Notes For MBA
Friday, 3 June 2011
DEFINITION OF INTERNATIONAL MARKETING
DEFINITION OF INTERNATIONAL MARKETING
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
CONCEPTS OF INTERNATIONAL MARKETING
Domestic Marketing: Domestic Marketing is concerned
with marketing practices within the marketer‟s home
II. Foreign Marketing: It refers to domestic marketing
within the foreign country.
III. Comparative Marketing: when two or more marketing
systems are studied, the subject of study is known as
comparative marketing. In such a study, both similarities
and dis-similarities are identified. It involves an analytical
comparison of marketing methods practiced in different
IV. International Marketing: It is concerned with the micro
aspects of a market and takes the company as a unit of
analysis. The purpose is to find out as to why and how a
product succeeds or fails in a foreign country and how
marketing efforts influence the results of international
V. International Trade: International Trade is concerned
with flow of goods and services between the countries.
The purpose is to study how monetary and commercial
conditions influence balance of payments and resource
transfer of countries involved. It provides a macro view of
the market, national and international.
VI. Global Marketing: Global Marketing consider the world
as a whole as the theatre of operation. The purpose of
global marketing is to learn to recognize the extent to
which marketing plans and programmes can be extended
world wide and the extent to which they must be adopted.
DIFFERENCE BETWEEN DOMESTIC MARKETING AND
Marketing is the process of focusing the resources and
objectives of an organisation on environmental
opportunities and needs. It is a universal discipline.
However, markets and customers are different and hence
the practice of marketing should be fine tuned and
adjusted to the local conditions of a given country. The
marketing man must understand that each person is
different and so also each country which means that both
experience and techniques obtained and successful in one
country or countries. Every country has a different set of
customers and even within a country there are different
sub-sets of customers, distribution channels and media
are different. If that is so, for each country there must be a
unique marketing plan. For instance, nestle tried to
transfer its successful four – flavour coffee from Europe to
the united states lost a 1% market share in the us. It is
important in international marketing to recognize the
extent to which marketing plans and programmes can be
extended to the world and the extent to which marketing
plans must be adapted. Prof.Theodore Levitt thought that
the global village or the world as a whole was a
homogeneous entity from the marketing point of view. He
advocated organisation to develop standardized high
quality word products and market them around the world
using standardized advertising, pricing and distribution.
The companies who followed Prof. Levitt‟s prescription
had to fail and a notable failure amongst them was Parker
pen. Carl Spiel Vogel, Chairman and CEO of the Backer
Spiel Vogel Bates worldwide advertising agency
expressed his view that Levitt‟s idea of a homogeneous
world is non – sensible and the global success of Coca
Cola proved that Prof. Levitt was wrong. The success of
Coca Cola was not based on total standardization of
marketing mix. According to Kenichi Ohmae, Coke
succeeded in Japan because the company spent a huge
amount of time and money in Japan to become an insider.
Coca Cola build a complete local infrastructure with its
sales force and vending machine operations. According to
Ohmae, Coke‟s success in Japan was due to the ability of
the company to achieve global localisation or
„Glocalisation‟ i.e. the ability to be an insider or a local
company and still reap the benefits of global operations.
Think global and act local is the meaning of Glocalisation
and to be successful in international marketing, companies
must have the ability to think global and act local.
International marketing requires managers to behave both
globally and locally simultaneously by responding to
similarities and dissimilarities in international markets.
Glocalisation can be a source of competitive advantage.
By adapting sales promotion, distribution and customer
service to local needs, Coke capture 78% of soft drink
market share in Japan. Apart from the flagship brand Coca
Cola, the company produces 200 other non- alcoholic
beverages to suit local beverages. There are other
companies who have created strong international brands
through international marketing. For instance, Philip Morris
has made Marlboro the number one cigarette brand in the
world. In automobiles, Daimler Chrysler gained global
recognition for its Mercedes brand like his competitor
Bayerische. Mc Donald‟s has designed a restaurant
system that can be set up anywhere in the world. Mc
Donald‟s customizes its menu in accordance with local
SCOPE OF INTERNATIONAL MARKETING
International Marketing constitutes the following areas of
Exports and Imports: International trade can be a good
beginning to venture into international marketing. By
developing international markets for domestically
produced goods and services a company can reduce the
risk of operating internationally, gain adequate experience
and then go on to set up manufacturing and marketing
Contractual Agreements: Patent licensing, turn key
operations, co – production, technical and managerial
know – how and licensing agreements are all a part of
international marketing. Licensing includes a number of
contractual agreements whereby intangible assets such as
patents, trade secrets, know – how, trade marks and
brand names are made available to foreign firms in return
for a fee.
