Ch2internationalmarketingenvironment 110908020021-phpapp01

Chapter 2
International Marketing Environment
International Marketing
Chapter-2 International Marketing
Environment

Learning Objectives
„ What are the important environment
factors
„ Commodity agreements
„ State trading
„ Intra-regional trade
„ European Union
„ Role of GATT/WTO
„ Uruguay round and features
Environment

Introduction
„ It is the differences in the marketing
environment which may make the
international business strategy different
from the domestic one
„ Business environment is very important
determinant of business strategy
Environment

Economic Environment
„ The nations of the world are broadly
classified as developing countries and
developed countries
„ The developing countries fall into two
categories viz. low income countries
and middle income countries
„ Economic environment of different
countries are not similar
Environment

Social Environment
„ The social environment encompassing
the religious aspects; language;
customs, traditions and beliefs, tastes
and preferences, social stratification,
social institution , buying and
consumption habits etc.
„ Social environment of different markets
differ vastly
Environment

Demographic Environment
„ Size of population, population growth
rates, age composition, family size,
nature of the family, income levels etc
have very significant implications for
business
„ The size of the population is an
important determinant of demand for
many products
Environment

Political and Government
Environment
„ The political environment includes the
characteristics and policies of the
political parties, the nature of the
constitution and government system
and policies
„ Regulation of the quality, prices,
packaging labeling etc. is also very
common
Environment

International Trading
Environment – Trade Barriers
„ The main objective of imposing trade
barriers are to protect domestic
industries from foreign competition.
„ After the second world war, there was
a progressive liberalization of trade by
the developed countries.
Environment

Tariffs
„ Tariffs in international trade refer to the
duties or takes imposed on
internationally trade goods when they
cross the national borders
„ India has had one of the highest tariff
walls in the world
Environment

Non-Tariff Barriers
„ NTBs are new protection measures
„ There are tow categories
„ Licensing, quota etc. are used by
developing countries
„ Developed countries are using Voluntary
Export Restrains
Environment

Quotas
„ A quota on the export of a product from
a country may be imposed if the
government feels that exports in excess
of that will affect interests of the
domestic consumers
„ The aim of import quota, obliviously, is
to restrict the quantity of imports
Environment

Licensing
„ Quota regulations are generally
administered by means of licensing
„ Under the import licensing system, the
prospective importers are obliged to
obtain a license from the licensing
authorities: the possession of an import
license is necessary to obtain the
foreign exchange to pay for the imports
Environment

Voluntary Export Restraints
„ VERs are bilateral arrangements
instituted to restrain the rapid growth of
exports of specific manufactured goods
„ The exporting country voluntarily
restrains the export of the specified
product in order to either help the other
country to reduce its trade deficit or to
protect domestic industry
Environment

Administered Protection
„ Administration protection encompasses a
wide range of bureaucratic government
actions, which have grown in absolute as
well as relative importance over the last
decade or more
„ More recent VERs are in fact regarded as
the outgrowth of administered protection
actions
Environment

„ Customs procedures
„ Consular formalities
„ Government procurement
„ State trading
„ Monetary control
„ Environmental protection laws
„ Foreign exchange regulations
Environment

Impact of NTBs
„ Affects many exporting countries
„ Apparel exports is the most affected of
the developing countries because of
such barriers
„ Causes diversion of production and
exports
Environment

NTBs and India’s Exports
„ NTBs prevent the industry from making
full use of technological potential and
economies of scale for garment firms in
India.
„ The problem for NTBs for Indian
exports has increased recently
Environment

Commodity Agreements
„ International Commodity Agreements are
inter-governmental arrangements
concerning the production of , and trade
in, certain primary products with a view to
stabilizing their prices.
„ In its final act, the UNCTAD-I made a
comprehensive statement on the functions
international commodity agreements
Environment

Quota Agreements
„ International quota agreements seek to
prevent a fall in commodity prices by
regulating their supply
„ Quota agreements have already been
tried in case of coffee and sugar, and
commodities like tea and bananas have
been suggested as prospective
candidates for new agreements
Environment

Buffer Stock Agreements
„ International buffer stock agreements
seek to stabilize commodity prices by
maintaining the demand-supply balance
„ The buffer pool method has already
been tried in case of tin, cocoa, and
sugar, and commodities like rubber, tea
and copper has been suggested as
prospective candidates for new
agreements
Environment

Bilateral/Multilateral Contracts
„ Bilateral contract to purchase and sell
certain quantities of a commodity at
agreed prices may be entered into
between a major importer and exporter
of the commodity.
„ The best known example of this type of
commodity agreement is the
International Wheat Agreement
Environment

Cartels
„ International cartels are agreements
between producer located in different
countries or between governments of
countries to restrict competition.
„ Examples include the Organization of
Petroleum Exporting Countries (OPEC)
and International Air Transport
Association (IATA)
Environment

