group.
Corruption is a barrier to economic development for many countries. Some firms survive
and grow by offering bribes to government officials. The success and growth of these
companies are not based on the value they offer to consumers.
Below, is a list of political factors affecting business:

 Bureaucracy
 Corruption level
 Freedom of the press
 Tariffs
 Trade control
 Education Law
 Anti-trust law
 Employment law
 Discrimination law

 Data protection law

 Environmental Law
 Health and safety law
 Competition regulation
 Regulation and deregulation
 Tax policy (tax rates and incentives)
 Government stability and related changes
 Government involvement in trade unions and agreements
 Import restrictions on quality and quantity of product
 Intellectual property law (Copyright, patents)
 Consumer protection and e-commerce
 Laws that regulate environment pollution
There are 4 main effects of these political factors on business organizations. They are:
 Impact on economy
 Changes in regulation
 Political stability
 Mitigation of risk
Impact on economy
The political situation of a country affects its economic setting. The economic environment
affects the business performance.
For example, there are major differences in Democratic and Republican policies in the US.
This influences factors like taxes and government spending, which ultimately affect the
economy. A greater level of government spending often stimulates the economy.
Changes in regulation
Governments could alter their rules and regulations. This could in turn have an effect on a
business.
After the accounting scandals of the early 21st century, the US SEC became more attentive
on corporate compliance. The government introduced the Sarbanes-Oxley compliance
regulations of 2002. This was a reaction to the social environment. The social environment
urged a change to make public companies more liable.
Political Stability

Lack of political stability in a country effects business operations. This is especially true for
the companies which operate internationally.
For example, an aggressive takeover could overthrow a government. This could lead to riots,
looting and general disorder in the environment. These disrupt business operations. Sri
Lanka was in a similar state during a civil war. Egypt and Syria faced disturbances too.
Mitigation of Risk
Buying political risk insurance is a way to manage political risk. Companies that have
international operations use such insurance to reduce their risk exposure.
There are some indices that give an idea of the risk exposure in certain countries. The index
of economic freedom is a good example. It ranks countries based on how politics impacts
business decisions there.
The importance of observing the political environment

Firms should track their political environment. Change in the political factors can affect
business strategy because of the following reasons:
 The stability of a political system can affect the appeal of a particular local market.
 Governments view business organizations as a critical vehicle for social reform.
 Governments pass legislation, which impacts the relationship between the firm and its
customers, suppliers, and other companies.
 The government is liable for protecting the public interest.
 Government actions influence the economic environment.
 Government is a major consumer of goods and services.
Example: How political factors affect Nike

Studies show that Nike has earned high profits from the growth orientated policies of US
government. The policies maintained low-interest rates. Currency exchange stability and
internationally competitive tax arrangements were also maintained. The company has also
benefited from government initiatives in terms of transparency in the global value chain.

One example of this is in membership of the Clinton administration’s 1997 Apparel Industry
Partnership. Nike enjoyed changes in the political factors in many ways. However, political
pressures had a negative impact on Nike’s employment practices.
Socio-Cultural Factors:
There is no doubt that the society is continually changing. The tastes and fashions are a
great example of this change. One of the most significant differences is the growing
popularity of social media. Social networking sites like Facebook have become very popular
among the younger people. The young consumers have grown used to mobile phones and
computers.
The younger generation prefers to use digital technology to shop online. Older people will
perhaps stick to their traditional methods. The effect of changing society is an often
discussed. You must also understand that these changing factors have a toll on businesses
too. Changes in the social factors can impact a firm in many different ways.
Companies often focus on these changes in depth. To do so, they employ environmental
analysis such as PEST analysis. STEP is a variation of PEST. Extended versions include PESTLE,
STEEP and STEEPLE analysis. The “S” in all these analyses indicates social or socio-cultural
factors. Other factors you should assess are political, economic, technological,
environmental, ethical and legal.
Businesses choose an environmental analysis depending on the nature of operations.
However, all of them study the social factors.
In the social step for these analyses, you have to look carefully at the social changes. You
will also have to look into the cultural changes which take place in your business
environment. Market research is a critical part of this step. It is vital to see the trends and
patterns of the society.
To understand the impacts better, you might need to study the factors in details. Most
companies analyze the population growth and age structure. They also show interest in
consumer attitudes and lifestyle changes. Your analysis can show if there are faults in
your marketing strategy. It can also help find new ideas.
Below is a list of social factors which impact customer needs and size of markets:
 Lifestyles