Joint Ventures: A form of collaborative association for a
considerable period is known as joint venture. A joint
venture comes into existence when a foreign investor
acquires interest in a local company and vice versa or
when overseas and local firms jointly form a new firm. In
countries where fully owned firms are not allowed to
operate, joint venture is the alternative.
Wholly owned manufacturing: A company with long term
interest in a foreign market may establish fully owned
manufacturing facilities. Factors like trade barriers, cost
differences, government policies etc. encourage the
setting up of production facilities in foreign markets.
Manufacturing abroad provides the firm with total control
over quality and production.
Contract manufacturing: When a firm enters into a contract
with other firm in foreign country to manufacture
assembles the products and retains product marketing
with itself, it is known as contract manufacturing. Contract
manufacturing has important advantages such as low risk,
low cost and easy exit.
Management contracting: Under a management contract
the supplier brings a package of skills that will provide an
integrated service to the client without incurring the risk
and benefit of ownership.
Third country location: When there is no commercial
transactions between two countries due to various
reasons, firm which wants to enter into the market of
another nation, will have to operate from a third country
base. For instance, Taiwan‟s entry into china through
bases in Hong Kong.
Mergers and Acquisitions: Mergers and Acquisitions
provide access to markets, distribution network, new
technology and patent rights. It also reduces the level of
competition for firms which either merge or acquires.
A firm is able to improve the long term competitive
advantage by forming a strategic alliance with its
competitors. The objective of a strategic alliance is to
leverage critical capabilities, increase the flow of
innovation and increase flexibility in responding to market
and technological changes. Strategic alliance differs
according to purpose and structure. On the basis of
purpose, strategic alliance can be classified as follows:
i. Technology developed alliances like research consortia,
simultaneous engineering agreements, licensing or joint
ii. Marketing, sales and services alliances in which a
company makes use of the marketing infrastructure of
another company in the foreign market for its products.
iii. Multiple activity alliance involves the combining of two
or more types of alliances. For instance technology
development and operations alliances are generally multi-
On the basis of structure, strategic alliance can be equity
based or non equity based. Technology transfer
agreements, licensing agreements, marketing agreements
are non equity based strategic alliances.
Counter trade: Counter trade is a form of international
trade in which export and import transactions are directly
interlinked i.e. import of goods are paid by export of
goods. It is therefore a form of barter between countries.
Counter trade strategy is generally used by UDCs to
increase their exports. However, it is also used by MNCs
to enter foreign markets. For instance, PepsiCo‟s entry in
the former USSR. There are different forms of counter
trade such as barter, buy back, compensation deal and
counter purchase. In case of barter, goods of equal value
are directly exchanged without the involvement of
monetary exchange. Under a buy back agreement, the
supplier of a plant, equipment or technology. Payments
may be partly made in kind and partly in cash. In a
compensation deal the seller receives a part of the
payment in cash and the rest in kind. In case of a counter
purchase agreement the seller receives the full payment in
cash but agrees to spend an equal amount of money in
that country in a given period.
Q.1.GLOBALISATION OF INDIAN BUSINESS:
Globalization, liberalization and privatization were the
three cornerstones of India‟s New Economic Policy of
1991. The year 1991 marks the beginning of a new era in
the Indian economy. The new objective to be pursued by
the policy makers, strategists and executives was to make
India the largest free market economy of the 21st century.
In pursuit of this objective, the Indian economy was to be
integrated with the world economy through a programme
of structural adjustment and stabilization. While the
stabilization programme included inflation control, fiscal
adjustment and BOP adjustment, the structural reforms
included trade and capital flows reforms, industrial
deregulation, disinvestment and public enterprise reforms
and financial sector reforms. The programme of economic
reforms has not been entirely successful and as a result,
the globalization process of the Indian economy has not
gathered momentum. Indian business continues to face a
number of difficulties and obstacles in their effort to
globalize their business. These obstacles are as follows:
GOVERNMENT POLICY AND PROCEDURES:
Government policy and procedures in India are extremely
complex and confusing. Swift and efficient action is a pre-
requisite for globalization- which sadly missing. The
procedures and practice continue to be bureaucratic and
hence a speed breaker in the globalization effort.
HIGH COST OF INPUTS AND INFRASRUCTURAL
The cost of raw materials, intermediate goods, power,
finance, infrastructural facilities etc. in India is high which
reduces the global competitiveness of Indian business.
The quality and adequacy of infrastructural facilities in
India is far from satisfactory. Further the technology
employed by Indian industries and the style of operation is
generally out dated.
RESISTANCE TO CHANGE:
The pre-reform era (1951- 1991) breeded lethargy,
created rigid structures, systems, practices and
procedures and generally instilled a laid back attitude.
These factors are a hindrance to the processes of
modernization, rationalization and efficiency improvement.
