Mcom 103 International Marketing

INTERNATIONAL MARKETING
MCOM
Semester - I
MCOM - 103
SHRI VENKATESHWARA UNIVERSITY

UTTAR PRADESH-244236
BOARD OF STUDIES
Prof (Dr.) P.K.Bharti
Vice Chancellor
Dr. Rajesh Singh

Director
Directorate of Distance Education
SUBJECT EXPERT
Dr. S.N.Sahoo, Professor
Dr. Shrinivas Shirur, Professor
Mr. Ashotosh, Asst. Professor
COURSE CO-ORDINATOR
Mr. Shakeel Kausar
Dy. Registrar
Authors
Raj Agarwal, Director, College of Management Studies,IILM Academy for Higher Learning, Noida
Units (1.2.1, 3.10, 4.3, 5.3, 5.5-5.5.1) © Raj Agarwal, 2019
Arun Kumar, Professor, NIILM Centre of Management Studies, New Delhi
N Meenakshi, Asstt. Professor, NIILM Centre of Management Studies, New Delhi
Units (1.3.1, 2.2-2.2.1, 3.5.1, 3.6.2, 3.10.5, 4.4) © Reserved, 2019
Rajagopal PhD, FRSA (London), Professor, Department of Marketing, Business Division, Monterrey Institute of
Technology and Higher Education, ITESM Mexico City Campus, Mexico
Units (1.2, 1.3, 1.4, 2.2.2, 2.3, 3.2-3.5, 3.6-3.6.1, 3.7- 3.9) © Reserved, 2019
Vikas Publishing House: Units (1.0-1.1, 1.5-1.9, 2.0-2.1, 2.4-2.12, 3.0-3.1, 3.11-3.15, 4.0-4.2, 4.5-4.9, 5.0-5.2,
5.4, 5.5.2) © Reserved, 2019
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SYLLABI-BOOK MAPPING TABLE
International Marketing
Unit I
Framework of International Marketing: Concept, scope its growing Unit 1: Framework of International
importance, factors affecting international marketing; Controllable and Marketing (Pages 3–21)
uncontrollable factors; International Marketing environment: cultural,
political, geographical economic and legal requisitions trade clearance
(tariff and non tariff behaviours).
Unit II
Market Selection-Market profiling, market segment selection. Market Unit 2: Market Strategies and
entry strategies: MNCs and World Markets. Market Agreements in Export Finance (Pages 23–61)
Force-Free trade zones. Export Finance-EXIM Bank, Institutional
Finance for import; IDBI ECGC and export credit insurance.
Unit III
International Marketing decision; International product planning Product Unit 3: International Marketing
design strategy, new product development; branding packaging and Decisions (Pages 63–121)
lebeling. International pricing strategy. Pricing objectives, pricing
methods dumping, transfer pricing, retrograde pricing, International
Channels of Distribution International channel system direct exports,
indirect exports, marketing environment and distribution strategies,
international logistics. International promotion: determining advertising
strategy, communication mix role of export organization, management
of sales force.
Unit IV
Organization and Planning International Marketing. New perspectives Unit 4: Organization and Planning
on organization-corporate networking; dimensions of international (Pages 123–143)
planning and strategy. International marketing information system and
marketing research.
Unit V
WTO and trade liberalization International Marketing institutions; Central Unit 5: Trade Liberalization and
advisory council; Export development councils, commodity boards, Export Procedure
Export promotion council. Trade development authority; Trade fair (Pages 145–169)
authority, STC, MMTC, India’s foreign trade and balance of payment
position. Export procedure, export incentives and subsidies.
CONTENTS
INTRODUCTION 1
UNIT 1: FRAMEWORK OF INTERNATIONAL MARKETING 3–21

1.0 Introduction
1.1 Objectives
1.2 International Marketing: Concept and Scope
1.2.1 Importance of Marketing
1.3 Factors Affecting International Marketing
1.3.1 Controllable and Uncontrollable Factors
1.4 Marketing Environment
1.5 Summing Up
1.6 Key Terms
1.7 Answers to ‘Check Your Progress’
1.8 Questions and Exercises
1.9 References and Suggested Readings
UNIT 2: MARKET STRATEGIES AND EXPORT FINANCE 23–61

2.0 Introduction
2.1 Objectives
2.2 Market Selection
2.2.1 Market Profiling
2.2.2 Market Segment Selection
2.3 Entry Strategies of MNCs
2.3.1 Developing an Entry Plan
2.4 Free Trade Zones
2.5 Export Finance
2.5.1 EXIM Bank
2.6 IDBI
2.7 Services of Export Credit Guarantee Corporation (ECGC)
2.7.1 Export Credit Insurance Covered by ECGC
2.8 Summing Up
2.9 Key Terms
UNIT 3: INTERNATIONAL MARKETING DECISIONS 63–121

3.0 Introduction
3.1 Objectives
3.2 International Product Planning
3.3 Product Design Strategy
3.4 New Product Development
3.4.1 Factors Obstructing Growth of New Products
3.4.2 New Product Development Process
3.5 Branding, Packaging and Labelling
3.5.1 Packaging and Labelling
3.6 International Pricing Strategy
3.6.1 Pricing Objectives
3.6.2 Pricing Methods
3.7 International Channels of Distribution
3.8 Marketing Environment and Distribution Strategies
3.9 International Logistics
3.10 International Promotion and Advertising
3.10.1 Promoting Product/Service in International Market
3.10.2 Advertising Decisions
3.10.3 Communication Mix
3.10.4 Role of Export Organization
3.10.5 Management of Sales Force
3.11 Summing Up
3.12 Key Terms
UNIT 4: ORGANIZATION AND PLANNING 123–143

4.0 Introduction
4.1 Objectives
4.2 New Perspectives on Organization: Corporate Networking
4.3 Dimensions of International Planning and Strategy
4.3.1 Strategic Planning
4.3.2 Marketing Planning
4.4 International Marketing Information System
4.4.1 Types of Marketing Research
4.4.2 Changing Perspectives in Marketing Research
4.5 Summing Up
4.6 Key Terms
4.9 References and Further Readings
UNIT 5: TRADE LIBERALIZATION AND EXPORT PROCEDURE 145–169

5.0 Introduction
5.1 Objectives
5.2 WTO and Trade Liberalization
5.2.1 Liberalization and Indian Economics
5.3 International Marketing Institutions
5.4 India’s Foreign Trade and Balance of Payments
5.4.1 Trends in Balance of Payments
5.4.2 Role of Services in Balance of Payments
5.4.3 Non-Resident Inflows
5.4.4 Allocation or Cancellation of Special Drawing Rights (SDRs)
5.4.5 Double Entry System of Recording
5.4.6 Balance of Payments and International Economic Linkages
5.5 Export Procedure
5.5.1 Export Documentation and Procedure
5.5.2 Export Incentives and Subsidies
5.6 Summing Up
5.7 Key Terms
Introduction
INTRODUCTION
International marketing or Global marketing refers to marketing carried out by companies NOTES
overseas or across national borders. In other words, international marketing is the
application of marketing principles to expand trade across national boundaries. This
implies an extension of the techniques used in the home country of a firm.
Advances in technology and communication have facilitated cross-border trade
and business. For companies seeking to go global, however, there are a number of
issues at stake. Doing business in a foreign location is not the same as doing business
in one’s home country. One needs to examine the international marketing environment
in detail. There could be significant legal, cultural and political barriers as well. The
same mix of products, marketing strategies and pricing that works so well in the home
country may be a complete failure in a foreign market. Therefore, it is important that
the potential market is studied and analyzed carefully. Product and market segmentation
is an essential step in that direction. It is also important to know the standards and
product rules and regulations followed in the country and the cultural habits prevailing
in the target market.
This book, International Marketing, deals with the issues mentiond above and
gives a new prespective on the emerging trends. It also looks at how liberalization has
changed the global marketing scenario and the role of international marketing institutions.
The book will give you an idea about India’s froeign trade and balance of payment.
The learning material in this book, International Marketing, has been presented
in the self-learning format, wherein each unit begins with an Introduction to the topic
followed by an outline of the Objectives. The detailed content is then presented in a
simple, structured and easy-to-grasp style interspersed with ‘Check Your Progress’
questions to test the student’s understanding. At the end of each unit, a Summing Up
and a list of Key Terms have been provided for recapitulation.
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Material 1
Framework of
UNIT 1 FRAMEWORK OF International Marketing
INTERNATIONAL MARKETING
NOTES
Structure
1.0 Introduction
1.1 Objectives
1.2 International Marketing: Concept and Scope
1.3 Factors Affecting International Marketing
1.4 Marketing Environment
1.5 Summing Up
1.6 Key Terms
1.0 INTRODUCTION
Whether an organization markets its goods and services domestically or internationally,
the definition of marketing remains almost the same.
However, the scope and importance of marketing is broadened when the
organization decides to sell across international boundaries. This is primarily due to
the numerous factors that the organization has to take into consideration – these include
the geographical, economic, cultural, political and legal environment. It is important to
understand that marketing environment plays a great role in all business matters.
In this unit, you will learn about the basic framework of international marketing,
its importance and scope, the controllable and uncontrollable factors that include the
4 P’s of marketing and the marketing environment in detail.
1.1 OBJECTIVES
After going through this unit, you will be able to:
x Discuss the framework of international marketing
x Explain the international marketing environment and discuss its impact on
international business
x Describe the tariff and non-tariff requisitions of international marketing
1.2 INTERNATIONAL MARKETING:

CONCEPT AND SCOPE
International marketing includes the marketing activities or transactions that are carried
out beyond the national borders of a country. However, not all business activities
beyond the national border can be considered under international marketing. For
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Framework of example, an organization importing some raw materials or items from a foreign country
that are not available in the domestic country cannot be considered an international
business organization as the level of internationalization is very small. On the other
hand, an organization importing input from a foreign country even though it is available
NOTES domestically can be considered an international business firm. Therefore, as the
environment and the purpose of business activities differ, so does the level of
internationalization of firms. Organizations that import and export their inputs and
outputs domestically and globally can also be considered international business firms.
This is because the decision of importing and exporting are a result of global
sourcing. International business can occur in different modes, which can be exporting,
licensing, contract manufacturing, foreign assembly, foreign production, joint venturing
and others. A ‘joint venture’ refers to combining two or more parties to participate in
financial activities. These parties create a new entity by contributing equally economically.
The level of internationalization in an organization also depends on these modes. Many
domestic products manufactured by organizations can also be considered international
products if parts or components of these products are manufactured in foreign
countries. The term ‘international business’ not only refers to international business
transactions of goods and services but also foreign direct investments (FDIs). The
term FDI consists of a parent firm and a foreign partner that combine to form a
transnational corporation. A transnational corporation, also known as a multinational
corporation (MNC), carries out its business activities in at least two countries.