 Buying habits
 Education level
 Emphasis on safety
 Religion and beliefs
 Health consciousness
 Sex distribution
 Average disposable income level
 Social classes
 Family size and structure
 Minorities
 Attitudes toward saving and investing
 Attitudes toward green or ecological products
 Attitudes toward for renewable energy
 Population growth rate
 Immigration and emigration rates
 Age distribution and life expectancy rates
 Attitudes toward imported products and services
 Attitudes toward work, career, leisure and retirement
 Attitudes toward customer service and product quality
The social aspect focuses on the forces within the society. Family, friends, colleagues,
neighbors and the media are social factors. These factors can affect our attitudes, opinions
and interests. So, it can impact sales of product and revenues earned.
The social factors shape who we are as people. It affects how we behave and what we buy.
A good example is how people’s attitude towards diet and health is changing in UK. Because
of this, UK businesses are seeing some changes. More people are joining fitness clubs. There
is also a massive growth in demand for organic food.
Products often take advantage of the social factors. The Wii Fit, for instance, attempt to deal
with the society’s concern about children’s lack of exercise.
Population changes are also directly affecting organizations. The supply and demand of
goods and services in an economy can change with the structure of the population. Decline
in birth rates mean demand will decrease. It also indicates greater competition as the total
consumers fall.

World food shortage predictions can lead to call for more investment in food production. An
increase in the world’s population can have the same effect. African countries like Uganda
are facing food shortage. They are reconsidering rejection of genetically modified foods
now.
Organizations should be able to offer products and services which aim to benefit people’s
lifestyle. The offerings should complement customers’ behavior. Not reacting to changes in
the society can be a costly mistake. They might lose market share. Demand for their
products and services will fall.
I have added some examples of how renowned companies use the analysis. Read below to
see how social changes affect Pepsi Co and Nokia.
Social factors which impact Pepsi Co
Analysis shows that social factors impact the beverage company greatly. The key reason
behind this is perhaps that Pepsi is a non-alcoholic beverage. It has to maintain the strict
differences in cultures around the world.
It is essential that Pepsi communicates its image as a global brand to change people’s
perception. The company expects its buyers to be able to think of their drink as something
which connects the world together. The social implications are visible
in marketing campaigns most of the time.
For example, the religious festivals featured in TVC ads vary based on cultures. Pepsi has to
value all the festivals in order to relate to their market. Reacting to the social factor can
help Pepsi cash upon the opportunity.
Trade barriers are restrictions that governments apply on trade between countries. This
usually goes against the notion of free trade, which occurs when there is smooth and
unhindered trade among nations. In reality, all nations have their own form of trade
barriers. Removing trade barriers would mean loss of revenue in the form of taxes for items
brought into a country. Common forms of trade barriers include tariffs, customs duties and
embargoes.

Trade barriers are measures that governments or public authorities introduce to make
imported goods or services less competitive than locally produced goods and services. Not
everything that prevents or restricts trade can be characterised as a trade barrier.
OBJECTIVES of Trade Barriers:
Trade barriers often are set up to ensure that products imported into the country meet
safety, legal and quality standards. They also are imposed in an effort to curb
unemployment. When governments limit the entry of foreign goods, local companies need
not fear threats to their existence. This is particularly useful during recessions, when
unemployment and the cost of living are high. Trade barriers also may be imposed for

national defence strategies. Countries sometimes use embargoes to force other nations to
conform or as an open declaration of war.
Let’s discuss in detail:
(1) To Protect Home Industries From Foreign Competition:
Tread barriers are imposed in order to give protection to home industries b avoiding completion
from other countries. Such competition is harmful and may bring home industries in difficulties.
Government has to give support and protection to home industries and for such protection,
imports must be discouraged or stopped. This is possible through the creation of different trade
barriers and restricting imports.
(2) To Promote New Industries And R & D Activities:
The quality of production is also likely to improve through research and development (R&D)
activities. Such R & D activities can be undertaken at the company’s level, at the industry
level and even at the national level. It is type of industrial research activity conducted in the
research laboratories.

R & D is a costly and time consuming activity and also requires the services of scientists/
exports. Quality improvement, cost reduction, introduction of new product, modification in
the existing products and making existing products more useful and agreeable to consumers
are some benefits of R & D activities.
(3) To Conserve Foreign Exchange Reserves:
A country has to pay for imports through its foreign exchange reserves. Large scale imports
mean heavy pressure on available reserve of foreign currencies. Such polices will ultimately
lead to foreign exchange crisis. On the other hand, foreign exchange will be saved through
import substitution and import restriction.
(4) To Maintain Favourable Balance Of Trade & Payments Position:
Large scale imports lead to deficit in the balance of trade and balance of payments. Such
deficit is undesirable and puts heavy strain on the available foreign exchange. For removing
such deficit, imports should be restricted and exports should be promoted. Trade barriers
are useful for reducing imports. They are advocated for reducing deficit in the balance of
trade and payment position.
The term Balance Of Trade suggests the difference between exports and imports which may
be positive/negative. It is positive when exports made are more than the imports. It is
treated as negative when exports are less as compared to imports within a specific period
normally one year. Poor and developing countries normally have to face the problems of
negative balance of trade.
(5) To Protect National Economy From Dumping:
Foreign countries may try to capture domestic market by offering their goods at very low
prices. The purpose is to sell surplus production. Such technique of dumping is profitable to
reach countries but harms poor countries. To avoid such situation (anti-dumping duties) are
imposed. As a result, foreign goods become costly and the adverse effects on home markets
are avoided.
(6) To Curb Conspicuous Consumption:
Domestic consumers may like to purchase costly imported goods for prestige purpose. This
tenancy is a socially undesirable and can be checked by restricting the imports of luxury
items by making them too costly and there by restricting their sale within the country.