Technological change is generally perceived to be
employment reducing and hence resisted to the extent
possible. For instance, information technology was
introduced in India in the early eighties. However,
computerization process of nationalized banks began only
in the mid nineties. Excess labour is particularly employed
in the public sectors in areas such as banking, insurance,
and the railways and Indian industry in general. As a
result, labour productivity is low and cheap labour in many
a cases turns out to be dear.
SMALL SIZE AND POOR IMAGE:
Grant Indian firms are known to be global pygmies. A look
at the fortune 500 list would reveal all to you. On a global
scale, Indian firms are found to be small in size with low
availability of resources. Indian firms there for cannot
compete successfully in the international market. Indian
products suffer from a poor image in the international
market for both reasons valid and otherwise. Indian firms
continue to miss consumer focus both domestically and
internationally. The value-money equilibrium is missing in
Indian products. Further, Indian firms are do not have the
where- withal to keep up to the delivery schedule, accepts
large orders and match up to international specifications.
GROWING COMPETITION AND POOR SPEND:
Indian firms are not only up and against competition from
developed countries but also emerging Asian
powerhouses such as South Korea and China. Continuous
improvement in quality and usefulness and competitive
costs with competitive pricing can only keep you afloat and
in order to remain afloat, one has to spend quite a lot on R
& D. both public and private sector outlays on research in
India is deliberately low when compared to the developed
NON – TARIFF BARRIERS (NTBs)
Member nations of the World Trade Organizations are
bound to progressively reduce tariff rates across the board
over a definite period of time so that level playing field is
created in global trade. Tariff barriers are therefore not of
much concern. What concerns developing nations in
particular, are non- tariff barriers imposed by the
developed countries. Issues such as child labor content in
some of the products exported by India to the developed
nations had cropped up and remain unresolved.
Q.2. ADVANTAGES OF GLOBALISATION:
For successful globalization, countries need to chalk out
strategies and policies to open up the doors for the inflows
of foreign direct investment (FDI). The FDI by the MNCs
brings with it flow of foreign exchange/ foreign capital,
inflow of technology, real capital goods, managerial and
technical skills and know- how.
Globalization can easily promote exports of the country by
exploiting its export potentials in a right way. Globalization
can be the engine of growth by facilitating export- led
growth strategy of developing country. ASEAN countries
such as Indonesia, Malaysia and Thailand have
demonstrated their success of export- led growth strategy
supported by the FDI under globalization approach.
Globalization can provide sophisticated job opportunities
to the qualified people and check „brain drain‟ in a country.
Globalization would provide varieties of products to
consumers at a cheaper rate when they are domestically
produced rather than imported. This would help in
improving the economic welfare of the consumer class.
Under globalization, the rising inflow of capital would bring
foreign exchange into the country. Consequently, the
exchange reserve and balance of payments position of the
country can improve. This also helps in stabilizing the
external value of the country‟s currency.
Under global finance, companies can meet their financial
requirements easily. Global banking sector would facilitate
e banking and e-business. This would integrate countries
economy globally and its prosperity would be enhanced.
DISADVANTAGES OF GLOBALIZATION
Globalization is never accepted as unmixed blending.
Critics have pessimistic views about its ill- consequences.
When a country is opened up and its market economy and
financial sectors are well liberalized, its domestic economy
may suffer owing to foreign economic invasion.
A developing economy hen lacks sufficient maturity;
globalization may have adverse effect on its growth.
Globalization may kill domestic industries when they fail to
improve and compete with foreign well-managed, well-
Globalization may result into economic imperialism.
Unguarded openness may become a playground for
speculators. Currency speculation and speculators
attacks, as happened in case of Indonesia, Malaysia,
Philippines, Thailand, etc. recently, may lead to economic
crisis. It may lead to unemployment, poverty and growing
Q.3. STRATEGIES FOR GLOBALISATION:
Ans. When a company makes the commitment to go
international, it must choose an entry strategy. This
decision should reflect an analysis of market potential,
company capabilities and the degree of marketing
involvement and commitment management is prepared to
make. The approach to foreign marketing can range from
minimal investment with infrequent and indirect exporting
with little thought given to market development, to large
investments of capital and management in an effort to
capture and maintain a permanent, specific share of world
markets. Depending on the firm‟s objectives and market
characteristics, either approach can be profitable. In fact, a
company in various country markets may employ a variety
of entry modes since each country market poses a
different set of conditions. Having more than one strategy
allows the company to match its expertise with the specific
needs of each country market.
The various strategies available to Indian firms to enter
the international environment are discussed as follows:
Exporting is perhaps the first step for a company to go
global. It is the first of the attempts to understand the
international environment develop markets abroad.
