1. PASIG CATHOLIC COLEGE
MKTG 26
International Marketing
Chapter 1 – Aspect of International
Marketing
College Instructor: Mr. A. T. Quiwa, MB

2. Learning Objectives
 Explain the growing importance of international
business
 Describe how international marketing differs from
domestic marketing
 Discuss the significant role of multinational
corporation in the expansion of business on an
international scale
 Compare alternative entry routes into foreign
markets

3. International Business
 The term international business refers to a wide
range of activities involved in conducting business
transactions across national boundaries.
 International business suggest a comprehensive
approach to operations of both large and small firms
engaged in business overseas.
 Perspectives of U.S. Business Overseas
U.S.A. greater impetus to overseas expansion came
after World War 11. While the U.S. government
helped to reconstruct war-torn economic through the
Marshall Plan by providing financial assistance to
Europe countries, the postwar American economy
emerged as the strongest in the world.
American’s economic assistance programs, in the
absence of competition, stimulate extensive U.S.
corporate interest overseas.

4. Foreign Investment of U.S.A.
 Essentially, there are two aspects of international
business: direct investment and trade.
 At end of 1993, according to a U.S. Department of
Commerce report, the U.S. direct investment abroad at
$450 billion, up from $ 314.3 billion in 1987.
 Over 75% of U.S. investment overseas have traditionally
been in developed countries. However, as many less-
developed countries gained political freedom after the
war, their government sought U.S. help to modernize their
economies and improve their living standards.
 Almost $344 billion of the $408 billion in the book value of
direct foreign investment in the U.S. at the end of 1993(
Netherland, UK, Canada, Japan and Switzerland)
 Companies like Bic Pen Corporation( French
company), BMW (Germany), Lever Brothers(English
company), and Nestle ( Swiss company).

5. Why Go International
There are several reasons for U.S. firms to seek
business opportunities elsewhere in the world.
 Market Saturation
 United State Trade Deficit
 Foreign Competition
 Emergence of New Markets
 Opportunities via Foreign Aid Programs

6. Other Reasons Why Go International
 In industries where economies of scale are feasible, a
large market is essential.
 International business provides a safety net during
business downturns.
 In many industries, labor constitutes a major proportion of
costs.
 Some nations offer tax incentives to attract foreign
business to their countries.
 Many companies find it more desirable to develop and/or
test new products outside the U.S.
 Many international markets are less competitive than the
U.S. markets; several are still in an embryonic stage.
Further, in some instances, government will give
companies a monopoly or quasi-monopoly position if they
assemble and produce their products there.
 Finally, international presence provides expanded access
to advantages in technology, worldwide raw materials, and
diverse international economic groups.

7. International Marketing and Its Growing
Importance
 Stage of International Involvement
The term international marketing refers to exchange across
national boundaries for the satisfaction of human needs and
wants.
 A firm’s overseas involvement may fall into one of several
categories:
1. Domestic: Operate exclusively within a single country.
2. Regional exporter: Operate within a geographic defined
region that national boundaries.
3. Exporter: Run operations from a central office in the home
region, exporting finished goods to a variety of countries.
4. International: regional operations are somewhat
autonomous, but key decision are made and coordinated
from the central office in the home region.
5. International to Global: Run independent and mainly self-
sufficient subsidiaries in a range of countries
6. Global: Highly decentralized organization operation across
a broad range of countries.

8. Why Study International Marketing?
 Marketing is more significant, both for doing
business abroad and for analyzing the impact of
international happenings on business in the U.S.,
than other functions of a business- such as
manufacturing, finance, and research and
development-because market responds to the
local culture and business multiple
interrelationships with the local environment.

9. Domestic Versus International Marketing
 The basic nature of marketing does not change
from domestic to international marketing, but
marketing outside national boundaries poses
special problems.
 International marketing, unlike domestic
marketing, requires operating simultaneously in
more than one kind of environment, coordinating
these operations , and using the experience
gained in one country for making decisions in
another country.