(7) To mobilise Additional Revenue through Heavy Duties on Imports:
Trade barriers in the form of revenue tariffs are introduced. Such policy restricts imports
and in addition gives substantial revenue to the government for various purposes. Here,
trade barriers are created for collecting revenue from foreign suppliers. It is used as tool for
collecting revenue.
(8) To make the country strong and self-sufficient:
Trade barriers are useful for making the country strong & the self-sufficient. Import
restriction lead to production of new commodities within the country through import
substitution. Dependence on other countries is reduced considerably. A domestic industry is
made competitive in the long run.
(9) To counteract trade barriers imposed by other countries:
Sometime, trade barriers are introduced against the countries which have already imposed
such restrictions. For example, country A may ban imports from country B. country B will
adopt similar policy as a protest to the policy adopted by country A.
(10) To encourage the use of domestic production:
Trade barriers are introduced in order to encourage people to use goods manufactured with
in the country. People will have no choice but to purchase domestic goods when imports are
stopped or restricted considerably. Thus, trade barriers widen the scope of marketing to
home industries and give them an opportunity to grow.

Trade barriers come in many forms. Quota is one. This is when a country sets a limit to the
imported products. This is done for a number of reasons. One is because the government of
the importing country wants to protect its domestic manufacturers. Other barriers or
limitations are added costs such as tariffs, duties, and taxes.
In this way, trade barriers can affect international trade by preventing the flow of goods
from producers to consumers. Where quotas, tariffs, and duties prevent this flow, it impacts

the productivity of the producers, although these will usually seek other markets without
these barriers.
Without net exports, a country cannot remain a consumer of other countries’ goods without
incurring large debts through the imbalance of trade. It is usually economically beneficial to
all parties to maximize the production of their industries, through open markets to a wide
consumer base.
Countries in order to protect their economies apply methods of restrictions such as tariffs,
quotas, subsidies and exchange controls. By applying protectionism a country can gain from
it in such as protecting infant industries, dumping and protecting manufacturing industries,
but on the other hand can also have problems such as firms remaining inefficient,
retaliation, and misallocation of resources, and related directly to international trade
countries benefit on comparative and absolute advantage, and economies of scales it affects
the international trade.
International trade increases the number of goods that domestic consumers can choose
from, decreases the cost of those goods through increased competition, and allows
domestic industries to ship their products abroad. While all of these seem beneficial, free
trade isn’t widely accepted as completely beneficial to all parties. Let us examine why this is
the case, and how countries react to the variety of factors that attempt to influence trade.


Non-Tariff Barriers
May directly affect either the price or quantity of
goods traded internationally


An important trend in international trade has been the growth of intra-regional trade. Intra-
regional trade has been fostered by the economic integration schemes or trading blocs.
Some people view world trade as consisting broadly of intra-regional trade and inter
regional trade. There is also talk of regionalization Vs globalization of world trade.
The share of intra-regional trade in the total world trade increased in the 1980s in Western
Europe, North America and Asia. In other words, trade within the region grew substantially
faster than world trade. In 1990, intra-regional trade in goods accounted for 61% of total
trade in goods of the European Community, 41% for Asia and 35% for North America. Over
60% of the trade of the Pacific rim nations stays within the area.
Regional integration schemes tend to increase intra-regional trade. For example, trade
between the 12 members of the EC increased from about 40% in 1960 to 60% in 1990. Intra-
regional trade increased in the EFTA and ASEAN.
There is a worldwide trend towards forming new regional arrangements and to strengthen
the existing ones. Inspired by the EEC, several regional integration schemes have been
formed by the developing countries, particularly in the Latin America and Africa. However,
none of them could become a commendable success. By the late 1970s, outward oriented
policies had begun to capture the imagination of policy makers. In the years that followed,
unilateral, non-discriminatory trade liberalization became the order of the day and
regionalism was pushed to the background. The situation, however, changed by the end of
the 1980s and today regionalism is back with a vengeance. In its current incarnation,
regionalism has engulfed all major players in the world economy. Latin American countries
are eager to join with North America in free trade agreement. The possibility of the division
of the world into three major trading blocs Americas, Europe and East Asia is seriously
debated.
A brief account of the different forms of economics integration and the important
integration schemes across the world are given below.
Economic integration is a general term, which covers several kinds of arrangements by