Exporting can be direct or indirect. With direct exporting
the company sells to a customer in another country. This
is the most common approach employed by companies
taking their first international step because the risks of
financial loss can be minimized. In contrast, indirect
exporting usually means that the company sells to a buyer
in the home country who in turn exports the product.
Customers include large retailers like Wal-Mart or Sears,
Wholesale supply houses, trading companies, and others
that buy to supply customers abroad.
In a global environment, the sourcing of finance, materials,
managerial inputs etc. will also be global. However, with
0.5 percent share in the world trade, India is an
insignificant player. There are a number of products with
large export potential but these have not been tapped
properly. With a more pragmatic and realistic export
policy, procedural reforms and institutional support, with
technological development, modernization and expansion
of production facilities, India can definitely improve its
share in the world trade from its present poor status.
There are three strategies to increase export revenue.
1. increase the average unit value realization,
2. increase the quantity of exports and
3. Export new products.
Value added exports assume significance in the context of
increasing the average unit value realization. The bulk of
India‟s manufactured exports constitute the low price
segment of international markets. Quality improvement
and aggressive marketing is required to enter the high
price segments of the markets. This can be achieved by
technology imports and or foreign collaborations.
The size of India‟s export basket needs to be expanded by
adding new products. In order to identify new products for
exports, export opportunities needs to be explored and
products with high foreign demand also need to be
There are also market segments, and industries which are
abandoned by the developed countries on account of
factors such as environmental consideration, lack of
competitiveness etc. For instance, developed countries
are progressively vacating production of a range of
chemicals due to higher expenditure on overheads and
wages. Yet another strategy available to Indian
Companies is Niche Marketing.
2. FOREIGN INVESTMENT
It refers to investment in foreign country. Foreign
investment by Indian Companies have been negligible
because of factors such as assured domestic market,
want of global orientation, protective government
regulation etc. However, this inward orientation has
undergone substantial change after the adoption of the
new economic policy 1991. With the economic
liberalization and growing global orientation, many Indian
firms are setting up manufacturing, assembling and
trading bases overseas. These facilities are either wholly
owned or foreign partnership firms.
Further, through acquisition route, Indian companies have
made substantial investments abroad. The Aditya Birla
Group has been pioneer in making foreign investments
much before the adoption of the new economic credo.
Indian companies are also setting up production bases in
foreign countries to get an easy entry into the regional
trade blocks. For instance, a production facility in Mexico
opens the doors to the NAFTA area for Arvind Mills. Yet
another example is that of Cheminoor Drugs by Dr.
Reddy‟s Labs in New Jersey which is set up as a
3. MERGERS AND ACQUISITIONS
In merger, two companies come together but only one
survives and the other goes out of existence as it is
merged in the other company. While in acquisition, one
company (acquirer) gets control over the other company
(acquired) at the willingness of each of the companies.
Mergers and acquisitions is an important entry strategy in
international business. Mergers and acquisitions can be
used to acquire new technology, reduce the level of
competition and provides quick access to markets and
distribution network. Many Indian firms have resorted to
the acquisition route to gain a foothold in the foreign
market. For instance, Indian companies had spent $ 711.4
million in acquisitions abroad in 2000 in industries such as
InfoTech, drugs and pharmaceuticals, paints, tele-
communication, petroleum and broadcasting. Some of the
major acquisitions include investments by Zee Telefilms,
Leading Edge System BPL Software and Tata Tea.
Dataline Transcription, Teamasia semiconductors, Goa
Carbons, Wockhordt and Acro lab are few other firms to
name from a long list.
A very important acquisition has been the $ 271 billion
leveraged buy out of Tetley by Tata Tea. With the
acquisition of Tetley, Tata Tea, having been the largest
integrated tea producer in the world, also got possession
of the second largest global tea marketer.
Indian companies have also acquired foreign brands.
Nicholas Piramal India has acquired the Indian rights for
three anti-infective brands from the US firm Eli Lilly.
Ranbaxy interred the German pharma market by acquiring
the generics business of Bager Ali.
The Indian Rayon acquired Madura Garments; a
subsidiary of the UK based coats Viyella and also
acquired global rights for Coats Viyella brands such as
Louis Phillipe, Allen Solly and Peter England.
4. JOINT VENTURES
Joint Ventures as a means of foreign market entry have
accelerated sharply since the 970s. Joint ventures refer to
joining with foreign companies to produce or market the
products or services. Besides serving as a means of
lessening political and economical risks by the amount of
the partner‟s contribution to the venture, JVs provide a
less risky way to enter markets that pose legal and cultural
barriers than would be the case in an acquisition of an
There are two types of JVs, namely:
1. Contractual JVs and
2. Equity based JVs.
A contractual JV consists of a contractual arrangement
between two or more companies in which certain assets
and liabilities are shared for a specific purpose and time.