10. Domestic Versus International Marketing
 To successfully compete globally, rather than simply
operate domestically, companies should emphasize:
1. Global configuration of marketing activities(i.e.
where activities such as new product development,
advertising, sales promotion, channel section,
marketing research, and other functions should be
performed)
2. global coordination of marketing activities ( i.e. how
global marketing activities performed in different
countries should be coordinated); and
3. linkage of marketing activities (i.e. how marketing
activities should be linked with other activities of the
firm).

11. Domestic Versus International Marketing
 Further, marketing activities dispersed in
different countries should be properly coordinated
to gain competitive advantage. Such coordination
can be achieved by;
1. performing market activities using similar
methods across countries
2. transferring marketing know-how and skills
from country to country;
3. sequencing marketing programs across
countries;
4. integrating the efforts various marketing groups
in different countries.

12. Domestic Versus International Marketing
 Finally, a global view of international marketing permits
linking marketing upstream and support activities of the
firm, which could lead to advantages in various ways.
 For example, marketing can unlock economies of scale
and learning in production and/or R&D by;
1. supporting the development of universal products by
providing the information necessary to develop a
physical product design that can be sold worldwide;
2. creating demand for more universal products even if
historical demand has been for more varied products in
different countries;
3. identifying and penetrating segments in many countries
to allow the sale of universal products;
4. providing services and/or local accessories that
effectively tailor the standard physical product to the
local needs.

13. Framework of International Marketing
 Typically, a firm should make domestic marketing
decisions only after considering internal and
external environment.
 International environment factors primarily
refers to corporate objectives, corporate
organization, and resource availability.
 External environment factors include
competition, technological change, the economic
climate, political influences, social and cultural
changes, among marketing channels.

14. Decision and Environment of International Marketing
Other types of Environment
( for example, competition,
technological changes
Perspective
Economic of firm’s
Environment Domestic
Produ Price Business
ct
Internation
al International
Customer Economic
Cultural Institutions
Environment and
Distribution Promotion
Agreements
Political Legal
Environment Environment

15. Multinational Corporation
 The multinational corporation (MNC) is the
principal instrument in the expansion of business
on an international scale.
 The MNC plays a decisive role in the allocation
and use of the world’s sources by conceiving new
products and services, creating or stimulating
demand for them, and by developing new modes
of manufacturing and distribution.

16. Nondomestic Earnings, Sales, and
Assets of Selected U.S. Firms(1993)
Percent of Percent of Percent of
net Sales Assets
Earnings
American Std 64 50 18
Avon 52 45 34
Coca-cola 56 46 34
Colgate- 55 62 34
Palmolive
Gillette 68 68 70
Hewlett 52 58 27
Packard
IBM 65 58 27
Johnson & 42 43 41
Johnson
Xerox 35 39 27

17. Multinationals from the Third
World
 The strength of the Third World MNCs comes
from their special experience with manufacturing
for small home markets. Using low technology
and local raw material, running job-shop kinds of
plants, and making effective use of semiskilled
labor, they are able to custom-design products
best suited to host countries.
 While, small-scale manufacturing remains their
unique strength, these companies also are
moving in other areas that are particularly suited
to local conditions.
 The rapid growth of Third World multinational
provides both a threat and an opportunity to the
multinationals from the advance countries.

18. Entry Strategies
 Four different modes of business offer a
company entry into foreign markets:
1. exporting
2. contractual agreement
3. joint venture
4. manufacturing

19. Entry Strategies
 Exporting
A company may minimize the risk of dealing internationally by
exporting domestically manufactured products either by minimal
response to inquiries or by systematic development of demand in
foreign markets.
 Contractual Agreement
There are several types of contractual agreements:
 patent licensing agreement – This is based on either a fixed-
fee or a royalty and includes managerial training.
 Turnkey Operation – This is based on a fixed –fee or cost-plus
arrangement and includes plant construction, personnel training
, and initial production runs.
 Coproduction Agreement – This is most common in the socialist
countries, where plants are built and then paid for with part of the
output.
 Management Contract – Currently widely used in the Middle
East, this requires that a multinational corporation provides key
personnel to operate the foreign enterprise for a fee until local
people acquire the ability to manage the business independently.