which two or more countries agree to draw their economies closer together. All of the
arrangements have one common feature the use of tariffs to discriminate against goods
produced by countries, which are not parties to the agreement. All tariffs discriminate
against foreign products. The key feature of the various agreements for integration is that
tariffs are used to discriminate among different countries. This kind of discrimination is
achieved by according preferential treatment to the goods produced by the other member
countries.
There are several degrees or levels of economic integration. The important forms of
economic integration are outlined below.
A free trade area is a grouping of countries to bring about free trade between them. The
free trade area abolishes all restrictions on trade among the members; but each member is
left free to determine its own commercial policy with non-members.
The customs union is a more advanced level of economic integration than the free trade
area. It not only eliminates all restrictions on trade among members but also adopts a
uniform commercial policy against non-members.
The common market is a step ahead of the customs union. A common market allows free
movement of labor and capital within the common market, besides having the two
characteristics of the customs union, namely, free trade among members and a uniform
tariff policy towards outsiders.

A still more advanced level of integration union. Apart from satisfying the conditions of the
common market mentioned above, the economic union achieves some degree of
harmonization of economic policies such as monetary policy, fiscal policy, etc. This is what
the European Community (EC) is striving to achieve.
The ultimate form is full economic integration characterized by the completion of the
removal of all barriers to intra-bloc movement of goods and factors, unification of social as
well as economic policies and all the members bound by decisions of a super national
authority consisting of executive, Judicial and legislative branches.
1.11: WTO & trade liberalization-latest developments at

WTO including Doha Round-
World Trade Organization (WTO) was formed as a replacement for GATT in 1995
with the purpose of supervising and liberalizing international trade. The
organization deals with regulation of trade between participating countries, it
also provides a framework for negotiations and formalizations of trade
agreements. It is also responsible for enforcing trade laws, agreements and
resolving disputes. The WTO was created with the purpose of being a stronger
and having a more permanent framework compared to the previous GATT. It
also monitors trade in services and trade-related aspects of intellectual property
rights, in addition to trade in goods. The WTO has a total of 157 member
countries.
Objectives & Functions of WTO:
The important objectives of WTO are:
1. To improve the standard of living of people in the member countries.

2. To ensure full employment and broad increase in effective demand.
3. To enlarge production and trade of goods.
4. To increase the trade of services.
5. To ensure optimum utilization of world resources.
6. To protect the environment.

7. To accept the concept of sustainable development.
The main functions of WTO are discussed below:
1. To implement rules and provisions related to trade policy review mechanism.

2. To provide a platform to member countries to decide future strategies related to trade and tariff.
3. To provide facilities for implementation, administration and operation of multilateral and bilateral
agreements of the world trade.
4. To administer the rules and processes related to dispute settlement.
5. To ensure the optimum use of world resources.
6. To assist international organizations such as, IMF and IBRD for establishing coherence in Universal
Economic Policy determination.
WTO & Trade Liberalization:

'Trade Liberalization' refers to the removal or reduction of restrictions or barriers on the free exchange of
goods between nations. This includes the removal or reduction of both tariff (duties and surcharges) and non-
tariff obstacles (like licensing rules, quotas and other requirements).
The World Trade Organisation “WTO" is the only global international organisation dealing with the rules of
trade between nations. The goal of WTO is to help producers of goods and services, exporters and importers to
conduct their business for promoting International Trade. With the passage of time the concept of liberalised
international trade emerged in the world trade arena. International trade liberalisation represents a policy by
which governments do not discriminate imports as against exports. Trade liberalisation also involves removing
of trade barriers. The WTO plays a very crucial role in the development of free trade in the world. One of WTO’s
main functions is to promote and support free trade throughout the world through its multilateral trade
agreements. The WTO provides for a forum for negotiating agreements aimed at reducing obstacles to
international trade and ensuring a level playing field for all, thus contributing to economic growth and
development.


Role of Multinational Corporations (MNCs) in Foreign Investments!
Multinational corporations are those large firms which are incorporated in one country but
which own, control or manage production and distribution facilities in several countries.
Therefore, these multinational corporations are also known as transnational corporations.
They transact business in a large number of countries and often operate in diversified
business activities. The movements of private foreign capital take place through the medium
of these multinational corporations. Thus multinational corporations are important source
of foreign direct investment (FDI). Besides, it is through multinational corporations that
modern high technology is transferred to the developing countries.
The important question about multinational corporations is why they exist. The multina-
tional corporations exist because they are highly efficient. Their efficiencies in production
and distribution of goods and services arise from internalising certain activities rather than
contracting them out to other forms.
Managing a firm involves which production and distribution activities it will perform itself
and which activities it will contract out to other firms and individuals. In addition to this
basic issue, a big firm may decide to set up and operate business units in other countries to
benefit from advantages of location.
For examples, it has been found that giant American and European firms set up production
units to explore and refine oil in Middle East Countries because oil is found there. Similarly,
to take advantages of lower labour costs, and not strict environmental standards,
multinational corporate firms set up production units in developing countries.
Alternative Methods of Foreign Investment by Multinational Companies:

In order to increase their profitability many giant firms find it necessary to go in for
horizontal and vertical integration. For this purpose they find it profitable to set up their
production or distribution units outside their home country.
The firms that sell abroad the products produced in the home country or the products
produced abroad to sell in the home country must decide how to manage and control their
assets in other countries. In this regard, there are three methods of foreign investment by
multinational firms among which they have to choose which mode of control over their
assets they adopt.
There are four main modes of foreign investment:

1. Agreement with Local Firms for Sale of MNCs Products:

A multinational firm can enter into an agreement with local firms for exporting the product
produced by it in the home country to them for sale in their countries. In this case, a
multinational firm allows the foreign firms to sell its product in the foreign markets and
control all aspects of sale operations.
2. Setting up of Subsidiaries:
The second mode for investment abroad by a multinational firm is to set up a wholly owned
subsidiary to operate in the foreign country. In this case a multinational firm has complete
control over its business operations ranging from the production of its product or service to
its sale to the ultimate use or consumers.
A subsidiary of a multinational corporation in a particular country is set up under the

company act of that country. Such subsidiary firm benefits from the managerial skills,
financial resources, and international reputation of their parent company. However, it
enjoys some independence from the parent company.
3. Branches of Multinational Corporation:

Instead of establishing its subsidiaries, Multinational Corporation can set up their branches
in other countries. Being branches they are not legally independent business unit but are
linked with their parent company.
4. Foreign Collaboration or Joint Ventures:

Thirdly, the multinational corporations set up joint ventures with foreign firms to either
produce its product jointly with local companies of foreign countries for sale of the product
in the foreign markets. A multinational firm may set up its business operation in
collaboration with foreign local firms to obtain raw materials not available in the home
country. More often, to reduce its overall production costs multinational companies set up
joint ventures with local foreign firms to manufacture inputs or subcomponents in foreign
markets to produce the final product in the home country.
1.13: Foreign Direct Investment [FDI]
Definition of Foreign Direct Investment

Foreign direct investment (FDI) is an investment in a business by an investor from another
country for which the foreign investor has control over the company purchased. The
Organization of Economic Cooperation and Development (OECD) defines control as owning
10% or more of the business. Businesses that make foreign direct investments are often
called multinational corporations (MNCs) or multinational enterprises (MNEs). A MNE may
make a direct investment by creating a new foreign enterprise, which is called a greenfield

investment, or by the acquisition of a foreign firm, either called an acquisition or brownfield

investment.
Advantages of FDI
In the context of foreign direct investment, advantages and disadvantages are often a
matter of perspective. An FDI may provide some great advantages for the MNE but not for
the foreign country where the investment is made. On the other hand, sometimes the deal
can work out better for the foreign country depending upon how the investment pans out.
Ideally, there should be numerous advantages for both the MNE and the foreign country,
which is often a developing country. We'll examine the advantages and disadvantages from
both perspectives, starting with the advantages for multinational enterprises (MNES).
 Access to markets: FDI can be an effective way for you to enter into a foreign
market. Some countries may extremely limit foreign company access to their
domestic markets. Acquiring or starting a business in the market is a means for you
to gain access.
 Access to resources: FDI is also an effective way for you to acquire important natural
resources, such as precious metals and fossil fuels. Oil companies, for example, often
make tremendous FDIs to develop oil fields.
 Reduces cost of production: FDI is a means for you to reduce your cost of production
if the labor market is cheaper and the regulations are less restrictive in the target
foreign market. For example, it's a well-known fact that the shoe and clothing
industries have been able to drastically reduce their costs of production by moving
operations to developing countries.
FDI also offers some advantages for foreign countries. For starters, FDI offers a source of
external capital and increased revenue. It can be a tremendous source of external capital for
a developing country, which can lead to economic development.
For example, if a large factory is constructed in a small developing country, the country will
typically have to utilize at least some local labor, equipment, and materials to construct it.
This will result in new jobs and foreign money being pumped into the economy. Once the
factory is constructed, the factory will have to hire local employees and will probably utilize
at least some local materials and services. This will create further jobs and maybe even
some new businesses. These new jobs mean that locals have more money to spend, thereby
creating even more jobs.
Additionally, tax revenue is generated from the products and activities of the factory, taxes
imposed on factory employee income and purchases, and taxes on the income and
purchases now possible because of the added economic activity created by the factory.
Developing governments can use this capital infusion and revenue from economic growth to
create and improve its physical and economic infrastructure such as building roads,
communication systems, educational institutions, and subsidizing the creation of new
domestic industries.