‘Marketing consists of the strategies and tactics used to identify, create and maintain
satisfying relationships with customers that result in value for both the customer and
the marketer.’ (Source: Marketing Management by KS Chandrasekar)
Let us examine this definition in a little more detail by focusing on a few key terms.
Strategies and tactics: Marketing strategies determine the direction of the marketing
effort over some period of time. Tactics are complementary to strategies. These can
be defined as actionable steps or decisions made in order to follow the strategies
established. For example, if a company has evolved a strategy to enter a new market,
the tactics may involve the marketing decisions made to carry this out. The right kind
of marketing strategies and tactical planning activities in advance of taking action are
considered critical for long-term marketing success.
Identify: In international marketing, the most important marketing function involves
identifying and gaining knowledge of customers, competitors, and new and emerging
markets.
Create: Competition creates marketing. Marketing forces marketers to be creative
people. Creativity in marketing involves starting new ventures, such as building a new
company, a new product, a new way to distribute a product and a new advertising
approach. Innovation in marketing is a continuous process. Even after a new venture
has been launched, innovation does not end. The marketer, who must respond by
devising new strategies, continually feels competitive pressure and must bring out new
tactics that will help the organization remain successful.
Maintain: Marketing is a long-term relationship with customers. Its success is displayed
not only in terms of sales but is also determined by how long a marketer can retain
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good customers. Relationship marketing is the new buzz word, wherein marketers are Framework of
trained to ensure that their customers return to purchase from them again. In most
marketing situations today, relationship marketing emphasizes that marketers’ attempts
to attract customers do not end when a customer makes a purchase. In fact, they
continue in various ways for a long time after the initial purchase. NOTES
Satisfying relationships: Customer Relationship Management (CRM) is now a
strategic approach that ensures that everyone in an organization, not just the marketer,
understands the importance of customers. A major objective of marketing is to provide
products and services that customers really want. It is also to ensure that the customer
and the marketer forge a good relationship with each other. In this way the customer is
made to feel as if she/he is a partner in the transaction and not just a source of revenue
for the marketer. In recent years, this has led to the concept of maintaining close and
consistent relationships with customers. It is crucial to have all points of customer
contact, but to achieve this is difficult. Technology is also important in carrying out
CRM, so that whosoever in an organization comes into contact with a customer (e.g.,
sales force, service force, customer service representatives, and accounts receivable)
has the necessary information and is well prepared to deal with the customer.
Value for both customer and marketer: Value contains perception of benefits received
against the consideration of money that someone should give up. Customers’ value is
most often measured in proportion to money which is given in exchange for something
that is satisfying to them. On the other side of the transaction, the marketer may
measure value in terms of how much profit they are making for the marketing efforts
and resources expended. For a successful marketing effort to take place, both the
customer and the marketer must feel that they are receiving something worthwhile.
Without a strong perception of value it is unlikely that a strong relationship can be
built.
What Marketers Do
In international marketing, it is imperative to create a relationship that holds value for
customers and for the organization. Marketers generally use the following approach in
decision-making to achieve the desired goals:
x Target markets: These are generally identified as possessing needs which can
be addressed by the marketer by making marketing efforts.
x Products/services: These are generally identified to be either tangible or
intangible. These are provided by marketers on the basis of need.
x Promotion: This is an approach of communicating information about the
marketing organization’s solution to the market.
x Distribution: It can be described as a means used to allow the market to obtain
the solution.
x Pricing: It is an approach by which the marketer adjusts the cost to the market
for the solution.
x Services: This is a process by which additional value can be created.
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Framework of
International Marketing 1.3 FACTORS AFFECTING INTERNATIONAL
MARKETING
NOTES At its simplest level, international marketing involves the firm making one or more
marketing mix decisions across national boundaries. At its most complex level, it
involves the firm establishing manufacturing facilities overseas and coordinating
marketing strategies across the globe.
According to J. M. Hess and P. R. Cateora, in their book International
Marketing, ‘International marketing is the performance of business activities that direct
the flow of goods and services to consumers or users in more than one nation.’
According to L. S. Walsh, in his book International Marketing, ‘International
marketing is the marketing of goods and services across national frontiers.’
International marketing is the marketing function of multinational organizations.
The most relevant factors for a firm affecting marketing abroad are the following:
1. Social factors
x Culture of the country
x Language of the country
x Environment and climate of the country
x Marketing infrastructure
x Financial system
2. Economic factors
x Currency restrictions of the country
x Government policy
x Taxation
x Internal demand management policies
3. Opposition
x Opposing organizations in the importing country
x Opposing organizations in competing countries
x Opposing organizations in own country
4. Logistics
x Costs of planning and controlling the movement of goods
x Transportation required
5. Risks
x Political and commercial risks
x Risks from enemies, thieves and piracy
Controllable factors are often called as marketing mix. We remember these factors as
the 4 P’s of marketing. Marketing mix is a particular combination of product, its price,
the methods to promote it, and the ways to make the product available to the customer.
A company develops its marketing mix based upon its understanding of customers.
The elements of the marketing mix are intricately related to each other. All the elements
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have to reinforce each other to enhance the experience of the customer. Even after a Framework of
change has been made, it is important to check if the changed element still fits and
reinforces other elements or if it is contradicting other elements and therefore making
the marketing mix less effective in serving customers. It is the responsibility of the
managers to manage these 4Ps in such a way that customer satisfaction level is higher NOTES
than the competitions. Let us look at the 4P’s of marketing —Product, Price, Promotion
and Place.
1. Product
Product decision involves deciding what goods or services should be offered to
customers. The product or service serves the basic need of the customer and provides
primary value. A customer must have got interested in the company mainly because of
the product or service it was providing or proposed to provide. All other elements
should reinforce the value proposition of the product. New product development is an
important element of product strategy. Products become out-of-date and go out of
competition due to changes in technologies and taste. Due to this, the companies must
replace them with new designs and features that are liked by the customers. The
challenging task is to include the latest available technologies and solutions into the
latest needs of the customers. Product decisions of the customers depend on brand
names, warranties, packaging and services which a product might.
2. Price
Price is the cost that a customer is willing to pay for a product that is made available to
him. Price represents a unit basis that a company receives for the product it markets.
Marketers should be careful about pricing objectives, the methods to arrive at a price
and also about the different factors that help to fix a price. The company must also
take into account the necessity to give discounts and allowances in some transactions.
If there is a need to extend discounts and concessions in certain transactions then the
list price should have a negotiation margin built in it. The real price received in any
transaction is also affected by payment periods and credit terms. These kinds of
decisions can affect the perceived value of a product.
Price can be changed easily in comparison to other elements of the marketing
mix. An ill-considered price change can change the perceptions of the customer about
the value of the marketing mix. A customer builds a strong association between price
and quality in the absence of any objective knowledge about the quality of a product.
If the price of a product is reduced, then there are chances that customers may start
regarding the product as inferior. If a company raises the price, customers may consider
it a high quality product, but there is also the risk that customers may regard the price
too high for the value that they are getting from the product. Price change, though easy
to make, should always be done taking into consideration the effect the change will
have on the attractiveness or of the marketing mix.
3. Promotion
Decisions have to be made regarding advertising, personal selling, sales promotions,
exhibition, sponsorship and public relations with respect to promotional mix. These
help the target audience to be aware of the product and its benefits.
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Material 7
Framework of The type of promotional tool used has to complement other elements of the
marketing mix. An expensive product, like machinery, with limited number of customers
should be promoted through personal contacts between buyers and salespersons.
Advertising in the mass media will be wasteful in such cases as the number of customers
NOTES is far too small. It would also be ineffective as the customers will not buy an expensive
product based on limited information provided in an advertisement. In such cases
customers require extensive information to be able to make a choice. On the other
hand an inexpensive product bought by the mass market can be advertised on the
mass media. The media used, the celebrity chosen to endorse the product, the training
provided to the salesperson etc. should reflect and reinforce other elements of the
marketing mix.
Normally a company makes its first contact with customers through promotional
efforts. Customers normally do not buy products unless they have formed certain
expectations about it. Promotions help to shape the expectations of customers about
the product. Promotion can raise the expectation of the customers if rightly used. This
also helps to drive sales. On the other hand, if a product is hyped and unrealistic, then
the customers might get disappointed when they actually use the product. Such
disappointments will create negative word-of-mouth complaints and a permanent dent
in the reputation of a company.
4. Place
Place involves decisions on the distribution channels to be used, location of outlets,
methods of transportation and the inventory levels to be held. Product should be
available in the right quantity, at the right time and place. Distribution channels are
comprised of independent intermediaries such as retailers, wholesalers, and distributors
through which goods pass to reach the end users. These intermediaries provide cost-
effective access to the marketplace. It will be extremely costly and cumbersome for
the manufacturers to arrange the entire infrastructure needed for the transfer of goods
to the customers. To have a smooth system it is important for the manufacturers to
manage and structure relationships with the intermediaries so that the interests of both
are served.
Distribution channels perform three distinct functions. Products are transferred
from the manufacturer to the customers through the different distribution channels.
They pass information from the manufacturer to the customers, and they collect payment
from the customers on behalf of the manufacturers. It is possible to segregate these
three functions as alternate means of delivering products, passing information and
collecting money. Information is provided on the manufacturer’s website in case of
Check Your Progress
internet marketing. The product is sent from the stores of the manufacturers to the
1. What are the customers through different courier services and payment is collected by banks through
modes of
international credit cards. A company should have an open mind while designing its distribution
business? strategy. The three functions have to be performed but it is not essential that all the
2. State the three functions are performed by one channel. Each of the three channels can perform
controllable factors
a different function individually depending on the efficiency of the channel and its
of international
marketing. effectiveness in carrying out the function.
3. What does FDI Uncontrollable factors include the marketing environment: the political, legal,
consists of?
cultural, geographical and economic factors which are discussed in unit 1.4.
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Framework of
1.4 MARKETING ENVIRONMENT International Marketing
A key challenge for international marketers is to develop a good understanding of the