State Trading
„ State trading means import and export
transactions of a state owned or state
controlled agency involving purchase of
goods for commercial resale.
„ Recently ,developing countries have
significantly reduced the role of state
trading
Environment

State Trading in India –
Objectives
„ To help reduce the difficulties experienced
in expanding trade with centrally planned
countries
„ To help maintain quantitative regulations
of imports and some equilibrium in the
prices of commodities and indigenous
products
„ To provide developmental finance for
organized production and boost exports of
small scale sector
Environment

Canalisation
„ Canalisation means established of state
monopoly in foreign trade
„ Most of the objectives of state trading
mentioned earlier are also the
objectives canalisation
Environment

Trading Blocs and Growing
Intra-Regional Trade
„ An important trend in international
trade has been the growth of intra-
regional trade
„ Regional integration schemes tend to
increase intra-regional trade
„ There is a worldwide trend towards
forming new regional arrangements and
to strengthen the existing ones
Environment

Forms of Economic Integration
„ Free Trade Area
„ Customs Union
„ Common Market
„ Economic Union
„ Economic Integration
Environment

European Union
„ EU is the most successful of the
regional economic integration schemes
„ THE EEC which originally comprised sex
nations, namely, Belgium, France,
Federal Republic of Germany, Italy,
Luxembourg and Netherlands was
brought into being on 1st January,
1958,by the Treaty of Rome, 1957
Environment

„ The Treaty of Rome required every member
country to
„ Eliminate tariffs, quotas and other barrier on intra-
community trade
„ Devise a common internal tariff on imports from
rest of the world
„ All the free movement of factors of production
within the community
„ Harmonize their taxation and monetary policies
and social security policies
„ Adopt a common policy on agriculture, transport,
and competition in Industry
Environment

The Euro
„ Euro, the common currency of the EU,
was launched by 11 members of the
Union, on January 1, 1999.
„ The Monetary policy decisions for the
Euro are made by the European Central
Bank(ECB), which along with National
Central Banks(NCBs) of all EU
members.
Environment

Implications of Euro for India
„ The Euro land accounts for about one-
fifth of India’s foreign trade
„ Indian businessmen benefit, like their
counterparts in other countries , form
the benefits of a single currency instead
of many
„ Large opportunities are emerging in the
computer software field.
Environment

Indo-EU Trade
„ The EC, taken as a single unit, is India’s
largest partner.
„ The EEC accounts for more than a one-
fifth of India’s total foreign trade
„ The EC is a very potential market and
India should pay sufficient attention to
taking advantage of this enlarging
market International Marketing
Environment

Other Regional Groupings
„ The European Free Trade
Association(EFTA),brought into being by
the Stockholm Convention , 1960
„ Latin American Free Trade Area-LAFTA
„ The Australia New Zealand Closer
Economic Relations Trade Agreement
„ North American Free Trade Agreement
Environment

Other Regional Groupings
„ Central American Common Market –
CACM
„ Gulf Cooperation Council
„ Preferential Trade Area
„ The Economic Community of Central
African States- CEEAC
„ The Association of South East Asian
Nations-ASEAN
Environment

SAARC
„ South Asian Association for Regional
Cooperation
„ SAARC involves seven countries namely
, India, Bangladesh, Pakistan, Nepal ,
Bhutan, Sri Lanka and Maldives.
Environment

SAPTA
„ SAARC Preferential Trading Agreement
„ Basic Principles
„ Overall reciprocity and mutuality of
advantages
„ Step-by-step negotiations and extension of
PTA
„ Inclusions of all types of products
„ Special and favorable treatment to Least
Development Countries
Environment

Indo-Lanka Free Trade
Agreements
„ India has offered to permit as much as
1000 items of zero duty from Sri Lanka
and Sri Lanka will allow duty free
imports of 900 items from India
„ As India is a very large market, the FTA
is likely to benefit Sri Lanka a lot an the
benefits to India
Environment

GATT/WTO and Trade
Liberalization
„ The desire of nations to liberalize trade
resulted in the establishment of the
General Agreement on Tariffs and
Trade
„ As a result of Uruguay Round the GATT
was transformed into a World Trade
Organization (WTO) with effect from
January , 1995
Environment

„ India is one of the founder members of
the IMF, World Bank, GATT and the
WTO
„ The primary objective of GATT was to
expand international trade by
liberalizing trade so as to bring about
all-round economic prosperity.
Environment

GATT-Principles
1. Non-discrimination
2. Prohibition of Quantitative Restrictions
3. Consultation
Environment

8th Uruguay Round
1. Reducing specific trade barriers and
improving market access
2. Strengthening GATT disciplines
3. Problems of liberalization of trade in
services, trade related aspects of
intellectual property rights(TRIPS) and
trade related investment
measures(TRIMs)
Environment

Differences between GATT and
WTO
GATT
„ Ad hoc and provision
„ Contracting parties
„ Allowed existing domestic
legislation to continue
even if it violated a GATT
agreement
„ Less powerful, dispute
settlement system was
slow and less efficient, it
ruling could be easily
blocked
„ Agreements are
permanent
„ Has members
„ Does not permit this
„ More powerful , dispute
settlement mechanism is
faster and more efficient,
very difficult to block the
rulings
Environment
WTO