Another advantage is the development of new industries. Remember that a MNE doesn't
necessary own all of the foreign entity. Sometimes a local firm can develop a strategic
alliance with a foreign investor to help develop a new industry in the developing country.
The developing country gets to establish a new industry and market, and the MNE gets
access to a new market through its partnership with the local firm.
Unit II: Product Packaging and Distribution

2.1: Packaging as a part of product planning-
Packaging is now generally regarded as an essential component of our modern life style and
the way business is organized. Packaging is the enclosing of a physical object, typically a
product that will be offered for sale. It is the process of preparing items of equipment for
transportation and storage and which embraces preservation, identification and packaging
of products. Packing is recognized as an integral part of modern marketing operation, which
embraces all phases of activities involved in the transfer of goods and services from the
manufacturer to the consumer. Packaging is an important part of the branding process as it
plays a role in communicating the image and identity of a company.
Kotler defines packaging as "all the activities of designing and producing the container for
a product."
Packaging can be defined as the wrapping material around a consumer item that serves to
contain, identify, describe, protect, display, promote, and otherwise make the product
marketable and keep it clean. Packaging is the outer wrapping of a product. It is the
intended purpose of the packaging to make a product readily sellable as well as to protect it
against damage and prevent it from deterioration while storing. Furthermore the packaging
is often the most relevant element of a trademark and conduces to advertising or
communication.
2.2: Functions of packaging-

1. To protect a product from damage or contamination by micro-organisms and air,
moisture and toxins.
The product must be protected against being dropped, crushed, and the vibration it suffers
during transport. Delicate products such as fruits need to be protected by a rigid package
such as a laminated container.
The product most also be protected against the climate including high temperatures,
humidity, light and gases in the air.
It must also be protected against micro-organisms, chemicals, soil and insects.
2. To keep the product together, to contain it (i.e. So that it does not spill).

Some shapes cannot be easily packaged, for example, certain vegetables. However, there
are methods of getting around this problem. Suppliers of canned vegetables such as carrots
have developed a particular type of plant that yields carrots that are straight and smaller
than the normal variety. These fit into cans. Some products such as fruit juices and sausages
need to be contained in packages that hold them together and are sealed to prevent
spillage and loss.
3. To identify the product.

Packaging is the main way products are advertised and identified. To the manufacturer the
package clearly identifies the product inside and it is usually the package that the customer
recognises when shopping.
Advertising is very important when a manufacturer launches a new or existing product. The
package, through its colour scheme or logo, is what is normally identified by the customer.
The package will also contain important information including ingredients and ‘sell by date
4. Protection during Transport and Ease of Transport.

A package should be designed to make it easy to transport, move and lift. A regular shaped
package (such as a cuboid) can be stacked without too much space between each package
being wasted. This means that more packages can be transported in a container of a lorry.
Unusually shaped packages can lead to space being wasted and this can be costly if
thousands of the same package are been transported.
5. Stacking and Storage.

In supermarkets and shops it must be possible to stack packages so that space is not wasted
on the shelves. Lost space on shelves is looked up on a lost opportunity to sell to a
customer. Also, the package must be designed in such a way that all the important
information can be seen by a potential buyer, especially the product name. The next time
you visit the supermarket look carefully at the shape of the packages. They are usually the
same rectangular / cuboid shape. It is the selection of colours and shades that determine
whether the product inside is regarded as a quality, sophisticated or cheap item. Often
packages are stacked on top and alongside each other to reduce wasted space. The shape
and form of the package determines how efficiently they can be stacked or stored.
6. Printed Information.

Information that is useful to consumers and companies such as Supermarkets, is printed on

packaging. This includes, ingredients, sell by dates, price, special offers, manufacturers
address, contact information, product title, barcode and more.
The bar code is extremely useful to the shop selling the product. When the barcode is
scanned, the computer system automatically determines if the product needs reordering.
Also, the price of the product appears at the till.
2.3: Factors for package design in international markets-
Packaging decisions in international markets are affected by the following factors:
 Protection – Packaging is used to protect the product from damage during shipping and
handling, and to lessen spoilage if the protect is exposed to air or other elements.
 Visibility – Packaging design is used to capture customers’ attention as they are
shopping or glancing through a catalog or website. This is particularly important for
customers who are not familiar with the product and in situations, such as those found
in grocery stores, where a product must stand out among thousands of other products.
Packaging designs that standout are more likely to be remembered on future shopping
trips.
 Added Value – Packaging design and structure can add value to a product. For instance,
benefits can be obtained from package structures that make the product easier to use
while stylistic designs can make the product more attractive to display in the customer’s
home.
 Distributor Acceptance – Packaging decisions must not only be accepted by the final
customer, they may also have to be accepted by distributors who sell the product for
the supplier. For instance, a retailer may not accept packages unless they conform to
requirements they have for storing products on their shelves.
 Cost – Packaging can represent a significant portion of a product’s selling price. For
example, it is estimated that in the cosmetics industry the packaging cost of some
products may be as high as 40% of a product’s selling price. Smart packaging decisions
can help reduce costs and possibly lead to higher profits.
 Expensive to Create - Developing new packaging can be extremely expensive. The costs
involved in creating new packaging include: graphic and structural design, production,
customer testing, possible destruction of leftover old packaging, and possible
advertising to inform customer of the new packaging.
 Long Term Decision – When companies create a new package it is most often with the
intention of having the design on the market for an extended period of time. In fact,
changing a product’s packaging too frequently can have negative effects since