international business environment. To identify the key environmental factors that are NOTES
of importance to the success of international marketing and discuss their impacts on
international marketing decisions is important. In order to be successful at international
marketing, it is vital that marketers attain a thorough understanding of these factors as
they impact the international business environment and take them into account when
carrying out decisions on marketing activities.
Let us discuss these environmental factors in detail:
1. Cultural Environment
International marketing encompasses people from different cultures and thus every
business activity in another country is subject to cultural challenges. The extent of
cultural influence varies in accordance with the nature of industrial and consumer
products and services. Consumer products, by virtue of their marketing process such
as mass advertising, sales promotion and personal selling tend to require a strong
degree of cultural awareness since this knowledge relates to the human communication
that is indispensable to the selling process. On the contrary, industrial products may
have lesser requirements for cultural awareness, as sometimes the negotiation in
business-to-business or the industrial marketing segment is based on a situation and
does not depend on the cultural adaptation process. For example, the technical
specifications for an industrial ceramic automotive component might be the same in
New York as they are in Tokyo or Moscow. Under such circumstances what is important
to make this sale, is the price of the component and how it fits the specifications
required by the component.
The traditional high esteem for the word in Europe is reflected for instance in
their elaborate business correspondence. Europeans not only love to talk extensively
in negotiations, they also draw up long minutes of meetings and letters of confirmation.
They strive to put the progress of their business in exact words in order to keep going.
Japanese enterprises, on the other hand, are not especially fond of correspondence.
Compared to European business letters, Japanese letters tend to be brief and, in the
European view, sometimes not sufficiently precise. Even differences in detail of
communication may cause problems in business relationships.
In Europe, contracts as a principle are put in writing, and written contracts are
minutely drafted. In this way one tries to provide for all conceivable problems of the
contractual relationship in advance. In Japan, a 1987 survey revealed that in practice
71 per cent of business contracts were concluded only orally. But even if Japanese
contracts are put in writing, they are often only of a summary nature. In Europe, such
summary contracts will be of little use. For example, a German labour contract typically
comprises 10 pages. A Japanese company followed Japanese practice in Germany
and concluded a 1-page employment contract with a German employee. For this
reason alone, the Japanese company stood no chance of winning when it was sued by
the employee before a German labour court. Sometimes there is the impression that
Japanese enterprises do not readily enter into written contracts because they want to
retain their freedom of action and flexibility in the future. According to traditional
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Framework of Japanese thinking, a good personal relationship between the parties reinforced by giri
obligations is more important than a written contract. Giri is a moral obligation to
loyalty incurred by a special favour which is borne by the beneficiary until he has
satisfied it by a definite but unspecified act of gratitude.
NOTES
Corporations of any kind cannot escape the social environment that surrounds
their activities in the host countries. With the ever-increasing internationalization of
companies the role of national culture in business is unquestionable. It has been observed
that some multinational companies experience serious culture shocks because of their
cultural ignorance. However, the most efficient ones are well prepared to make good
use of the cultural differences within the organization.
Defining Culture
‘Culture’ refers to the distinctive way of life of a group of people—their complete
‘design for living’. Culture seems to be the master concept of American anthropologists.
For ethnologists, folklorists, anthropological linguists, archaeologists and social
anthropologists, culture is always a point of departure or a point of reference if not
invariably the point of emphasis.
Accepted Propositions on the Theory of Culture
x Culture is learned
x Culture derives from the biological, environmental, psychological, and historical
components of human existence
x Culture is structured
x Culture is divided into aspects
x Culture is dynamic
x Culture is variable
Culture exhibits regularities that permit its analysis by scientific methods. Culture is the
instrument whereby the individual adjusts to his total setting and gains the means for
creative expression Culture consists of patterns, explicit and implicit of and for behaviour
acquired and transmitted by symbols, constituting the distinctive achievement of human
groups, including their embodiment in artifacts; the essential core of culture consists
of traditional (i.e., historically derived and selected) ideas and especially their attached
values; culture systems may, on one hand, be considered as products of action, on the
other, as conditioning elements in a future action. Culture has many complex dimensions
to define in simple terms. It seems that each anthropologist has defined culture from
his own perspective. However, certain anthropological thinkers had agreed on
fundamentals, as may be seen from the description provided by Hoebel – ‘Culture is
the integrated sum total of learned behavioural traits that are shared by members of a
society.’ Culture may be described in reference to three basic concepts. First, culture
is a total pattern of behaviour that is consistent and compatible in its components. It is
not a collection of random behaviours, but behaviours that are related and integrated.
Second, it is a learned behaviour and not biologically transmitted. It depends on
environment, not heredity. It can be called the man-made part of our environment.
Third, culture may be manifested in the behaviour that is shared by a group of people
or a society. It can be considered as the distinctive way of life of a people. Accordingly,
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a marketing manager of an international firm is supposed to be familiar with the reference Framework of
groups, social class, consumption systems, family structure and decision-making,
adoption and diffusion, market segmentation, and consumer behaviour in order to
understand the cultural environment in the host country.
NOTES
Facets of Culture vis-à-vis International Business
x Technology and material culture
x Language
x Aesthetics
x Education
x Religion
x Perceptions and Attitudes
x Social Values and Life Style (VALS)
x Social organization
x Political life
Culture is an essential dimension of business development. Business solutions should
be tailored to locally relevant traditions and institutions and these activities should
make use of local expertise and knowledge. The international company entering the
host country should ensure that people, their cultures and society, and their organizations
and institutions are taken into account in formulating business goals and operational
strategies. Such development coordination with local culture improves the lives of
people, especially the poor, and builds the social capital for a company to sustain long
in the host country.
Culture contributes to core business development objectives by:
x Providing new opportunities for local communities to share skills and generate
incomes from their own cultural knowledge
x Catalyzing local-level development through communities using their diverse social,
cultural and economic resources
x Conserving and generating revenues from existing assets, that is, reviving city
centres, conserving natural resources and generating sustainable tourism revenues
x Strengthening social capital by providing marginalized groups a basis to pursue
activities that enhance their self respect and efficacy, and to strengthen respect
for diversity and social inclusion
x Diversifying strategies of human development and capacity building for
knowledge-based dynamic societies e.g., through support to local publishing,
library and museum services.
The influx of women and the increasing ethnic and cultural diversity in the workforce
yield exciting challenges and significant opportunities. Included among these is the
need to combine the best of the leadership styles of both men and women for a firm’s
benefit and to identify ways to facilitate contributions from all the employees of the
firm.
An example of a firm attempting to do this is Avon. Four out of the eleven
members of the board are women, and more than 40 per cent of its global managers
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Framework of are women. Some companies now provide training to nurture the leadership potential
among women and ethnic minorities. Changes in organizational structure and
management practices are often required so as to eliminate subtle barriers that may
exist.
NOTES
Learning to manage diversity in the domestic workforce can increase a firm’s
effectiveness in managing a globally diverse workforce, as it acquires more international
operations. This kind of commitments to promote and manage diversity enhances a
company’s performance. Firms must also have a reasonable understanding of the
different cultural and institutional attributes of global markets in which they operate or
hope to operate. For example, a firm operating in South Korea must understand the
value placed on hierarchical order, formality, self-control, and on duty rather than
rights.
Furthermore, Korean ideology places emphasis on communitarianism, a
characteristic of many Asian countries. The Korean approach differs from that of
Japan and China with its focus on Inhwa or harmony. Inhwa is based on respect for
hierarchical relationships and obedience to authority.
Alternatively, the approach in China is focused on Guanxi or personal relationships
and in Japan on Wa or group harmony and social cohesion. The institutional context
of Korea suggests a major emphasis on centralized planning by the government. The
emphasis placed on growth by many South Korean firms is the result of a government
policy to promote economic growth in South Korea.
The cultural and institutional contexts in which firms must operate in global
markets can be critical. For example, in India, there was a nationalist campaign which
led to the closure of a KFC outlet on grounds of health after inspection. However,
executives of several US food companies blamed political posturing related to an
upcoming election as the reason for the closure.
Also, those who opposed the opening of KFC are often those who lobby
against meat eating. KFC was one of the first major fast food giants to open a facility
in India. Furthermore, it has been quite successful in Asia with more than 2,200
restaurants operating in that region. Still, even a firm that has been as successful as
KFC must carefully and thoroughly analyze the institutional and cultural environment
of its global markets.
With the takeover of Hong Kong, China offers potential opportunities but also
threats to a number of firms with domestic headquarters outside its borders. Moreover,
with Hong Kong a part of China, the latter’s growing economic prowess transforms
its firms into potentially significant competitors, particularly in labour-intensive industries.
As a result, firms operating in such industries worldwide must view the development
of Chinese entrepreneurial operations as an environmental threat.
Alternatively, firms that can invest in China may be able to take advantage of the
lowcost labour; and China also offers a huge and growing market for products, as
evidenced by the success of Procter and Gamble’s (P & G) products there. P&G
sells approximately 50 per cent of the shampoo used in China, and its nationwide
distribution system may be best in that country.
P&G owes its success to being an early mover in China, and its aggressiveness
has paid dividends. It has been successful even though its prices are sometimes 300
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per cent higher than those of the local brands. The development of the Chinese economy Framework of
is one that must be analyzed carefully by firms operating in many industries regardless
of their home country.
2. Political Environment NOTES
Government decisions affect many aspects of business. Governmental influence may
seem a macro, and thus remote issue, but it has substantial effects on businesses and
their staff.
Companies seek stability in the political environment and need home and host
governmental approval to manage risk in international markets.
Type of Constitutional System and Government
A starting point is to determine the type of constitutional system and government in the
home and the host country. India, Germany and the US are democratic federal states;
the UK is a constitutional monarchy, but the monarch has little power; France is a
republic and has a parliamentary democracy and Iran is a fundamentalist Islamic republic.
Some nations are dictatorships, and others are police states, but both these forms of
government may change suddenly.
x Government stability
Government stability may come from economic conditions such as debt levels,
unemployment levels, inflation levels, as well as from the popularity of policies or
from the strength of cultural issues—such as separatist movements (e.g. Catalans and
Basques in Spain). In some countries, stability may be directly related to the power
and presence of a leader, such as the king (as in Jordan or Saudi Arabia).
x Government ideology
The government’s political stance whether socialist, liberal, capitalist, democratic or
communist will affect government policies in many different areas. For example, socialist
countries may be attractive markets for suppliers of goods and services to welfare
sectors. Capitalist governments may encourage free competition and access. Even
subtle changes in governments have substantial effects on profitability and trading
conditions for international companies.
x Political parties
The number of political parties and the type of electoral system influences political
stability. Basically, single party systems tend to indicate stability. Countries with the
one party system include Swaziland. Many countries operate a dual party system (for
example the US Democratic and Republican parties); but multiple party systems also
exist (as in India). Multiple party systems often mean coalition governments, which in
turn may result in limited government stability. Typically, elections may be called mid-
term, and policies may change with each government change. Currently, India and
Italy are typical multiple party governments, which have had many short-lived coalition
governments
The political environment is the arena in which organizations and interest groups
compete for attention and resources and the body of laws and regulations guiding
these interactions. Essentially, this segment represents how organizations try to influence Self-Instructional
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Framework of the government and how government entities influence them. Constantly changing, this
environment influences the nature of competition. Because of this, firms must carefully
analyze a new administration’s business-related policies and philosophies. Policies
like fiscal, monetary, commercial, export and import, etc affect the marketing decisions
NOTES at international level. These policies are made by the government and are known as
regulatory policies of the government.
Anti-trust laws, taxation laws, industries chosen for deregulation, labour training
laws, and the degree of commitment to educational institutions are areas where an
administration’s policies can affect the operation and profitability of industries and
individual firms. Deregulation and privatization in the retail industry will force many
firms to restructure their competitive practices. Deregulation of telecom and the power
sector can also save substantial government money. As electric power can be such a
huge operating expense, a large savings in this category could enhance corporate
profitability substantially. Of course, this is the ‘great nightmare’ for utilities with high-
cost, inefficient generating plants. ‘Who will pay the cost of these stranded assets?’
Consumers? Electric utilities? These issues are determined by the interactions occurring
in the political environment.
3. Geographical Environment
Many international companies organize worldwide operations on the basis of
geographically determined regions like South East Asia, East Asia, eastern, central and
western European countries, and Pacific and Caribbean countries. The proximity of
the countries in such regions helps in establishing functional trade blocs, allowing
activities to be monitored and controlled from predetermined locations. All countries
in the Latin American region can be well managed by locating the business headquarters
in Brazil on account of its centralized location and proximity of other countries in the
group, which offers obvious locational advantages in terms of better transport and
communication networking. Regional trade agreements are also made largely on the
basis of the geographic locations of the countries, prime examples being APEC,
ASEAN, NAFTA, CAFTA, MERCOSUR. These organizations possess regional
economic characteristics and lead to common business arrangements.
4. Economic Environment
The economic environment of a country consists of various factors such as economic
conditions, economic policies and economic system. In order to plan a business
strategy, the economic conditions such as nature of economy of the country and the
level of income of the people of the country must also be kept in mind.
India is a developing economy and the level of income of people in the country
is generally very low. The income of the people determines the level of demand for a
product. If the income is low, then the demand for the product will be low; and if the
level of income is high, the demand for the product will obviously be high. Therefore,
in order to increase the purchasing power of the people, organizations have to devise
various strategies so that the demand for a product can be increased. An organization
may reduce the price of a product in order to boost the sales of the product or
otherwise it may develop low-cost products that may be suitable to that level of people
belonging to low-income groups.
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The business of organizations is also greatly affected by the economic policies Framework of
of the government. For example, if the government imposes very high rates of import
duties on imported products, then the importers will find it very difficult to import
goods from foreign countries.
NOTES
Economic factors affecting demand
The various economic factors that affect the demand of a product are:
x Price of the product
x Price of related goods or products
x Consumer’s income
x Consumer’s tastes and preferences
x Consumer’s expectations
x Population of the country
(i) Price of the product
The price of a product is one of the most important determinants of demand. The
price and quantity demanded are inversely related to each other. The demand for a
product decreases when there is a rise in the prices of products and likewise, the
demand for a product increases when there is a reduction in the prices of products.
(ii) Price of related goods or products
The demand for a good is also affected by the change in the price of its related goods.
The related goods may be substitutes or complementary goods. Two goods are said
to be substitutes of each other if a change in price of one good affects the demand for
the other. For instance, goods X and Y are considered as substitutes for each other if
a rise in the price of X increases demand for Y, and vice versa. Tea and coffee,
hamburgers and hot-dog, alcohol and drugs are some examples of substitutes.
A good is said to be a complement for another when it complements the use of
the other or when the two goods are used together in such a way that their demand
changes simultaneously. For example, petrol is a complement to car and scooter,
butter and jam to bread and milk and sugar to tea. Two goods are termed as
complementary to each other if an increase in the price of one causes a decrease in
demand for the other.
(iii) Consumer’s income
Consumer’s income is the basic determinant of the demand for a product since it
determines the purchasing power of a consumer. Therefore, people with higher income
spend a larger amount on goods and services than those with lower income.
(iv) Consumer’s tastes and preferences
Consumer’s taste and preference play an important role in determining demand for a
product. Taste and preference depend on the changing lifestyle, social customs, religious
values, habits of the people, the general levels of living of the society and age and sex
of the consumers. Any change in these factors changes consumer’s taste and
preferences. As a result, consumers reduce or give up the consumption of some
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Framework of goods and add new ones to their consumption pattern. For example, following the
change in fashion, people switch their consumption pattern from cheaper, old-fashioned
goods to costlier goods.
NOTES (v) Consumer’s expectations