Contractual JVs are common in the construction,
extractive and consultancy services.
An equity JV is a capital sharing arrangement between an
MNC and a local company or another MNC or even a
foreign government. Each partner holds share in the
subsidiary and shares the profits in proportion to its
The advantage of a JV for MNC is that it can spread its
investment across locations, and thereby minimize its
The liberalization of policy towards the foreign investment
by Indian firms along with the new economic environment
seems to have given joint venture a boost. At the
beginning of 1995 although there were 177 JVs in
operation, there were 347 under implementation. Not only
the number of JVs is increasing but also the number of
countries and industries in the map of Indian JVs is
expanding. Companies like Ranbaxy, Dr. Reddy‟s Lab,
Lupin etc. have taken the JV route to mark their presence
in the overseas market.
5. STRATEGIC ALLIANCE:
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.
It is an agreement between companies that is of strategic
importance to one or both companies‟ competitive viability.
Strategy refers to the means to fulfill company‟s
objectives. In every day business, the term „strategic
alliance‟ is generally used to describe a wide variety of
collaborations, irrespective of strategic importance. In a
strategic alliance, a firm could establish relationships with
organization that have the potential to add values. Bench
marking, re-engineering, outsourcing, merger and
acquisition are examples of strategic alliance.
On the basis of structure, strategic alliances can be
classified into equity based and non- equity based.
Non-equity based alliances such as licensing agreements,
marketing agreements, technology transfer agreements
etc. are found to be more dynamic, constructive and
strategic. The scope of strategic alliance ranges from
Research and Development to distribution.
6. LICENSING AND FRANCHISING:
A means of establishing a foothold in foreign markets
without large capital outlays is licensing. It is a favorite
strategy for small and medium sized companies.
International licensing helps a firm from one country
(licensor) to permit another firm in a foreign country
(licensee) to use its intellectual property such as patents,
trademarks, copyrights, technology, technical know-how,
marketing skill etc. in return for royal payments. Royal
payments or license fee is regulated in most of the
The advantages of licensing are most apparent when:
capital is scarce, import restrictions forbid other means of
entry, a country is sensitive to foreign ownership, or it is
necessary to protect trademarks and patents against
cancellation of nonuse.
An important risk of licensing is that the licensor may give
birth to his own competitor i.e. the licensee can become a
competitor after the expiry of the licensing agreement. The
only anti-dote that is available to the licensor to pre-empt
any potential or actual competition is continuous
innovation. Only innovation will provide sustainable
Franchising is a form of licensing in which a parent
company (franchiser) grants another company
(franchisee) the right to do business in a specific manner.
Franchising can assume various forms such as selling the
franchiser‟s products, using the name of the franchiser,
production and marketing techniques etc. Important forms
of franchising are:
1. Manufacturer- retailer systems e.g. automobile
2. Manufacturer- wholesaler system e.g. soft drink
3. Service firm- retailer systems e.g. lodging and fast food
Potentially, the franchise system provides an effective
blending of skill centralization and operational
decentralization, and has become increasingly important
form of international marketing.
Political & Social Environment
A] Examine the various issues that needs to be
considered by an international business organization while
studying the political environment of a country.
Answer - The International Marketing activities take place
within the political environment of national political
institutions such as the government, political executive,
legislative and the judiciary.
Any company doing business overseas should Carefully
study the political environment of he country it intends to
operate and analyze issues such as the attitude of the
political party in power toward
(b) Political Risk,
(d) Threat of Equity dilution and
The sovereign political power of a country in a command
economy may determine every aspect of economic life of
the people. In contrast, in a market economy, the
government may only play the role of a facilitator and a
regulator. However, after the fall of the Soviet Union, the
command economics around the world have progressed
towards a market oriented system. Eastern European
countries, countries in Central America, and most
importantly, India and China have also adopted the free
market system. With globalization and economic
integration, political sovereignty of individual nation states
is on the wane. However, erosion of political sovereignty is
not without a quid pro quo. There are definite economic
advantages in forging a regional economic union as
exemplified in cases such as the European Union, NAFT
A, ASEAN and others.
There is always a political risk involved in making
investments both within and without the country. The
element of risk and its severity is relatively high in foreign
countries. More objectively, the extent of political risk
depends upon the political stability of the host country. An
unstable country is fraught with investment risks. A
country needs to be stable both internally and externally.
Frequent changes in the government and attendant
changes in the economic policy of the government will
increase the element of uncertainty and adversely effect
upon a company's ability to operate effectively in a foreign
country. Investments in highly destabilized countries like
Afghanistan and Iraq may be very attractive economically
speaking but the political risks involved are overwhelming.