customers become conditioned to locate the product based on its package and may be
confused if the design is altered.
 Environmental or Legal Issues – Packaging decisions must also include an assessment of
its environmental impact especially for products with packages that are frequently
discarded. Packages that are not easily bio-degradable could draw customer and
possibly governmental concern. Also, caution must be exercised in order to create
packages that do not infringe on intellectual property, such as copyrights, trademarks or
patents, held by others.
2.4: Criteria for export packing (transport packing) - role of

Indian Institute of packaging
There are several criteria by which to judge which form of packing would be most suitable in
a specific situations:
1. Method of transport used:
Damage may occur, for example, more readily in a ship than in an airplane if the goods are
likely to be corroded by sea air. Pilferage is more common from railway wagons than from
road containers.
2. Nature of goods:
Pottery, for example, is more fragile than wooden toys. Sugar will not break, but absorbs
moisture. Steel rods need little protection from breakage.
3. Environment and infrastructural conditions to be encountered.
These may be climatic conditions especially extreme heat, cold or dampness. These may
also be the local unloading, especially in places where modern equipment, such as forklift
trucks, is not used or may be temporarily out of order Local transport conditions in the
importing country are also important as goods ultimately would to be distributed all over
the country.
4. Costs of packing:
Packing costs money and therefore what type of packing is to be used needs a consideration
of the relative costs and benefits. One type of packing may provide complete protection to
the export cargo but would be prohibitively expensive while a different type can provide
only reasonable protection from damage during transit but would be much less costly. The
exporter has to decide which would be his best option.

Transport Packaging: The basic function of transport packaging is to ensure that the product
will reach the destination undamaged. Improvements in packaging are needed to minimize
the incidence of losses in transit due to mechanical and environmental hazards and to
achieve greater speed in handling and deliveries. The materials used for packaging should
protect the goods from the ill-effects of moisture, gas and light and preserve their attributes
including weight, shape, fragility, rigidity, surface finish etc. Thus packaging plays a pivotal
role in the storage, preservation protection and distribution.
Role and Functions of Indian Institute of Packaging (IIP)
With a view to improve the packaging standards, the IIP was set up in 1966 at Mumbai. The
main functions of IIP are:
1. Training Programme: IIP is primarily engaged in training programmes relating to
packaging industry. This institute makes the trainees familiar with packaging
technology, packaging materials, and current trends in packaging in the world
markets.
2. Improvement in Quality of Packaging: IIP makes constant efforts to upgrade and
improve the design and quality of packaging, so as to promote Indian products
abroad.
3. Collection of Information: IIP collects information on latest trends in the packaging
in respect of raw materials, design etc. ,
4. Supply of Information: The information collected on packaging is provided to the
exporters by IIP, so that exporters can upgrade their packaging standards.
5. Organising Seminars and Workshops: IIP organises seminars and workshops on
packaging designs and quality. Exporters can take the advantage of such seminars
and workshops.
6. Consultancy Services: It provides consultancy services to the exporters in the field of
packaging.
7. Develops Packaging Consciousness: Export packaging is vital as it not only protects
and preserves the product, but also promotes the product in international markets.
Therefore, IIP develops consciousness of the need for good packaging among Indian
exporters.
8. Publications: It publishes two quarterly magazines, one devoted to the technological
aspects of packaging and the other to techno-economic aspects of packaging.
9. Testing Facilities: It provides testing facilities in respect of packages and packaging
material to the exporters.

The IIP is one of the founder members of the Asian Packaging Federation established for
exchange of all information on packaging and for chalking out common programmes for
the development of packing standards in the Asian region.
2.5: Export marking on outer packing-
2.6: Purpose of export marking,

Export marking is the only and best method of identifying your cargo during all the
operations till it reaches your buyer’s door step. All documentation is made in such a way to
incorporate marks and numbers of each parcel, so as to enable all officials to identify and
move accordingly.
2.7: Selection of overseas distribution channels and