Consumers’ expectations regarding the future prices, income and supply position of
goods play an important role in determining the demand for goods and services in the
short run. If consumers expect a rise in the price of goods, they would buy more of it
at its current price with a view to avoid the possibility of price rise in future. On the
contrary, if consumers expect a fall in the price of certain goods, they postpone their
purchase with a view to take advantage of lower prices in future. This behaviour of
consumers reduces the current demand for goods whose prices are expected to
decrease in future. Similarly, an expected increase in income increases the demand for
a product. For example, announcement of dearness allowance, bonus and revision of
pay scale induces an increase in current purchases.
(vi) Population of the country
The total demand for goods of mass consumption depends also on the size of the
population. Therefore, the larger the population, the larger will be the demand for a
product. On the other hand, if the size of the population is small or moderate, the
demand for the product will obviously be low.
5. Legal Environment
The legal environment comprising local laws, civil and criminal laws and trade regulations
also influences the operations of a foreign firm. It is important for a foreign firm to
know the regulatory provisions in each market; as such legal environment constitutes
the ‘rules of the game’. At the same time, the firm must know the political environment
because it determines how the laws are enforced and indicates the direction of new
legislation. Thus the legal environment of international marketing has a dyadic relationship
with political and regulatory systems in a country. Accordingly, it is necessary for an
international firm to acquaint itself with host country laws, international law, and domestic
laws in each of the firm’s foreign markets. Multinational enterprise in its global exercise
must cope with widely differing laws. The legal barriers in most of the countries
include antidumping laws, tariff structures, horizontal price fixing among competitors,
market division by agreement among competitors, and price discrimination. Hence,
international firms should also understand the arbitration procedures as an alternative
to legal recourse. Traditionally, two types of legal systems may be distinguished: common
law and code law. Common law is based on precedents and practices established in
the past and interpreted over time. Common law was first developed in England, and
most of the commonwealth countries follow this system. Code law is based on detailed
rules for all eventualities. Code law was developed by the Roman empires and is
popularly practiced by a number of free world countries such as Italy, France, Germany,
Mexico and Switzerland. The distinction between common law and code law may be
best illustrated with an example in context to the right to proprietary issues such as
trademarks. A country exercising common law would largely depend on the
chronological use of the property. Under common law, the judicial decision would go
in favour of the party actually using the trademark on its package and in its advertising
campaign, despite not having formally registered the trademark. On the contrary,
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according to code law, the right of property would rest with the party which has Framework of
actually registered the trademark.
Business firms may encounter major problems when a country respects more
than one legal system and generates conflicting values. If a business contract contains
NOTES
a clause specifying the jurisdiction, stipulating which country’s legal system should be
used to settle disputes, the matter can be settled accordingly. However, in absence of
any such a provision, disputes cannot be settled choosing a legal system of any country
in particular. An example could be that of an accidental leak of the poisonous gas
methyl isocyanate that occurred in a chemical plant at Bhopal (India) belonging to
Union Carbide, a company of United States of America, causing over 2,000 casualties
in 1984. In this situation, the Indian government would have preferred to settle the
issue of compensation to the survivors in the US court of law than in Indian courts as
the decision in Indian courts would consume more time. On the other hand, the American
judiciary is considered to be liberal in awarding such strictures on humanitarian grounds.
Simultaneously, the Union Carbide management might have preferred to get the issue
settled in the Indian courts in its own economic interest. However, it took over a
decade to settle the compensation issues to the survivors of the Bhopal tragedy. An
out-of-court compromise was worked out between the Government of India and the
company.
Tariff Barriers
Host country laws affect the business operations of a foreign firm. Such regulations
may adversely affect the entry of a firm into the host country and may appear in many
forms, including tariff, anti-dumping laws, export/import licensing, investment
regulations, legal incentives and restrictive trading laws. A tariff may be defined as
government levies on exports and imports. The tax on exports may be determined as
export duty while the tax on imports is known as import duty or customs duty. The
objective for a country of imposing an export duty is to discourage selling overseas so
as to maintain adequate supply at home. Heavy import duty is levied in order to
protect home industry from penetration by cheap imports, to gain a source of revenue
for the government, and to prevent the dilution of foreign exchange balances.
Reasons to impose tariff barriers
x Control the outflow of national money
x Protect home market products and services
x Equalize the cost of production
x Discourage low cost imports that affect market stability and quality of goods
and services in the home market
x Ensure better home products and services with available technology and
manpower
x Protect wages and employment
x Implement anti-dumping measures
x Bargaining and retaliation on tariff
x Protecting the infant industry and national security in the home country
x Seeking adjustments in terms of trade and fiscal deficits through optimal tax
levies
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Framework of The main important tariff barriers are as follows:
1. Specific Duty: Specific duty is based on the physical characteristics of goods.
When a fixed sum of money, keeping in view the weight or measurement of a
commodity, is levied as tariff, it is known as specific duty.
NOTES
2. Ad valorem Duty: These duties are imposed according to value. When a fixed
percent of value of a commodity is added as a tariff it is known as ad valorem
duty.
3. Combined or Compound Duty: It is a combination of the specific duty and
ad valorem duty on a single product.
4. Sliding Scale Duty: The import duties which vary with the prices of commodities
are called sliding scale duties.
5. Countervailing Duty: It is imposed on certain imports where products are
subsidized by exporting governments.
6. Revenue Tariff: A tariff which is designed to provide revenue to the home
government is called revenue tariff.
7. Anti-dumping Duty: At times, exporters attempt to capture foreign markets by
selling goods at rock-bottom prices, such practice is called dumping.
8. Protective Tariff: In order to protect domestic industries from stiff competition
of imported goods, protective tariff is levied on imports.
Tariffs can be also levied on the basis of international relations. This includes single
column duty, double column duty and triple column duty.
A country may have a single tariff system for all goods from all sources, which
may be termed as unilinear or single column tariff. Another category of tariff may be
described as general-conventional tariff, which applies to all the countries in general
except the nations that have signed special tax treaties with a particular country or a
group of countries. A tariff that is determined on the basis of a tax permit may be
classified as special duty and a fixed percentage of the value of invoices may be levied
as ad valorem duty. It may sometimes happen that both special and ad valorem duties
are levied in a country as a combined duty. The ways to control the penetration of
foreign goods and services into the home country without imposing the financial
compensation or taxes may be categorized as non-tariff barriers. Such non-tariff barriers
include quotas, import equalization taxes, road taxes, laws giving preferential treatment
to domestic suppliers, administration of anti-dumping measures, exchange controls,
and a variety of invisible tariffs that impede trade. These measures are comprehensively
discussed as:
x Specific limitations on trade comprising quotas, licensing, proportionate
restrictions on foreign goods to domestic goods, minimum price limitations on
imported goods, and embargos that ban the import of specific products from
restricted countries.
x Customs and entry procedures include valuation of imports, anti-dumping
measures, tariff classifications of imported goods, imposing complex and lengthy
documentation procedure involving bureaucratic requirements, comprehensive
service by service fee structure.
x Standards include undue discrimination towards health, sanitation, hygiene, safety,
and imposing higher standards on imported goods than on domestic products.
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Also applying packaging, labelling, and marketing standards of the country to Framework of
imported goods in an excessively stringent and discriminatory way.
Besides the above non-tariff barriers, a country may directly intervene in trade
activities with the objective of comprehensively discouraging imports as well as
participation of foreign firms in the home country, in any manner. Under such measures, NOTES
the government involves itself indirectly in trade activities through procurement policies
favouring the products of the home country over the products of other countries. The
government may also impose export subsidies in terms of tax incentives to the domestic
firms and levying countervailing duties that may be described as taxes designed to
protect domestic products from low-priced imported products that had been given
export subsidy by the exporting country’s government. A country may also proceed
to levy various types of other charges on imports to make them less competitive
against domestic goods. Such non-tariff measures include prior import deposit
requirement, administrative fee, supplementary duties and other variable levies.
1.5 SUMMING UP
x International marketing includes the marketing activities or transactions that are
carried out beyond the national borders of a country.
x International business can occur in different modes, which can be exporting,
licensing, contract manufacturing, foreign assembly, foreign production, joint
venturing and others.
x The term ‘international business’ not only refers to international business
transactions of goods and services but also Foreign Direct Investments (FDIs).
x In international marketing, it is imperative to create a relationship that holds
value for customers and for the organization.
x At its simplest level, international marketing involves the firm making one or
more marketing mix decisions across national boundaries. At its most complex
level, it involves the firm establishing manufacturing facilities overseas and
coordinating marketing strategies across the globe.
x Controlling factors are often called as marketing mix. We remember these factors
as the 4 P’s of marketing. Marketing mix is a particular combination of product,
its price, the methods to promote it, and the ways to make the product available
to the customer.
x Government decisions affect many aspects of business. Governmental influence Check Your Progress
may seem a macro, and thus remote issue, but it has substantial effects on
4. What does the
businesses and their staff. Korean concept of
x Many international companies organize worldwide operations on the basis of Inhwa mean?
geographically determined regions like South East Asia, East Asia, eastern, central 5. How are regional
and western European countries, and Pacific and Caribbean countries. trade agreements
made?
x The proximity of the countries in such regions helps in establishing functional 6. How can
trade blocs, allowing activities to be monitored and controlled from predetermined consumer’s income
locations. be seen as the basic
determinant of the
x The economic environment of a country consists of various factors such as demand for a
economic conditions, economic policies and economic system. In order to product?
plan a business strategy, the economic conditions such as nature of economy
Self-Instructional
Material 19
Framework of of the country and the level of income of the people of the country must also be
kept in mind.
x The legal environment comprising local laws, civil and criminal laws and trade
regulations also influences the operations of a foreign firm. It is important for a
NOTES foreign firm to know the regulatory provisions in each market.
x Host country laws affect the business operations of a foreign firm. Such
regulations may adversely affect the entry of a firm into the host country and
may appear in many forms, including tariff, anti-dumping laws, export/import
licensing, investment regulations, legal incentives and restrictive trading laws.
1.6 KEY TERMS

x Common law: Common law is based on precedents and practices established
in the past and interpreted over time.
x Code law: Code law is based on detailed rules for all eventualities.
x Countervailing duty: It is an import tax imposed on certain goods in order to
prevent dumping or counter export subsidies.
1.7 ANSWERS TO ‘CHECK YOUR PROGRESS’

1. International business can occur in different modes, which can be exporting,
licensing, contract manufacturing, foreign assembly, foreign production, joint
venturing and others.
2. The controllable factors of international marketing are: product, price, promotion
and place.
3. The term FDI consists of a parent firm and a foreign partner that combine to
form a transnational corporation.
4. The Koran concept of Inhwa is based on respect for hierarchical relationships
and obedience to authority.
5. Regional trade agreements are made largely on the basis of the geographic
locations of the countries, prime examples being APEC, ASEAN, NAFTA,
CAFTA, MERCOSUR.
6. Consumer’s income is the basic determinant of the demand for a product since
it determines the purchasing power of a consumer. Therefore, people with higher
income spend a larger amount on goods and services than those with lower
income.
1.8 QUESTIONS AND EXERCISES
Short-Answer Questions
1. What approach do the marketers use in decision-making?
2. What is the importance of CRM in international marketing?
3. What are the logistics and risks of international marketing?
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Long-Answer Questions Framework of
1. Discuss the factors affecting international marketing.
2. ‘Controlling factors are also called ‘the 4 P’s of marketing’. Elaborate.
3. Discuss the factors that affect the marketing environment? NOTES
1.9 REFERENCES AND SUGGESTED READINGS

Onkvisit, Sak and Shaw, JJ. 1995. International Marketing: Analysis and Strategy.
New Delhi: Prentice Hall of India.
Bhattacharya, B. 1991. Export Marketing: Strategies for Success. New Delhi: Global
Business Press.
Keegan, Warren. 1995. Global Marketing Management. New Jersey: Prentice Hall
Inc.
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Market Strategies and
UNIT 2 MARKET STRATEGIES AND Export Finance
EXPORT FINANCE
NOTES
Structure
2.0 Introduction
2.1 Objectives
2.2 Market Selection
2.3 Entry Strategies of MNCs
2.4 Free Trade Zones
2.5 Export Finance
2.5.1 EXIM Bank
2.6 IDBI
2.7 Services of Export Credit Guarantee Corporation (ECGC)
2.7.1 Export Credit Insurance Covered by ECGC
2.8 Summing Up
2.9 Key Terms
2.0 INTRODUCTION
Effective marketing starts with a considered, well-informed marketing strategy. A good
marketing strategy helps you define your vision, mission and business goals, and
outlines the steps you need to take to achieve these goals. Arranging adequate export
finance is also an integral part of marketing. Unless there is enough finance, marketing
cannot be conducted.
This unit will help you understand the role of market strategies in international
marketing. It also introduces the various finance institutions and their functions in
brief. Market agreements in force-free trade zones are also discussed in detail.
2.1 OBJECTIVES
x Analyse the steps involved in market profiling and market segment selection
x Describe the market entry strategies of MNCs
x Identify the market agreements on force free trade zones
x Explain the functions of EXIM bank and IDBI
x Recognize the importance of ECGC and export credit insurance
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Export Finance 2.2 MARKET SELECTION
Selecting the right market is an important step in expanding international business to
NOTES ensure business success. Determining foreign marketing strategies, proper market
profiling and market segment selection are some of the primary concerns.
Customer-centric organizations create a culture that exudes care and concern for the
customer. Such organizations manage a pool of information about their customers to
enable them to serve customers better than their competitors. The information is shared
with every employee in the organization so that at every point of interaction with the
company, the customer feels fulfilled.
Fig. 2.1 Profile of Customer-Centric Organizations
x Shared values and beliefs are necessary prerequisites for successful