20. Entry Strategies
 Licensing
 This works as a viable alternatives in some
contractual
agreement situations where risk of expropriation
and resistance
to foreign investments create uncertainty.
 Licensing encompasses a variety of contractual
agreements whereby by a multinational marketer
makes available intangible assets such as
patents, trade secrets, know-how, trademarks,
and company name to foreign companies in
return for royalties or other forms of payment.
 Transfer of these assets usually is accompanied
by technical services to ensure proper use.

21. Some of the advantages of licensing
are as follows:
1. Licensing requires little capital and serves as a
quick and easy entry to foreign markets.
2. In some countries licensing is the only way to tap
the market.
3. Licensing provides life extension for products in the
maturity stage of their life cycles.
4. Licensing is a good alternative to foreign production
and marketing in an environment where there is
worldwide inflation, skilled-labor shortages,
increasing domestic and foreign governmental
regulation and restriction, and tough international
competition.
5. Licensing royalties are guaranteed and periodic,
whereas shared income from investment fluctuates
is risky.

22. Some of the advantages of licensing
are as follows:
6. Domestically based firms can benefit from product
development
abroad without research expense through technical
feedback
arrangements.
7. When exports no longer are profitable because of
intense
competition, licensing provide an alternative.
8. Licensing can overcome high transportation costs,
which make
some exports noncompetitive in the target markets.
9. Licensing is immune to expropriation
10. In some countries, manufacturers of military
equipment or any product deemed critical to the
national interest( including communication
equipment) may compelled to enter licensing

23. Some disadvantages of licensing are
as follows:
1. To attract licensees, a firm must possess
distinctive technology, a trademark, and a company
of brand name that is attractive to potential foreign
users.
2. The licensor has no control over production and
marketing by the licensee.
3. Licensing royalties are negligible compared with
equity investment potential. Royalty rates seldom
exceed 5 percent of gross sales because of host
government restrictions.
4. The licensee may lose interest in renewing the
contract unless the licensor holds interest through
innovation and new technology.
5. There is a danger of creating competition in third, or
even home, markets if the licensee violates
territorial agreements. Going to court in these
situations is expensive and time consuming and no

24. Joint Venture
 Joint venture provide a mutually beneficial
opportunity for domestic and foreign business to
join forces. For both parties, the ventures are a
means to share both capital and risk and make
use of each other’s technical strength.
 Joint venture, however, are not an unmixed
blessing. The major problem in managing joint
venture stems from one cause; there is more than
one partner and one must play the key, dominant
role to steer the business to success.
 Joint venture should be designed to supplement
each partner’s shortcomings, and not to exploit
each other’s strength and weaknesses.

25. Widespread interest in joint ventures is related
to :
1. Seeking market opportunities. Companies in mature
industries in the U.S. find joint venture a desirable entry
mode to attractive new markets overseas.
2. Dealing with rising economic nationalism. Often host
government are more receptive to or require joint
ventures.
3. Preempting raw materials. Countries with raw materials
such as petroleum or extractable material usually do not
allow foreign firms to be active there other than through
joint venture.
4. Sharing risk. Rather than taking the entire risk, a joint
venture allows the risk to be shared with a partner,
which can be especially sensitive areas.
5. Developing an export base. In areas where economics
blocs play a significant role, joint venture with a local
firm smoothes the entry into the entire region, such entry
into the EC market through a joint venture with an
English company.
6. Selling technology. Selling technology to developing

26. Manufacturing
 A manufacturing corporation may also establish
itself in an overseas markets by direct investment
in a manufacturing and/or assembly subsidiary.
Because of the volatility of worldwide economic,
social , and political conditions, this form of
involvements is most risky.
 It is suggested that MNCs should not
manufacture overseas where the risk of a mishap
may jeopardize the survival of the whole
company.