factors influencing selection of distribution channels,

The selection of channel is not an easy job. Let’s discuss certain points that you have to
consider before selection of distribution channel.
1. Nature of Product: The is the first and most important consideration. Product features,
size, shape, color, durability, perishability, Value of product etc are the factors that
constitute the product characteristics. Perishable items needs strong packaging and shorter
channel whereas items with long life can have longer channels. Size and handling also
affects the channel. Odd sizes, difficult handling are often found to have shorter channel.
Industrial machinery, that requires particular customer preference are often sold through
direct channels.
2. Customer Characteristics: If the product has got huge customer base and are
geographically dispersed, buying product in small quantities requires longer channels. This is
because producers needs to have wide network of retailers and wholesalers to make the
product easily accessible in the local market. For eg product like Pepsi needs a longer
channel. Unlike above, industrial products, where customers have preferences regarding the
technology and the functions to be incorporated needs shorter channel, because the
product is needed to be adjusted according to customer preference.
3. Nature of Market: The location and the coverage of the market also determines the
channel selection. If the market is dense, spread across in length and breath, requires longer
channel. Whereas if the product has niche market, the channel can be short.
4. Cost Consideration: The cost of maintaining the channel is also a key consideration.
Every producer would like to have shorted channel, may be direct channel, but its cost. Now
this cost has to be compared with the benefits derived. Longer channel, with high number of
middleman also tend to raise the price of the product, because every middleman, looks for
his share and wants a larger share.
5. Time: Time taken by the channel to make the product available to the consumer, is
one other factor. Longer channel are often found to take shorter time. This is because the
middleman are well versed with the market and are efficient in distribution of product.
Keeping a channel short means that the customers have to first look for distributor and
place his orders.
2.8: Types of foreign intermediaries
International trade can have all the intermediaries present in domestic trade. This includes
the chain of distributors, wholesalers, and retailers. In addition they have some other
intermediaries also, which are not required in domestic trade. These include, direct
importers, import agents, direct exporters, export agents, and clearing and forwarding
agents.
Direct importers: They purchase material from foreign markets an import in the home
country.

Import agents: They are like direct importers, but the do not import themselves. They
possess knowledge of the overseas foreign markets from where merchandise is to be
imported and they sell this knowledge and expertise to their clients for importing.
Direct exporters: They purchase merchandise in home country and export it to other
countries.
Export agents: hey are like direct exporters, but the do not export themselves. They possess
knowledge of the overseas foreign markets where merchandise is to be exported and they
sell this knowledge and expertise to their clients for exporting.
Clearing and forwarding (C&F) agents: They specialize in arranging overseas transportation
and handling the various formalities of import and export procedures including payment of
duties.

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International Marketing (TYBMS – Sem 6) For Private Circulation Only

INTERNATIONAL MARKETING: Syllabus:

Unit II: Product Packaging and Distribution

Prof. Abdul K Khan Page 1

Unit III: Pricing Policy in International Markets

Unit IV: Overseas Market Selection

Prof. Abdul K Khan Page 2

Prof. Abdul K Khan Page 3

1.1: Definition of international marketing-

International Marketing can be defined as exchange of goods and services between

According to the American Marketing Association, “International Marketing is the multi-

Prof. Abdul K Khan Page 4

Vern Terpstra defines International Marketing as “Marketing carried on across National

International marketing concerns with marketing products in foreign counties. In this

1.2: Important features of international marketing

1. Marketing activities are undertaken across the borders.

Prof. Abdul K Khan Page 5

1.3: Need for & advantages (importance) of international marketing-

Let’s have brief explanation of several benefits available due to international

2. Nations can get benefits of division of work and specialization.

3. It also helps in balancing unequal distribution of natural resources.

4. Extending product life cycle by selling products in other nations.

6. Balancing demand and supply.

7. Promotion of invention and innovation globally.

8. Companies can take benefits of taxes and duties.

9. Technological transmission among countries of the world is easily possible.

10. International marketing can improve standard of living of people.

Prof. Abdul K Khan Page 6

13. Global employment opportunities can help ease unemployment problems.

Forces/Variable Leading to the Need of International Marketing:

of necessary guidelines, facilities, and encouragement have ultimately resulted in growth of

Main forces led to need of international marketing are:

2. Specialization and need for marketing surplus

3. Craze for global political empowerment

4. Rapid means of communication and transportation

6. Globalization or global thinking

7. Trend for privatization

8. Improved understanding and cooperation among nations for mutual benefits

9. Satisfactory functioning of several international organisations or agencies such as

UN Security Council, etc.

10. Growth and Development of Multinational Companies (MNCs)

11. Emergence of global marketing opportunities

1.4: Difference between international & domestic

Prof. Abdul K Khan Page 7

Prof. Abdul K Khan Page 8

INTERNATIONAL MARKETING DOMESTIC MARKETING

Basis of International trade

Prof. Abdul K Khan Page 9

Prof. Abdul K Khan Page 10

1.5: International Business Environment

The international business environment can be defined as the environment in different

1.6: External factors: Social/ Demographic /Economic/

Prof. Abdul K Khan Page 11

Increase or decrease in tax could be an example of a political element. Your government

 Political decisions affect the economic environment.

Below, is a list of political factors affecting business:

Prof. Abdul K Khan Page 12

 Data protection law

Prof. Abdul K Khan Page 13

The importance of observing the political environment

Example: How political factors affect Nike

Prof. Abdul K Khan Page 14

Prof. Abdul K Khan Page 15