marketing orientation: Every employee in every department believes that
business goals can be achieved only through heightened awareness of customer
needs and a tireless zeal to serve those needs. Customer orientation cannot be
drilled in employees overnight. Fables extolling customer care have to be created
and circulated. Top executives have to repeatedly demonstrate concern for
customers in their strategic and operating decisions and their own behaviour.
People should feel proud and good about themselves that they go out of their
way to serve customers. This can be a problem for long established companies
that did not put the customer first. Such companies have to be patient. They
should not expect their employees to change overnight from ignoring customers
to serving them.
x Companies develop skills in understanding and responding to customers:
Getting across to and keeping close to customers is important. Every employee,
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especially the top management should spend as much time as possible with Market Strategies and
Export Finance
customers. Normally frontline employees, like salespersons, are in touch with
customers. They are in the best position to decide what is best for customers. A
company can empower frontline staff to take appropriate decisions in favour of
customers. But even when frontline employees are empowered, the best they NOTES
can do is to serve customers better on a case-to-case basis. But most customer
problems are related to company practices and systems. Frontline employees
do send feedback but they are diluted by the time they reach decision makers.
Moreover, these employees cannot effectively transfer the anguish and
frustrations that customers express over company’s products, policies and
practices. When decision makers stay in frequent contact with customers, they
are able to experience the frustrations and anguish of customers first-hand.
They can quickly take decisions to amend matters.
x Market intelligence is important to understand customers: Market
orientation demands organization-wide market intelligence activities pertaining
to current and future customer needs. The facts collected by market intelligence
should be disseminated across departments. And there should be organization-
wide responsiveness to such facts, especially if they are disturbing. Market
intelligence studies customer requirements and choice criteria, and then goes on
to analyse the factors that affect those requirements and choice criteria. It then
keeps a track of these factors, because as soon as one of these factors changes,
customer requirements and choice criteria are likely to change too. And since
these factors are embedded in the economic, demographic, social and political
environment of the customer, market intelligence cannot be done by the marketing
department alone.
All employees have to be entrusted with the task of market intelligence, and
those employees who have active contact with the outside world have a special
responsibility to bring the world to the company. It is always a good idea to
have a team of scientists, sociologists, technologists, anthropologists, political
scientists and marketers who come together periodically to discuss how the
changes in the world outside the company are going to impact it.
x Information about customers is disseminated throughout the company
by formal and informal means: The company lets everyone know what it
knows about its customers. It uses all known means of communication to disperse
knowledge of customers’ needs and aspirations among all employees of the
company. For example, a company developed and circulated a newsletter to
facilitate the spread of information. Another company’s manager disseminates
information by storytelling.
x Companies use its knowledge of customers to serve them better: It selects
target markets and designs and produces, prices as well as distributes products
based on what it has learnt about customers.
x A desire to serve the needs of the customers is sbetter than competition:
The reality of the marketplace should be aligned with assets and distinctive
competencies of the company. When looking to enter new markets, companies
should be aware of their inherent strengths and weaknesses, and requirements
of the new market.
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Market Strategies and x Organizational structure must reflect marketing strategy: As markets
Export Finance
change, marketing strategy changes, and the structure and systems may require
modifications to implement strategy. It will be futile to implement a new strategy
reflecting greater customer concern with the old organizational structure. The
NOTES vested interests of the old structure will thwart the initiative.
x Implementation of the marketing strategy requires clear communication:
This has to be practiced so that it is not undermined by those who deal with the
customer first hand (for instance, price concession given by salesperson for a
premium product). It is important that the frontline employees fully understand
the new concept. But such commitment can neither be built by force nor by
inducements. Heightened awareness to customer needs and pride in serving
them can be generated in employees only gradually by letting them observe and
know about other employees doing it.
x In a customer-centric organization, all the departments are tuned to
sensing and serving customer desires: From the customer’s point of view, a
product is nothing more than a tangible means for getting a service performed.
Products derive meaning and value only from the uses to which customers put
them. The product should be a company’s most important tool to woo
customers. In a customer-centric business environment, industries should be
defined by consumption or use similarities rather than by methods of production.
Every business now is a fashion business. Companies must innovate in shorter
cycles. To attract new customers and to retain the old ones, companies must design
new and better products based on new technologies. To be customer-oriented,
companies should worry about what they do not see yet. A company should worry
about unfamiliar companies outside the industry possessing a technological capability
that could be a threat if they started serving the same market in a new and better way.
Companies need a long-term view of how R&D can serve latent demand even if the
technology itself is not clearly defined. Hollywood acquisitions by Sony, is a futuristic
move aimed to fuse audio and video hardware and software with the artistry of the
entertainment industry. Most new products will be made by combining technologies
which have got nothing to do with each other now.
Most companies are content with asking customers their opinions about products
that already exist but real market-oriented companies will allow customers to set priorities
for design. Market-oriented companies let customer desires drive the R&D agenda.
The customer has to lead the innovation process. Instead of pushing their own
technologies, market-oriented companies start with a product concept based on
customer feedback. Then they blend technologies from previously separate fields to
create new products.
The way a company organizes its functions, defines jobs and controls the system
may detract from serving the customer. From company’s point of view, uniformity
and standardization are easiest to manage but in the process, they deny customers the
power to demand variety and customization. Quality programmes should be focused
on serving customer requirements in the best possible manner
Market segmentation is one of the prerequisites for planning marketing activities for
any product. Segmenting, targeting and positioning (STP) are the three basic components
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of strategic marketing in modern times. Segmentation of market is a process of identifying Market Strategies and
Export Finance
the agglomeration of buyers, their wants, purchasing power, geographical locations,
their buying attitudes and behaviour, to facilitate the targeting and positioning of the
products. It is essential to identify the segmentation variables and developing profiles
of the resulting segmentation for making decisions and also for marketing planning. NOTES
Broadly, it can be stated that the market segments are the large groups within the
market while a niche is a more narrowly defined group seeking for additional marketing
benefits. The territorial segmentation is done in terms of region-like countries, continents
or sub-continent and the habitat identification is made as villages, towns, cities and
metros spread geographically according to the size of the population. In the
demographic category of segmentation the density of population, composition of
population, family size, occupational distribution, level of education and population
categories in terms of religion and other sects is considered. The psychographic variables
of market segmentation consist of nationality of the consumers, their race whether
black, white, Aryans, Dravidians or Buddhists. The social class of the consumers viz.
forward, backward or aboriginal class, is also used as a variable of market segmentation.
Besides the above variables, the lifestyles of consumers and their personalities
also provide ample information for segmenting consumer markets. In the behavioural
variable category, apart from other variables, personal preferences have a substantial
impact when it comes to identifying the consumer segments for the products. Personal
preference can be categorized in the following three patterns:
x Homogeneous preferences for products or brands
x Diffused preferences showing greater variations for the brands across the regions
x Clustered preferences indicating localized preferences of consumers for the
brands available
Conducting exploratory interviews and focus group analysis – in order to gain
insights into consumer motivation, attitudes and behaviour – is another way of collecting
information on the above-listed variable for purposes of market segmentation. The
data may be collected through the structured questionnaires broadly covering the
issues related to consumer behaviour, brand awareness and brand rating, product
usage patterns, product-mix behaviour, demographic and psychographic variables.
The factor analysis may be applied to the data collected to find out highly correlated
variables and through the cluster analysis, specified numbers of different segments
can be identified. The market segmentation procedure must be applied periodically, as
consumer segments keep changing due to external influences and personal preferences.
The procedure for segmenting industrial markets is different from that used for
consumer markets. However, the selected industrial market can be further segmented
in terms of consumer goods. The major variables that need to be considered for the
segmentation of industrial markets are listed in Table 2.1. The type of the industry, its
size and location constitutes the physical variables required for segmenting the industrial
markets. The type of existing technology in use, future prospects, production
capabilities, the target group of customers for the products of the industry and the
policy of transportation, warehousing and inventory may be the operational variables
used in determining the industrial marketing segments.
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Market Strategies and Table 2.1 Bases and Variables for Segmenting Global Markets
Export Finance
Physical Operational Purchase Situational Personal
Type of industry Technology Purchase policy Immediate need Risk factor

NOTES Size of industry Status of Lobby status Specific order Brand loyalty
Location production Continuing Size of order Marginal
Customer target relationship Legal binding difference in
Logistics policy with supplier New markets the product
Purchasing Substitute or
criteria complementary
products need
Above all, the risk factor in penetrating into such market segment, involving the
factor of brand loyalty among users, is also an important variable when it comes to
decision-making for segmenting the market for industrial customers. In a given
operational area for the company, the market for consumer goods and services can be
segmented in five different forms as given below.
x One product in one market: micro consumer segmentation
x Different products in different markets: diffused segmentation
x All products in one market: specialized market segmentation
x One product in all the markets: product specialized market segmentation
x All products in all markets: absolute market segmentation or total coverage
The companies that are proposing for the global expansion may utilize these
steps of segmentation determining the criteria for classifying the countries for its product
and services, particularly those countries or regions that show high market potential.
Multinationals typically optimize their operations on a global level by standardizing
product characteristics, administrative practices, and even pricing, all of which can
hamper their flexibility. Products designed for affluent consumers often aren’t profitable
at prices low enough to attract many buyers in emerging markets. The targeting and
product positioning activities for effective planning and implementation of marketing
plans should follow marketing segmentation.
Reasons for Market Segmentation
There are many good reasons for dividing a market into smaller segments. Accurate
market segmentation helps a multinational company to perform better in its marketing
activities. It is easier to address the needs of smaller groups of customers, particularly
if they have many characteristics in common (e.g., seeking the same benefits, same
age, gender, etc.). Companies may discover marketing niches for products and services
by segmenting the markets according to buyer preferences, product attributes, non-
price variables, technology, etc.
Box 2.1
Shanghai Jahwa, China’s oldest cosmetics company, has thrived by astutely exploiting
its local orientation – especially its familiarity with the distinct tastes of Chinese
consumers. Because standards of beauty vary so much across cultures, the pressure to
globalize the cosmetics industry is weak. Nevertheless, as in other such industries, a
sizeable market segment is attracted to global brands. Young people in China, for
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example, are currently fascinated by all things Western. Instead of trying to fight for Market Strategies and
this segment, Jahwa concentrates on the large group of consumers who remain loyal Export Finance
to traditional products. The company has developed low-cost, mass-market brands
positioned around beliefs about traditional ingredients. Many Chinese consumers,
for instance, believe that human organs such as the heart and the liver are internal
NOTES
spirits that determine the health of the body. Liushen, or ‘six spirits,’ is the name of a
traditional remedy for prickly heat and other summer ailments, and it’s made from a
combination of pearl powder and musk. Drawing on this custom, Jahwa launched a
Liushen brand of eau de toilette and packaged it for summer use. The brand rapidly
gained 60 per cent of the market and has since been extended to a shower cream, also
targeted at the Liushen user. Unilever and other multinational companies lack this
familiarity with local tastes; they have found their products appeal mainly to fashion-
conscious city dwellers. Jahwa’s strategy has allowed it to weather the initial opening
of China’s markets – a period when multinational companies often appear irresistible
to consumers and local competitors alike.
Using ‘niche marketing’, segmentation can allow a new company or new product
to target less contested buyers and help a mature product seek new buyers. The
companies may make more efficient use of marketing resources by focusing on the
best segments for offering – product, price, promotion, and place (distribution).
Segmentation helps in various ways to avoid sending the wrong message, or sending
one’s message to the wrong people. The functional steps to be considered by
multinational companies to determine the segmentation criteria are:
x A market taxonomy for classifying the world markets should be developed by
the companies in reference to the SLEPT considerations in the host country.
x The countries to be clustered into homogeneous groups having common
characteristics with reference to the dimensions of the market taxonomy.
x Most efficient method of serving each group should then be determined
methodologically.
x The group in which the marketer’s own perspective (its product/service,
strengths) is in line with the requirements of the group may further be chosen.
This ideal classification has to be adjusted to the constraints of the real world
(existing commitments, legal and political restrictions, practicality, etc.). Market
segmentation should be considered any time when there are significant, measurable
differences in the selected market. Marketing opportunities increase when customer
groups with varying needs and wants are recognized. Markets can be segmented or
targeted on a variety of factors including age, gender, location, geographic factors,
demographic characteristics, family lifecycle, desire for relaxation or time pressures.
Segments or target markets should be accessible to the business and should be large
enough to provide a solid customer base. A business must analyze the needs and
wants of different market segments before determining its niche. Market segmentation
is dividing a larger market into sub-markets based upon different needs or product
preferences.
Table 2.2 exhibits the corporate strategy to implement the segmentation process.
A key factor in competitive success is focusing on little differences that give a marketing
edge and are important to customers. Market segmentation matches consumer
differences with potential or actual buying behaviour. It may prove more profitable to
develop smaller market segments into a target segment. Primary market research is
used to collect classification and descriptor variables for members of the target market.
Segments are not defined until after collection and analysis of all relevant information.
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Market Strategies and Multi-variate analytical techniques are used to define each segment and develop a
Export Finance
scoring algorithm for placing all members of the target market into segments. The
classification variables are used to classify survey respondents into market segments.
Almost any demographic, geographic, psychographic or behavioural variable can be
NOTES used to classify people into segments. Age, gender, income, ethnicity, marital status,
education, occupation, household size, length of residence, type of residence, etc.,
constitute the demographic variables used for segmenting the market. The territorial
determinants comprise city, state, pin code, census tract, district, region, metropolitan
or rural location, population density, climate, etc. The psychographic variables include
attitudes, lifestyle, hobbies, risk aversion, personality traits, leadership traits, magazines
read, television programmes watched, and the brand loyalty. Reaction to marketing
factors may be defined as behavioural variables that influence the market segmentation
process by the multinational companies. The descriptors are used to describe each
segment and distinguish one group from the others. Descriptor variables must be
easily obtainable measures or linkable to easily obtainable measures that exist in or can
be appended to customer files.
Table 2.2 Constituents of Market Segmentation Process
Constituents Attributes of Market Segmentation