Political instability is therefore a great .deterrent to foreign
investment. In order to justify investment in a foreign
country, risk assessment should be undertaken on a
regular basis and investments should be made only when
opportunities to make profits are much greater than the
A company which is geographically diversified needs to
take care of the tax laws of the countries in which it
operates. Companies, generally minimizes their tax liability
by shifting the location of their income. One method of
reducing tax liability is called earnings stripping. Foreign
companies reduce earnings by' making loans to their
affiliates in a country rather than making direct foreign
investment. The subsidiary company which takes the loan
can deduct the interest it pays on such loans and reduce
its tax burden. There is an absence of international laws to
govern the levy of taxes on companies that are into
international business. In order to provide fair treatment,
governments in many countries have negotiated bilateral
tax treaties to provide tax credits for taxes paid abroad.
Generally foreign' companies are taxed by the host
country up to the level imposed in the home country.
Equity Stripping and Dilution of Control:
In less developed countries, there is a general tendency to
exert political pressure for governmental control of foreign
companies. Host-nation governments may attempt to
control ownership of foreign-owned companies operating
in their Countries. For instance, foreign equity participation
in industries such as insurance is limited to 74 percent in
India and as a result, a foreign insurance company must
team up with a local company to do insurance business in
India. In industries where, the government wants to keep
the ownership in the hands of Indian companies, foreign
equity participation is less than fifty percent. The threat of
equity dilution has forced companies to operate in host
countries through joint ventures and strategic alliances.
Expropriation is the ultimate threat that a government can
pose toward a foreign company. Expropriation refers to
governmental action to dispossess a company investor.
Generally, compensation is provided to foreign investors.
However, quite often, the compensation is not prompt,
adequate and effective. If there is no compensation then
the act of expropriation would be termed as confiscation.
When severe limitations are imposed the activities of a
foreign company, it is termed as creeping expropriation.
Such restriction may include limitations on repatriation of
profits, dividends, royalties, local content etc, quotas for
hiring local nationals, price controls etc. All these
restrictions and limitations adversely affects the
profitability of foreign investment. Discriminating tariffs and
non-tariff barriers, discriminating laws on patents and
trademarks may also limit market entry of certain
consumer and industrial goods manufacturing foreign
firms. When governments expropriate foreign property,
there are limitations on actions to reclaim the property. For
instance, according to the United States act of State
doctrine, if the government of a foreign State is involved in
a specific act, the US court will not get involved. In such a
situation, expropriated companies representatives may
seek redressal through arbitration at the World Bank
Investment Dispute Settlement Center. It is safe to buy
expropriation insurance than to seek redressal through
World Bank mechanism. In 1970 and 1971; some foreign
copper companies in Chile resisted government efforts to
employ local nationals in the managerial cadre of the
companies. Such companies were expropriated by the
Chilean government and companies which obliged were
allowed to operate under joint management.
B] Write Short Note On Monopoly and Restrictive Trade
Monopoly and Restrictive Trade Practices:
MRTP laws are enacted to fight restrictive business
practices and help foster competition. In the United States,
anti-trust laws are designed to encourage free competition
by limiting the concentration of economic power in the
hands of few. The Sherman Act of 18~O prohibits certain
restrictive business practices like fixing prices, limiting
production, allocating markets and other anti-competitive
The law applies to foreign companies conducting business
in the US and extends to the activities of US companies
operating overseas if the company conduct is considered
to have an effect on US commerce contrary to law. The
European commission prohibits agreements and practices
that prevent, restrict and distort competition.
In India, the Monopolies and Restrictive Trade Practices
Act was passed in the year 1970 under which the MRTP
commission was set¬up to investigate the effects of
restrictive trade practices on public interest and
recommend suitable corrective action.
C] Short Note on Licensing and Trade Screts
Licensing and Trade Secrets: .
Licensing is a contractual agreement in which a licensor
allows a licensee to use patents, trademarks, trade
secrets, technology and other non-material assets in
return for royalty payments or other forms of
compensation. The duration of the licensing agreement
and the amount of royalties a company can receive is
commercially negotiated between the two parties i.e., the
licensor and the licensee. There are no governmental
restrictions on royalty remittances abroad. However, in
many countries these elements of licensing are regulated
by the government.
Important areas of concern in licensing are:
1] Analysis of assets offered by a firm for license,
2] Pricing of the assets,
3] Whether to grant only the right to make the product or to
grant the right to use and sell the product, and
4] The right to sub-license.
Licensing is fraught with danger because it has the
potential to create a competitor, if there is none or
increase the number of competitors, if there is already one
or more. Hence, licensors should be careful enough to
protect their competitive advantage and to ensure a
competitive advantage, the only price the licensor should
be willing to pay is in the form of continuous innovation.