Functions of WTO
„ The WTO facilitate the implementation,
administration and operation and the
objectives of the Multilateral Trade
Agreements
„ Forum for negotiations among its
members concerning their multilateral
trade relations
Environment

„ Understanding on rules and procedures
governing the settlement of disputes
„ Administration of the ‘Trade Review
Mechanism’
Environment

Salient Features of UR
Agreements
„ Tariff Barriers
„ Expansion of tariff bindings
„ Reduction in the tariff rates
„ Expansion of duty-free access
„ Agricultural trade
„ Tariffication
„ Tariff binding
„ Tariff cuts
„ Reduction in subsidies and domestic support
Environment

General Agreement on Trade
in Services-GATS
„ Extends multilateral rules and
disciplines to services is regarded as
landmark achievement of the UR
„ The GATS defines services as the
supply of services
Environment

Coverage of GATS
„ Cross-border supply
„ Commercial presence
„ Consumption abroad
„ Movement of personnel
Environment

Trade Related Investment
Measures(TRIMS)
„ TRIMS refers to certain conditions or
restrictions imposed by a government in
respect of foreign investment in the
country.
„ Local content requirement
„ Trade balancing requirement
„ Trade and foreign exchange requirements
„ Domestic sales requirements
Environment

Trade Related Aspects of Intellectual
Property Rights(TRIPS)
„ Intellectual Property Rights may be
defined as “ information with a
commercial value”
„ IPRs may be legally protected by
patents, copy rights, industrial designs,
geographical indications, and trade
marks.
Environment

Coverage of TRIPS
„ Copyright and related rights
„ Trade mark
„ Geographical indications
„ Industrial designs
„ Patents
„ Layout designs
„ Undisclosed information
Environment

Indian Patent Law and UR
Agreement
„ There are significant differences between the
UR agreement on patents and the Indian
Patent Act, 1970
„ Under the Indian act, patentability of inventions
relating to substances intended for use as food,
drug or medicines, or substance produced by
chemical processes is limited to the methods or
processes of manufacture only.
„ While as per UR requires both product and
process patents
Environment

Anti-dumping Measures
„ A product is regarded as dumped when its
export price is less that the normal price in
the exporting country or its cost of
production plus a reasonable amount for
administrative , selling and any other costs
and for profits
„ Anti-dumping measure can be employed
only if dumped imports are shown to
cause serious damage to the domestic
industry in the importing country
Environment

Safeguard Actions
„ Members may take safeguard actions, i.e.
import restrictions to protect a domestic
industry from the negative effect of an un
unforeseen import surge, if a domestic
industry is threatened with serious injury
„ Safeguard measures would not be
applicable to developing countries where
their share in the member country's
imports of the product concerned is
relatively small
Environment

Implementation Issues
„ The developing countries are virtually
deceived in several cases as the UR
Agreement have not been implemented
in letter and spirit by the developed
countries .
„ They have resorted to covert measures
to deny the developing countries the
legitimate benefits of the proposed
liberalizations.
Environment

Doha Declaration
„ The Doha Declaration –comprising of a
main Declaration on TRIPS, Public
Health and a decision on
implementation of related issues and
concerns-launches the future work
program me of the WTO and includes
elaboration and timetables for the
current negotiations in agriculture and
services in a range of other issues
Environment

United Nations Conference on
Trade and Development
„ To promote international trade
„ To formulate principles of and policies
on international trade and related
problems of economic development
„ To negotiate multinational trade
agreements
„ To make proposals for putting its
principles and policies into effect.
Environment

United Nations Industrial
Development Organization-UNIDO
„ Direct technical assistance to industries
and in-plant training programmes
whereby groups of technicians and
engineers from developing countries
facing a common industrial problem are
brought together to consider, how
industry in the more advanced countries
avoid or solves similar problems
Environment

International Trade Centre
„ ITC can advise developing countries on
their overall approach to marketing
communications , as well as on
individual information and publicity
activities
„ ITC in brief assistances in marketing
areas to member countries
Environment

International Legal
Environment
„ The legal systems that exist in different
countries can be classified into three
categories, viz, common law, civil law
and theocratic law
Environment

Settlement of Disputes
„ Disputes are not uncommon in
international trade. Disputes of certain
nature are settled by the WTO or in
accordance WTO principles
„ In other cases there are two avenues
„ Judicial dispute settlement
„ Extra-judicial dispute settlement
Environment

Laws of Foreign Countries
„ Regulations related products
„ Packing and labeling regulations
„ Regulation of price
„ Regulation of promotion
„ Regulation of trade practices
Environment

Summary
„ The environmental factors which affect
international business involved
economic , social, demographic, political
, government and technological
environments
„ Trade barriers , blocks and agreements
plays vital role in international trade
Environment

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