Large size Market must be large enough to warrant segmenting. Don’t try to
split a market that is already very small.
Differences Differences must exist between members of the market and these
differences must be measurable through traditional data collection
approaches (i.e. surveys).
Responsive Once the market is segmented, you must be able to design marketing
communications that address the needs of the desired segments.
If you can’t develop promotions and advertising that speak to each
segment, there is little value in knowing that those segments exist.
Accessibility Each segment must be reachable through one or more media. You
must be able to get your message in front of the right market
segments for it to be effective. If one-eyed, green aliens are your
best marketing opportunity, make certain there is a magazine, cable
programme or some other medium that targets these people (or
be prepared to create one).
Multiple Benefits Segments must not only differ on demographic and psychographic
characteristics, they must also differ on the benefits sought from
the product. If everyone ultimately wants the same things from
your product, there is no reason to segment buyers. However, this
is seldom the case. Even commodities like sugar and paper plates
can benefit from segmentation.
Profitability The expected profits from expanding your markets and more
effectively reaching buyer segments must exceed the costs of
developing multiple marketing programmes, re-designing existing
products and/or creating new products to reach those segments.
Box 2.2
Cadbury Ireland Ltd. has been in existence since 1932. It is the leading
confectionery manufacturer in Ireland with over 50 per cent of the chocolate market.
Cadbury Ireland employs almost 1,600 people of which almost 300 are employed
directly in the manufacture of TimeOut. Cadbury has invested over £20 million in
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the production plant and technology for this purpose in its Coolock plant in Dublin. Market Strategies and
Cadbury takes into account all these factors when producing a range of products. It Export Finance
targets different segments within the market, such as:
x Break segment: These are products which are normally consumed as a snatched break
and often with tea or coffee, for example Cadbury’s TimeOut and Snack range. NOTES
x Impulse segment: These products are most often purchased on impulse, being eaten
there and then. They include products such as Cadbury’s Twirl, Moro, Starbar,
Crunchie, Fuse and Dairymilk.
x Take-home segment: This describes products that are normally purchased in
supermarkets, taken home and consumed at a later stage.
x Gift segment: These are boxes of chocolates and other products purchased for gift
occasions.
More than £110 million worth of Cadbury’s chocolate produced in Ireland, is exported
every year, bringing Ireland valuable earnings from abroad. Cadbury’s Ireland has had many
export successes and has made a spectacular transition from being a small-scale
manufacturer for a protected home market to a substantial producer of brands consumed
around the world today.
A conceptual scheme for analyzing economic environment may be drafted and

implemented by the firm in order to evaluate existing and potential marketing
opportunities in the host country. The conceptual scheme requires consideration of
some of the following variables:
Financial Variables
x Capital acquisition
x Interest rates for commercial borrowings
x Payback tenure
x Cash inflow by period
x Cash outflow by period
x Returns on capital employed
x Exchange rate fluctuations
x Repatriation of funds status
x Projected investments linked to productivity
x Functional cost indicators in the business
Marketing Variables
x Market size and potential
x Distribution and logistics
x Competition mapping
x Promotional costs
x Socio-cultural and community factors
Product-market Engineering Variables
x Availability of raw material for building infrastructure
x Raw material for manufacturing
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Market Strategies and x Physical and environmental factors
Export Finance
x Accessibility factors
x Local management factors
NOTES x Availability of labour (skilled/unskilled)
x Quality control and standardization
x Regional economic infrastructure
x Services management indicators
Economic and Political Variables
x Foreign investment policy of the host government
x Capital flow controls
x Inflation status
x Tax regulations
x Internal political stability
x International relations of host country
x Political ideology
x Civil/Labour unrest in the host country
Social and Legal Variables
x Education, religion and social behaviour of the people
x Demography and household status
x Community and culture
x Ownership restrictions
x Import/Export regulations
x Acquisition of immobile assets
Many of the classification variables can be considered as descriptor variables. However,
only small portions of those classification/descriptor variables are readily available
from secondary sources. The trick is to identify descriptor variables that effectively
segment the market in the primary research effort, which are also available or can be
appended to individual customer records in customer databases. This allows the marketer
Check Your Progress to execute the market segmentation scheme developed in the primary research effort
1. On what basis are by applying it to existing customer and market information. Decision Support System
markets utilizes a number of proprietary procedures to achieve this important linkage. One way
segmented? to segment markets is by examining the product or service benefit sought by the
2. What are customer. What benefits are customers seeking? Quality? Low price? Convenience?
psychographic
variables? Multinational companies must identify the benefits that customers want and create the
3. What are the three
product or service to meet the need. Sometimes it is difficult to accurately estimate the
basic components size of the customer group. Some customers are interested in two or three benefits,
of strategic not just a single one. Knowing customers needs and wants is basic to successful
marketing?
marketing. Markets can be divided by customer use of products or services, such as:
4. What are the three
patterns of personal
non-users, ex-users, potential users, first-time users and regular users of a product.
preference? Other markets may be segmented by usage rate. Each target group requires a separate
marketing plan. One marketing effort will probably not cover all the bases. Potential
users and regular users require different types of marketing efforts.
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2.3 ENTRY STRATEGIES OF MNCs Export Finance
A firm, which would like to involve itself in international business, may look for its
entry into the international market in several possible ways including: NOTES
x Exporting
x Licensing
x Franchising
x As a production firm with multinational plant locations
x Joint ventures
x Strategic alliances
x Wholly-owned subsidiaries
1. Exporting
A firm may organize indirect export through the intermediaries or export agents of the
parent country. On the contrary, in direct exporting, foreign markets are reached by
exporters through agents located outside their parent markets. Exporting is a low-risk,
low-investment strategy wherein 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.
Exporting activity requires small capital for a quick start. Exporting is also a good way
to gain international experience. A major part of the overseas involvement of large
firms is through export trade managed by the various channels involved in the process.
The channels involved in direct and indirect exporting are listed in Table 2.3.
Table 2.3 Export Channels
Indirect Exporting Direct Exporting