Else, the licensor may become history.
Trade secrets are confidential information that has
commercial value and for which steps have been taken to
keep it secret. Trade secrets include: manufacturing
processes, formulas, designs and list of customers. In
order to prevent disclosure, the licensing of unpatented
trade secrets should be linked to confidentiality contracts
with" each employer who has access to the protected
information. The agreement on TRIPs concluded during
the Uruguay round of GAIT negotiations requires all the
signatory countries to protect against acquisition,
disclosure or use of trade secrets in a manner contrary to
honest commercial practices. Notwithstanding the legal
developments, companies transferring trade secrets to
foreign countries should apprise themselves of the
existence of legal protection and the risks associated with
D] Distinguish between common law and code law
COMMON LAW CODE LAW
1. Australia, new Zealand, India, Hongkong, colonial
English speaking African countries, united states and
Canada have systems based on common law. In Asia,
India, Pakistan, Malaysia, Singapore and Hongkong are
the common law countries. 1.Japan, Thailand, korea, indo-
china, Indonesia, Taiwan and china are all civil law
2. In common law countries trademarks are established by
prior use 2. In code law countries, intellectual property
rights must be registered.
3. Not as many as civil law countries, have legal systems
based on common law. 3. Most countries have legal
systems based on civil law
4. This is divided into Statutory, Administrative and Case
law. Statutory is codifies at national or state level.
Administrative law originates in regulatory bodies and local
communities and case law is product of the court system.
4. Code law is divided into judicial system which is further
divided into civil, commercial and criminal law.
E] What do you understand by the term “International Law”
and trace the Genesis of the International Law?
The Term International Law refers to rules, regulations
and principles that national governments consider binding
There are two types of international law :
1] The Law of Nations or Public law and
2] International Commercial law.
International law is concerned with trade related issues
and other areas that have been ordinarily under the
jurisdiction of nation states. The Genesis of international
law can be traced back to the early middle ages in Europe
and later in the 17th Century peace of Westphalia. Early
International law was concerned with war, peace,
diplomatic recognition of new nation states etc. Detailed
international law gradually evolved with time. To being
with, International law was an amalgam of treaties,
covenants, Codes and agreements. With the growth of
international trade, order in commercial affairs grew in
Importance. In the 20th century, the new international
judicial organizations contributed to the creation of an
established Justice (1920-45), The International court of
Justice, established under article seven of the United
nations are issues of Public states 1947. Disputes
between nations are issues of public international law and
they may be referred to the International Court of justice
located in the Hague. The sources of International law as
defined under article 38 of ICI statute are as follows:
The Court whose function is to decide in accordance with
international law such disputes as are submitted to it shall
(a) International Convention, whether general or particular,
establishing rules expressly recognized by contesting
(b) International custom as evidence of a general practice
accepted as law.
(c) The General principles of Law recognized by civilized
(d) Subject to the provision of Article 59, judicial decisions
are the teachings of the most highly qualified publicists of
various nations as subsidiary means for the determination
of the rules of law.
If a nation allows a case to be brought before the ICI and
then refuses to accept a judgment against it, the plaintiff
nation can seek redresses through the United Nation‟s
highest political are i.e., the Security Council, which can
use its power to enforce the judgment.
International Social & Cultural Environment
Q.1 Illustrate the impact of social and cultural environment
on the marketing of industrial products.
Ans. The social and cultural environment encompassing
the religious aspects; language; customs; traditions and
beliefs; tastes and preferences; social stratification; social
institutions; buying and consumption habits etc are all very
important factors for business. What is liked by people of
one culture may not be liked by those of some other
culture. One of the most important reasons for the failure
of a number of companies in foreign markets is their
failure to understand the cultural environment of these
markets and to suitably formulate their business
Many companies modify their products and/or promotion
strategies to suit the tastes and preferences or other
characteristics of the population of the different countries.
Significant differences in the tastes and preferences may
exist even within the same country, particularly when the
country is very vast, populous and multi-cultural like India.
For a business to be successful, its strategy should be the
one that is appropriate in the socio-cultural environment.
The marketing mix will have to be so designed as best to
suit the environmental characteristics of the market. In
Thailand, Helene Curtis switched to black shampoo
because Thai women felt that it made their hair look
Even when people of different cultures use the same basic
product, the mode of consumption, conditions of use,
purpose of use or the perceptions of the product attributes
may vary so much so that the product attributes, method
of presentation, positioning, or method of promoting the
product may have to be varied to suit the characteristics of
The differences in language sometime pose a serious
problem, even necessitating a change in the brand name.
For instance, Chevrolet‟s brand name Nova in Spanish
means “it doesn‟t go”. In some languages, Pepsi-Cola‟s
slogan “come alive” translates as “come out of the grave”.