Broker Representative
Manufacturer’s Export Agent Merchant Middlemen
Combination Export Manager Company Sales Manager
Group Export Forum Own Distribution Network
Domestic Middlemen
Company-based Managers
Indirect exporting
Some companies, which occasionally carry out export activities, use the services of
the broker. Brokers are the middlemen who bring buyers and sellers in contact for a
negotiated commission or by charging a brokerage fee. They are just the trade facilitators
and do not take the ownership of the product. These brokers operate in international
markets independently and do not belong to any firm.
The manufacturer’s export agent (MEA) may be an exclusive agent engaged by
the firm to offer services as desired by the firm. MEAs are vested with the right to take
marketing decisions on behalf of the firm, arrange negotiations and trade agreements
and the delivery of the consignment to the buyer.
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Market Strategies and The Combination Export Manager (CEM) provides services over and above
Export Finance
the broker and the MEA by way of taking over the entire export operations of a firm on
a commission basis. The export operations involve a variety of activities like identifying
the country, markets, analyzing consumer behaviour, product designing, technological
NOTES improvements, competitive pricing, distribution, promotion, negotiations with the
governments of countries, public relations and collecting marketing information.
Group export forums are associations of exporters who collectively manage
exporting activities. These forums are recognized by the government of the parent
country and provide admissible concessions on export activities like licensing, taxes
and duties infrastructure.
Middlemen who have a base in the parent country of the exporting firm also
function as one of the channels for indirect exports.
Company-based managers are the salaried personnel of the exporting firm and
possess the responsibility of total export management.
Direct exporting
Direct exporting activities are where the firm appoints its own export representatives
for conducting the export operations in the concerned markets or countries.
The merchant middlemen are a type of intermediaries based in foreign markets.
They buy products on their own and resell them to the identified countries functioning
with sales managers. They may also take up export activities without involving any
indirect channel. Such offices may also be networked as an effective distribution
channel for a region in order to cater to the identified countries.
Documentation
Firms opting to enter international markets through exporting activities may choose to
engage the goods listed under open general license which does not involve a heavy
documentation process. However, the goods that are not controlled, regulated or
prohibited by other government departments need to be reported to customs prior to
export by means of export declaration. On the contrary, regardless of their value,
export of all goods that are controlled, regulated, or prohibited need to be supported
by valid permits, licenses, or certificates required by the government departments or
agencies that regulate the export of these goods.
Direct exporting is independent exporting
A firm also opts for direct exporting as a platform to enter into the destination country.
This approach is the most ambitious and difficult as the exporting firm handles every
aspect of the exporting process independently, from market research and planning to
foreign distribution and collections. Consequently, a significant commitment of
management time and attention is required to achieve good results. However, this
approach may lead to maximum profits, higher control and long-term growth.
2. Licensing
This is one of the common tools of franchising a firm to set quality and operational
control standards. It is, therefore, a contractual agreement too. In the past, multinational
companies used licensing for many reasons. One of the major reasons could have
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been to use the trade mark of the company. Licensing may be understood as one of Market Strategies and
Export Finance
the varieties of contractual agreements whereby a multinational firm makes available
intangible assets such as patents, trade secrets, know-how, trademarks, and the company
name to foreign companies in return for royalties or other forms of payment. Transfer
of these assets is usually accompanied by technical services to ensure their proper NOTES
use. It also helps in regulating the import and export operations of firms in such
countries or regions where trade restrictions prohibit the movement of products.
Advantages of licensing
x Licensing is a quick and easy entry tool with little capital investment in the
foreign markets.
x Some countries offer licensing as the only means of tapping the market.
x Licensing is also considered to be an effective tool for life extension of products
during their stage of maturity in order of their life cycle.
x Licensing is a good alternative to start foreign production and marketing activity
in a destination country which has economic inflation, shortages of skilled-
labour, increasing domestic and foreign governmental regulation and restrictions,
and severe international competition.
x Under the licensing arrangement periodic royalties are guaranteed, whereas shared
income from investment fluctuates and remains risky.
x The company which has a strong domestic base can benefit through a licensing
arrangement to develop customized products without expensive research.
x Licensing provides an alternative when exports are no longer profitable because
of intense competition.
x Licensing can reduce transportation costs and help promote exports in non-
competitive markets.
x One of the major advantages of licensing is the immunity over stringent political
intervention as expropriation.
The economic liberalization policy envisages the de-licensing of goods and
services (notified) for mutual business growth. Under contract manufacturing, a firm
gets its products manufactured by an independent local firm as per the agreement.
Such an export mechanism is chosen by firms typically where the marketing potential
seems to be low and tariff walls high. Assembling involves the import of raw material
and mechanical parts for manufacturing any product. Such an operation is usually
labour intensive, despite high capital investment in business. This mode of entry into
international marketing is advantageous in countries which do not impose heavy import
duties and which encourage free exports. Assembling firms take the benefit of low
wage rates by shifting labour intensive operations to the foreign market that results in a
lower final price of the product. Largely, local laws of a country play a big role in the
decision-making for setting up an assembling unit in a foreign country.
Technology Licensing Arrangement
Technology licensing is a contractual arrangement in which the licensor’s patents,
trademarks, service marks, copyrights, trade secrets, or other intellectual property
may be sold or made available to a licensee for compensation that is negotiated in
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Market Strategies and advance between the parties. A technology licensing agreement usually enables a firm
Export Finance
to enter a foreign market quickly, and poses fewer financial and legal risks than owning
and operating a foreign manufacturing facility or participating in an overseas joint
venture. In considering the licensing of technology, it is important to remember that
NOTES foreign licensees may attempt to use the licensed technology to manufacture products
in direct competition with the licensor or its other licensees.
3. Franchising
Franchising is not a business in itself, but a way of doing business. It is essentially a
marketing concept introducing an innovative method of manufacturing and distributing
goods and services. Franchising is a business relationship in which the franchisor (the
owner of the business providing the product or service) assigns to an independent
entrepreneur (the franchisee) the legal right to manufacture, market and distribute the
franchisor’s goods or services using the brand name for an agreed period of time.
The International Franchise Association defines franchising as a continuing relationship
in which the franchisor provides a licensed privilege to do business, plus assistance in
organizing training, merchandising and management in return for a consideration from
the franchisee. Franchising has become popular because it allows a much greater
degree of control over the marketing efforts in the foreign country. Franchising can
offer people looking at self-employment a greater chance of success than starting their
own businesses, but it is a path that many people are not aware is open to them. A
franchisor’s main ongoing commitment to his franchisees is to provide support. A
support programme should be well-defined prior to joining a given franchise group
and is likely to cover areas such as staff issues, marketing and system compliance.
Four models of franchising
x Manufacturer-Retailer: Where the retailer as the franchisee sells the franchisor’s
product directly to the public (e.g. Automobile dealerships).
x Manufacturer-Wholesaler: Where the franchisee manufactures and distributes
the franchisor’s product under license (e.g. Soft drink bottling arrangements).
x Wholesaler-Retailer: Where the retailer as the franchisee purchases products
for retail sale from a franchisor wholesaler (e.g. Hardware equipment and
automotive product stores).
x Retailer-Retailer: Where the franchisor markets a service, or a product, under
a common name and standardized system, through a network of franchisees.
Product and trade name franchises
The first two categories cited above are often referred to as product and trade name
franchises. These include arrangements in which franchisees are granted the right to
distribute a manufacturer’s product within a specified territory or at a specific location,
generally with the use of the manufacturer’s identifying name or trademark, in exchange
for fees or royalties.
Business format franchise
The business format franchise, however, differs from product and trade name franchises.
This method implies the use of the franchisor’s format, or a comprehensive system
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for the conduct of the business, including such elements as business planning, Market Strategies and
Export Finance
management system, location, appearance and image, and quality of goods.
There are many benefits of becoming a franchisee of which the major ones are
listed as follows:
NOTES
x The franchisor provides detailed consultation and training in operating the
business as well as choosing locations for the business.
x The franchisee benefits from operating under the established brand image and
reputation of the franchisor.
x The franchisees usually need less capital than they would if they were setting up
a business independently because the franchisors, through their pilot operations
and buying power, would have eliminated unnecessary expenses.
x The franchisor helps the franchisee obtain occupation rights to the trading
location, comply with planning (zoning) laws, prepare plans for layouts, plan
ergonomics and refurbishment, and provides general assistance in calculating
the correct level and mix of stock for the opening launch of the business.
x The franchisee taps into the bulk purchasing power and negotiating capacity
made available by the franchisor by virtue of the size of the franchised network.
x The franchisee has access to use of the franchisor’s patents, trademarks,
copyrights, trade secrets, and any secret processes or formulae.
x The franchisee has the benefit of the franchisor’s continuous research and
development programmes, which are designed to improve the business and
keep it up-to-date and competitive.
Quality control is imperative
One of the drawbacks of franchising is the need for careful and continuous quality
control. Such close supervision of the various aspects of distant operations requires
well-developed global management systems and labour-intensive monitoring. Inevitably,
the relationship between the franchisor and franchisee must involve imposition of
controls. These controls will regulate the quality of the service or products to be
provided or sold by the franchisee to the consumer. As a lot of managerial skills are
required, international franchising has been successful largely among those enterprises
which have already had long experience with franchising at home.
4. Joint Ventures
A joint venture involves a partnership between two or more business firms interested
in pooling their resources and expertise to achieve a common goal. The risks and
rewards of the enterprise are also shared. The reasons for forming a joint venture may
include business expansion, development of new products or moving into new markets,
particularly overseas. The joint venture may offer more resources, increased capacity
of production, enhanced technical expertise and established markets and distribution
channels. Entry into an international market would be possible either as a wholly-
owned subsidiary of any firm or as a joint venture. Joint ventures provide the best
partner-like manner of obtaining foreign trade income when a firm chooses to begin a
business relationship with a firm in the host country. The two partners could agree
upon a contract setting out the terms and conditions of how this will work. Alternatively,
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Market Strategies and joint ventures may be set up as a separate joint venture business, possibly a new
Export Finance
company. A joint venture company can be a very flexible option wherein partners own
substantial resources in the company, and agree on a managing strategy. Firms of any
size can employ this concept to strengthen long-term relationships or to collaborate on
NOTES short-term projects.
Benefits of a successful joint venture
x Access to new markets and distribution networks
x Increase in production capacity
x Risk sharing and controlling of process policies between business partners
x Working with specialized staff and technology
Pitfalls of joint ventures
Partnering in business may offer benefits but it can also be complex. It may take
considerable time and effort to build the right relationship while operational problems
may grow with the following ideological and functional discrepancies:
x The objectives of the venture are not clear and communicated among the
partnering firms
x There exists an imbalance in levels of expertise, investment or assets set into the
venture by the different business partners
x Coordination problems of cross-cultural issues and management styles affecting
the functional integration and workplace co-operation
x Lack of sufficient leadership and support in the early stages
Cautionary steps
Success in a joint venture depends on thorough research and analysis of the aims and
objectives. This should be followed up with effective communication of the business
plan to everyone involved. International joint ventures are used in a wide variety of
manufacturing, mining, and service industries and frequently involve technology
licensing. The company looking for a joint venture invites foreign firms by issuing a
regional or global invitation to share stock ownership in the new unit. However, the
control of the unit depends on which company accepts a minority or a majority position.
By and large, multinational companies prefer wholly-owned subsidiaries for effective
control. A major potential drawback of joint ventures, especially in countries that limit
foreign companies to minority participation, is the loss of effective managerial control.
This can result in reduced profits, increased operating costs, inferior product quality,
exposure to product liability, and environmental litigation and fines.
When firms decide to create a joint venture, the terms and conditions need to be
set out in writing in a formal agreement, which should cover the following:
x Structure of the joint venture
x Objectives of the joint venture
x Financial contributions, liabilities, distribution of profit, and other matters related
to corporate finance and accounts
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x Protocol on transfer assets or employees in or out of the joint venture Market Strategies and
Export Finance
x Ownership of intellectual property created by the joint venture
x Management and control of operational issues
x Responsibilities, tasks and processes to be followed in production and operations NOTES
activities
x Protocol on managing liabilities, sharing of profits and losses
x Policy and process of settlement of disputes between the partnering firms in the
joint venture
x Exit policies to bring the joint venture to an end, and cause and effect management
at post-closure
Global preferences
Smaller firms often want to access a larger partner’s resources such as a strong
distribution network, specialized employees, and financial resources. The larger
company might benefit from working with a more flexible, innovative partner or simply
from access to new products or intellectual property (IP). Joint ventures offer mutual
advantages for domestic and foreign firms to operate in a global competitive business
environment, sharing both capital and risk and by making use of mutual technical
potentials. Japanese companies, for example, prefer entering into joint ventures with
American firms as such arrangements help them to cross possible trade barriers.
American firms, on the other hand, like to venture with Japanese firms to explore
product innovation at low-cost Japanese manufacturing technology, and move fast to
enter a wide Asian market. The joint venture in this ways helps both the international
firms to utilize established channels and to outperform potentially tough competitors
in respective countries.
House Foods and Takeda Pharmaceutical signed a joint venture agreement on
their beverage and food businesses. They established a new company, House Wellness
Foods Corporation, with a capital of 100 million yen ($840,000), on April 2006. House
Foods has a 66 per cent stake in the new company while Takeda Pharmaceutical
retains the remaining 34 per cent. After the initial 18-month joint venture period, the
new company will become a wholly-owned House Foods subsidiary. A joint venture
serves as a centre of resource appropriation and makes a foreign firm’s entry into a
new terrain easier than other modes. However, it should not be viewed as a handy
vehicle to reap money without effort, interest or additional resources.
5. Strategic Alliances
Another way for a firm to enter into a foreign market is by creating a strategic alliance.
A global strategic alliance is an agreement among two or more independent firms to
cooperate for the purpose of achieving common goals such as a competitive advantage
or customer value creation. Strategic partnerships may emerge in many forms including
research and development consortiums, co-production alliances, co-marketing
partnerships, cross-licensing and cross-equity arrangements. Such alliances do not
result in the formation of a separate corporate entity; equity joint ventures form new
strategic allies as legal entities to do specified business within given time limits. This
strategy is more advantageous than a joint venture. In this process, the business partners
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Market Strategies and bring together the specific skills of production, marketing and control in order to
Export Finance
maximize their profit and have a major stake in the international business scenario.
Many organizations, particularly high-tech industries, have entered into strategic alliances
with key players in the marketplace to maintain a competitive advantage. Strategic
NOTES alliances are partial mergers, but have a comprehensive impact on the performance of
the firm. They involve mutual dependence and shared decision-making between two
or more separate firms. There are some important types of alliance that can be set up
for optimizing business. These are as follows:
x Technology-based alliances
x Production-based alliances
x Distribution-based alliances
x Resource-based alliances
The emergence of strategic alliances in Canada and other industrialized countries
are related to economies of scale or scope, resource pooling, and risk and cost sharing
among alliance partners. They include globalization of the world economy, systemic
technological change, and the growing acceptance of the view that competition, by
itself, does not necessarily ensure optimum, innovation-led growth. While international
alliances provide firms with strategic flexibility, enabling them to respond to changing
market conditions, they can also be effective paths for achieving a global scale in
enterprise operations along with mergers and acquisitions and green field investment.
The driving forces behind international strategic alliances include cost economizing in
production and research and development, strengthening market presence, and accessing
intangible assets. In the recent trends of globalization, the practice of entering the
international market through such alliances seems to be gearing up along with political
support from developing countries. However, the companies having a larger share in
the international market still reserve the right to entertain or not, any such alliances.
Advantages of strategic alliances
x Organizational efficiency improves with the flexibility and informality in strategic
alliances
x Alliances developed strategically offer access to new markets and technologies
x Risks and expenses are shared among the allies, reducing the impact of risk on
the participating members
x Alliance helps the partners to build their independent brands and manage retailing
of goods and services
x Alliances can take various forms, from simple research and development deals
to heavy budget projects
Suitable for emerging markets
Strategic alliances are especially useful for seeking entry into emerging markets. Foreign
firms in emerging markets seek to optimize the market performance in global economies
and strategic alliances appear to be the obvious solution for mutual benefit. Given this
pattern of benefit, the strategic alliances of US and European manufacturing firms
account for over half of the market entries into Latin America and Asia.
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The convergence of business practices of the partnering firms often emerges as Market Strategies and
Export Finance
a major challenge because in the international business arena partnering firms belong to
different socio-cultural environments. Alliance managers must make difficult decisions
about when to partner and with whom, as well as how to structure and manage the
partnership. Managers who can leverage information and knowledge across each stage NOTES
of the alliance process will find that a knowledge-based approach is critical to the
success of any partnership. In US-Japanese alliances in the past, for example, Japanese
companies saw these partnerships as a way to learn from their partner, while their US
counterparts used these alliances as a substitute for more competitive skills, ultimately
resulting in an erosion of their own internal skills. Therefore, with companies that look
on alliances as a way of learning from their partners, practices that enable knowledge
sharing, creation, dissemination and internalization become critical. Cisco Systems
and Polycom Inc. have a strategic agreement for joint development, licensing, and
sales of internet protocol (IP) telephony solutions. The objective of the alliance is to
deliver enhanced IP telephones to enterprise customers; this agreement combines
Polycom’s leadership in audio conferencing technologies and Cisco’s industry-leading
expertise in IP networking and IP telephony. Based on this agreement, Polycom and
Cisco have brought a Voice over IP (VoIP) conference phone into the market that
provides customers with industry-leading group conferencing capabilities within the
Cisco IP Telephony environment.
6. Wholly-owned Subsidiaries
Multinational companies also plan to enter into a new international market establishing
themselves in overseas markets by direct investment in a manufacturing or assembly
subsidiary company. In view of the frequently changing economic, social and political
conditions globally, these wholly-owned subsidiaries are highly risk averse. A wholly-
owned subsidiary in manufacturing can involve investment in a new manufacturing or
assembly plant or the acquisition of an existing plant (such as Coca-Cola Company
purchases local bottling plants in developing countries). The presence of actual
manufacturing operations helps support marketing activities. As manufacturing is
established abroad through direct investment, parts and components are often exported
from the home country.
Besides manufacturing subsidiaries, establishing a sales subsidiary requires
relatively low levels of capital investment which leads to low risk. HP Financial Services
emerged in 2002 as the parent company Hewlett Packard’s (HP) new leasing and
financial services subsidiary. HP Financial Services (HPFS) was designed to enhance
the worldwide sales efforts of the parent company by delivering a broad range of
financial services and asset management capabilities that could positively impact the
customer and partner relationships and shareowner value of the parent company. The
HPFS represents approximately 4 per cent of the total revenue of the parent company.
This new subsidiary brought in a centralized business model for the financial services
offered to customers as part of a total HP solution.
The parent ventures, which are managed by wholly-owned subsidiaries, are
more successful than shared management ventures, where both companies, parent
and subsidiary, contribute on operational strategies. Problems often arise in shared
situations because managers of international ventures have communication problems
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Market Strategies and and different attitudes regarding time, job performance and the desirability of change.
Export Finance
Firms become multinational companies by setting up manufacturing or marketing
subsidiaries overseas and transferring knowledge, which embodies its advantage from
one country to another. That is, knowledge flows from headquarters to overseas
NOTES subsidiaries. Venturing is serious business, requiring skill, patience and entrepreneurial
flair. Most new ventures involve entering unfamiliar markets, employing unfamiliar
technology, and implementing an unfamiliar organizational structure. An approach of
particular promise is the new-style joint venture, in which a small company with vigour,
flexibility, and advanced technology joins forces with a large company with capital,
marketing strength and distribution channels. In order to determine the fit between the
parent company and its subsidiaries, corporate strategists should evaluate the operational
areas which include the critical success factors of the business, the parenting
opportunities in the business, organizational attributes of the parent company, and the
financial results.
An international marketing plan is prepared considering various factors that determine
marketing functions across various countries. However, the marketing plan primarily
needs to be designed considering the principal business components as stated below:
x Selection of country or cluster of countries (trade region)
x Commitment on decisions taken by the marketing firm
x Mode of entry into the market
x Appropriate marketing strategy in tune to the marketing environment of the
identified country or region.
x Building an effective marketing organization
The selection of a country is a critical exercise that involves the examination of
all the above variables besides undertaking the demand analysis and financial estimates.
The commitment of the firm to its trading decisions in the selected country, cost-
benefit ratio study, and market operational methods largely determine the mode of
entry of the firm into the international marketing avenue. The marketing strategy needs
to be evolved assessing the objectives of the firm in the local markets in order to
acquire differential advantage. Once the marketing-mix is critically analysed, an
implementation strategy can be formulated by the marketing firm. However, to ensure
effective implementation of marketing policies, the marketing organization needs to be
strengthened first. The decentralized organizational structure at regional levels (like
Central Asia, South-East Asia, Middle-East, Far-East.) would be appropriate for a
marketing firm when planning for international marketing in more than one country.
Such an organizational set-up would facilitate monitoring of demand, supply, price
trend and political interventions more comprehensively. The centralized set-up would
incur greater cost but would be less effective in exercising the marketing implementation
and control measures.
How to select
A two-stage selection process is required for the firm to identify the product, market
and services for international marketing.
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x First, potential international markets need to be explored. Market Strategies and
Export Finance
x Secondly, comparison of the domestic market of the firm with those abroad
needs to be carried out in order to ensure that marketing at the international level
has cooperative advantages over the domestic market.
NOTES
Identifying a marketing region is always better than being restricted to an individual
country for the purpose of cost-effective distribution networking. In addition, the
tariff walls at the border countries need to be studied carefully. The firm involved in
international marketing should also make efforts to develop export markets in the initial
stage. This would help in product specialization. International business firms have
found that exporting is cheaper than manufacturing in overseas markets. There still
remain some basic issues to be examined by the firm engaged in international marketing.
These are:
x Size and growth
x Marketing potential of a country or region
x Similarities in host countries
x Free trade area, customs, common market
x Economic and political unions
x Appropriate economies of scale in managing business
x Accessibility, infrastructure and its cost
x Possibilities of decentralizing business activities
x Geographical boundaries of the markets
x Long-run market segmentation
Exporting firms should understand that the export operations are subordinate to
the domestic market policies and that the policy of the business firm to market the
surplus home produce in the international market, would largely be determined by the
opportunities offered by the host country or regional markets. The factors to be
considered would be (i) the firm’s extent of awareness on varying requirements of
consumers, (ii) market response to the design and packaging of the product, (iii) the
impact of the pre-launch promotion among the focus groups, and (iv) the size of the
market which influences the adaptation process of goods and services at the international
markets level.
Check for provision of international subsidies
The firms preparing for international marketing should also keep track of the international
subsidies provided to the developing countries. A strong political and economic
information system would help the firms in preparing international marketing plans Check Your Progress
more effectively. The synthesis of these inputs for planning is essential in pursuing 5. State two
global strategies. Thus integration of this information with the border-country profiles advantages of
is a prerequisite for sound plans. The selection of a marketplace at the international licensing.
level is a critical process and is required to be filtered at many intermediate levels 6. What are the four
models of
before the core business country is selected. franchising?
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Export Finance 2.4 FREE TRADE ZONES
Free zones have become increasingly popular as trade promotion policy instruments,
NOTES especially in developing countries, to the point where in some developing countries a
large proportion of their exports currently originates in free zones. In 1992, the World
Bank defined export processing zones as ‘fenced industrial estates specializing in
manufacturing for exports that offer firms free trade conditions and a liberal regulatory
environment.’ This concept has evolved and rules on domestic sales and the physical
delimitation of the zones have in some cases become more flexible. The objectives
pursued by countries that use free zones are development of disadvantaged regions,
generating income and employment, attracting investment – especially foreign direct
investment and promoting technology transfer. The listed objectives are usually pursued
through free zones by providing a series of incentives to companies and firms operating
in those zones. These incentives are commonly of a fiscal nature (flexible rules on
importation and labour), and infrastructural nature.
The obligations in the Subsidies and Countervailing Measures (SCM) Agreement
have direct impact on free-zone programmes of WTO members. Given the nature of
the obligations in the SCM Agreement, this impact concerns mostly the type of free
zones where there is some manufacturing activity, rather than just transit or commercial
activities. In order to understand how the SCM Agreement affects free zones it is
important to recall some of the basic definitions in it. Article 1.1 defines a subsidy as a
financial contribution by a government that confers the concept of specificity and
provides that only those subsidies that are specific are covered by the Agreement.
Another important concept that is relevant in the context of the disciplines that regulate
which kind of subsidies that members may use is the distinction between prohibited
and actionable subsidies. Prohibited subsidies are those which are either contingent
upon export performance or upon the use of domestic goods: these subsidies are
commonly referred to as export subsidies and import substitution subsidies. The
second category is actionable subsidies, which includes all subsidies that are not
prohibited and which may cause adverse effects to the interests of other members.
Regarding specificity, the Agreement provides that a subsidy may be considered specific
if access to it is limited to a particular industry, enterprises or region.
Subsidies are also automatically deemed to be specific if they fall within the
prohibited subsidies category. It is important to keep this in mind, because in some
cases the type of benefits and the structure of some free zones might actually put them
into the prohibited subsidies category. Prohibited subsidies, as the name implies, is the
category that is more strictly regulated by the Agreement. The reason for this is that
members consider that this type of programmes directly affect international trade and
alter competitive conditions.
The SCM Agreement does not have rules specific to free zones. Therefore, the
conformity of free zones cannot be analyzed as a single programme. Rather, it is the
different incentives, benefits and requirements of a free zone, which have to be looked
into in order to see how they fit within WTO rules. So, in order to find out whether
free zone schemes can be considered to confer subsidies and, if so, whether those
subsidies are prohibited or merely actionable, the benefits that companies receive
when operating in a free zone have to be examined, as well as the conditions for
establishment in a free zone.
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Although the general rule is that export subsidies are prohibited, developing Market Strategies and
Export Finance
countries and least developed countries (LDCs) benefit from special and differential
treatment under Article 27 of the SCM Agreement. Among the flexibilities accorded to
developing countries, Article 27.2 of the SCM Agreement provided a transition period
of eight years from the entry into force of the WTO Agreement for the elimination of NOTES
export subsidies.
This transition period expired at the end of 2002. However, some developing
countries obtained an extension of the transition period under the rules in Article 27.4
of the SCM Agreement. The SCM Agreement in Article 27.2 also provides that for
certain developing countries the export subsidy prohibition shall not apply.
Requirements
What does a member need to do to bring its free zones into line with the SCM
Agreement? There are two ways to attend to this question, depending on whether the
member wishes merely to turn those subsidies which are prohibited into actionable
ones or whether the intention is to get rid of the subsidies altogether. In the first case,
since free zones are not prohibited subsidies per se, members may keep these schemes
in place, but they would need to get rid of all aspects that could make a free zone a
prohibited subsidy. The aspects that may turn free zones prohibited include the following:
x Requirement to use domestic over imported goods
x Requirement to export certain amount of the production
x Limitations on sales and exports into the national customs territory (including
the payment of certain taxes on those sales)
These requirements together with the benefits provided put free zones in the
prohibited subsidy category of the SCM Agreement. Therefore, in order for the benefits
granted in a free zone not to be considered prohibited subsidies one first step that
must be taken is to eliminate the requirements listed. Even after this is done, free zones
would continue to be considered specific subsidies and thus actionable multilaterally
or potentially, subject to countervailing measures.
Another option available to members would be to turn free zone schemes into
duty drawback and indirect tax exemption or remission systems for exports. Footnote
1 of the SCM Agreement provides that ‘the exemption of an exported product from
duties or taxes borne by the like product when destined for domestic consumption, or
the remission of such duties or taxes in amounts not in excess of those which have
accrued, shall not be deemed to be a subsidy.’
Since the types of programmes covered by Footnote 1 of SCM Agreement are
not even considered to be subsidies, there is no risk of multilateral dispute settlement
procedures or countervailing measures on these. Nevertheless, members must be careful
when using duty and tax exemptions as incentives because the illustrative list of export
subsidies in Annexe 1 of the SCM Agreement has many nuances. Annexe 1 of the
SCM Agreement in paragraphs (e) – (i) provides details on the circumstances under
which direct tax, indirect tax, prior stage cumulative tax and import duty exemptions
and remissions may be considered as export subsidies.
In this context, it is clear that any kind of direct tax or social welfare charge
exemption, remission or deferral related to exports would be considered an export
subsidy.
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Market Strategies and These export-related incentives should, therefore, be eliminated for a free-zone
Export Finance
scheme to be in conformity with the SCM Agreement. Direct tax exemptions from free
zones may remain in place as long as they are not contingent upon export performance.
In practice, this would mean that revenues from sales and exports into the national
NOTES customs territory should receive the same treatment as foreign export sales, even if
producers outside of the free zone do not enjoy the same type of tax benefits. In the
case of indirect tax exemptions or remissions on the export sales of products
manufactured in the free zones, the main principle is outlined in Footnote 1, mentioned
above, and in Paragraph (g) of Annexe I. This means that exemptions or remissions
from indirect taxes are not to be considered an export subsidy (or a subsidy of any
kind) provided they are not in excess of the indirect taxes levied on sales of like
products when sold for consumption in the national customs territory.
Exemption, remission and deferral of prior-stage cumulative taxes as well as
remission or drawback of import charges and duties on goods and services used in
the production of goods exported from free zones receive similar treatment under the
SCM Agreement. The general principle is that any such exemption, remission, deferral
or drawback shall not be in excess of the prior-stage cumulative taxes and import
charges and duties on goods and services used in the production of like products
when sold for domestic consumption. Moreover, Annexe I paragraphs (h) and (i)
provide that only goods used or consumed in the production process of the exported
product may be the subject of exemptions, remission, deferrals or drawback upon
export from the free zone. Therefore, these rules do not provide coverage for
exemptions and remissions of duties and indirect taxes on capital goods used in the
production process of the exported product. Thus, any such type of incentive provided
in a free zone would need to be phased out if the free-zone programme is to be
brought into conformity with the rules in the SCM Agreement concerning export
subsidies.
2.5 EXPORT FINANCE