The values and beliefs associated with colour vary
significantly between different cultures. White indicates
death and mourning in China and Korea; but in some
countries, it expresses happiness and is the colour of the
bridal dress. Boeing an United States based aero-space
manufacturer has felt the impact of an unwritten “buy
national policy” in Europe. As a result, the market share of
Airbus for commercial planes which is a consortium of
European countries grew to 50 percent. The market share
of Boeing in Europe declined resulting in a loss. Boeing
attempted joint venture with Russian, Ukrainian and
Norwegian partners and hired a designer to decorate a
facility to watch the launch of the Sea Launch rocket. The
designer decorated the facility in black which is considered
as bad luck colour in Russia. The Russians were furious to
see black colour. Boeing repainted the facility with a shade
of blue to avoid a cultural blunder.
While dealing with the social environment, we must also
consider the social environment of the business which
encompasses its social responsibility and the alertness or
vigilance of the consumers and of society at large.
Marketing people are at interface between company and
society. In this position, they have the responsibility not
merely for designing a competitive marketing strategy, but
for sensitizing business to the social as well as the
product, demand of the society.
Q.2 Write short notes on:
a) Self-reference criterion: - A person‟s understanding or
perception of market needs is determined by his or her
own cultural experience. James Lee – developed a
systematic framework to reduce perceptual blockage and
distortion. This framework is known as the self-reference
criterion (SRC) – which addresses the problem of
unconscious reference to one‟s own cultural values. In
order to reduce cultural myopia or short sightedness,
James Lee proposed a four-step framework which is as
(1) Define the problem or goal in terms of home-country
cultural traits, habit and norms.
(2) Define the problem or goal in terms of host culture,
traits, habits and norms. Make no value judgments.
(3) Isolate the self-references criterion influence and
examine it carefully to see how it complicates the
(4) Redefine the problem without the self-references
criterion influence and solve for the host-country market
An important skill that an international marketer needs to
possess is that of unbiased perception. The framework of
self-references criterion brings out this important skill to be
learnt by international marketers. The use of SRC and the
tendency towards ethnocentrism is widespread and it can
become a strong negative form in international business.
The international marketer must check this tendency to
avoid misunderstanding and failure. In order to avoid SRC,
a person needs to forget assumptions based on earlier
experience and success and be prepared to acquire new
understanding and knowledge about human behaviour
b) Communication and Negotiation: -Language is the
medium through which any given culture is expressed and
the subtleties of a culture can best be expressed only
through a language that is home to a given culture.
Cultural transliterations are only approximations and
hence a compromise on the meaning and essence of a
certain context. The international marketer with a hold
over multiple languages has an edge over those who do
not. Whenever, languages and cultures change,
communication challenges comes to the fore. For
instance, „yes‟ and „no‟ are used differently in Japanese
than in western languages. In English, the answer „yes‟ or
„no‟ to a question is based on whether the answer is
affirmative or negative. In Japanese, the answer „yes‟ or
„no‟ may indicate whether or not the answer affirms or
negates the question. For instance, in Japanese the
question, “Don‟t you like meat!” would be answered “yes”.
If the answer is negative, as in, “Yes, I don‟t like meat.”
The word “Wakarimashita” means both “I understand” and
“I agree”. In order to avoid misunderstandings, foreigners
must learn to distinguish which interpretation is correct in
terms of the entire context of conversation. The challenges
of non-verbal communication are more formidable.
c) Environmental Sensitivity: -Environmental sensitivity is
the extent to which products must be adapted to the
culture-specific needs of different needs of different
national markets. Environmental sensitivity can be
measured by viewing product on an environmental
sensitivity continuum. At one end of the continuum are
environmentally insensitive products that do not require
significant adaptation to the environments of local markets
in the world. At the other end of the continuum are
products that are highly sensitive to different
environmental factors. A firm with environmental
insensitive products will spend less time determining the
specific conditions of local markets as the product in
question is universal in nature. In case of environmentally
sensitive products, managers need to address country-
specific economic, regulations, technological, social and
cultural environmental conditions.
The sensitivity of products can be represented on a two
dimensional scare wherein the horizontal axis shows
environmental sensitivity and the vertical axis shows the
extent of need for product adaptation. Products showing
low levels of environmental sensitivity such as technical
products belong to the lower left of the figure. As we move
to the right or the horizontal axis, the environmental
sensitivity increases along with the need for adaptation.
Computers have low levels of environmental sensitivity but
variations in country voltage requirements require some
adaptation. At the top right of the figures we have products
with high environmental sensitivity. For example, food is
highly sensitive to climate and culture.
Posted by M SALMAN at 21:39
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Meghanath Mooty29 April 2013 03:47
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