The financing of foreign trade, especially export, has long been identified as one of the
most challenging issues faced by new enterprises and SMEs in developing countries
like India.
The issue of export financing is particularly important. Export financing is
required not only for export itself, but also for the production of goods and services
to be exported. Export financing may include imports of raw material or intermediate
goods. Non-availability of financing at anytime during the production and/or the export
process will result in a failed transaction.
Export finance has become an important tool of export promotion in countries
like India. Even developed countries like the US, Germany and Japan are building
comprehensive systems and institutions for providing finances to their exporters. The
development of a suitable financing mechanism that provides not only adequate and
timely credit but also at cheaper rate is the sine qua non for export promotion.
It is all the more necessary for a country like India where foreign trade constitutes
a high percentage of its GNP. Foreign trade financing assumes added importance as
our foreign trade accounts for high percentage of almost 15 percent of our GNP. The
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high volume of transactions in our export/import requires finance through the banks Market Strategies and
Export Finance
without which it is not possible to maintain and increase it for development of our
economy.
Export finance is required by all-weather manufacturer- exporters or merchant
NOTES
exporters (including export/trading houses) irrespective of their scale of operation i.e.
small, medium or large. It may be more for small or medium scale exporters and a little
less for their large brethren. The former (small or medium) exporters’ also known as
second line borrowers face more difficulties in arranging finance and obtaining the
credit, particularly when there is no L/C covering the export transaction.
The difficulties in obtaining finance for exports of new products to new or
traditional markets or for new nontraditional export lines are comparatively more as
the risk involved is more. The reason is not merely adequate security, but assessment
of risk arising from non-availability of data/information on overseas markets and
customers. This is more so in developing countries where banks and other financial
institutions do not have an efficient infrastructure for collection of necessary information.
Hardly any export takes place on advance payment basis. The exporter has,
therefore, to arrange his own finance for production as well as supply on credit to
overseas buyers. Even his suppliers (whether finished products to merchant exporters
or of inputs to manufacturer-exporters) hardly allow any credit on their supplies. Rather,
they mostly work on advance payment system as there is a huge domestic market pull
in countries like India. Hence, there is always a need for export finance.
To finance its operations, a new project requires liquidity to cover the cost of
producing, selling and shipping the goods up to the point where payment is received.
In fact, the most crucial problem for export projects is the funding of their operations.
Current liabilities are the principal means of meeting those requirements in part or in
whole. Certainly, the financing of current assets appears to create most of the problems
experienced in exporting. Without enough liquidity for its short-term needs, an
exporting firm is subject to work stoppages and possibly bankruptcy. It is therefore
vital to review some aspects of the financing of current assets in the context of
export projects.
Interest rates increase with the length of the borrowing time as a result of the rise
in the uncertainty level. This risk can be best managed through the proper matching of
short-term needs with short-term borrowings, and long-term needs with borrowings
with maturity periods in line with those needs.
Current assets of a new project normally include cash, accounts receivable, and
the inventory of raw material, and semi-finished and finished products. The funds
corresponding to the current assets of a business are known as gross working capital,
while net working capital is the difference between current assets and current liabilities.
The net working capital requirement is calculated in terms of the amount of
credit essential for operations for the full period of the cash cycle (from cash to cash).
The length of the cash cycle will vary greatly depending on factors such as
nature of the industry, destination of the finished goods, method of shipment, and
method of payment. In certain cases, the cash cycle will be of a short duration (a week
or less); in others it could be longer, but usually less than one year.
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Market Strategies and Means of short-term financing
Export Finance
Short-term financing can be obtained by the following means, all of which would
appear on the balance sheet under ‘current liabilities’.
NOTES x Trade Credit
x Pre-shipment Finance
x Other Current Liabilities
x Post-shipment Finance
x Short-term debt Financing
(i) Trade credit
Trade credit is a form of short-term financing common to all businesses. Buyers are
allowed a short deferral before payment becomes due. Thus, a credit is provided to
the buyer at no additional cost for whom the credit falls in the category of accounts
payable. In fact, accrual items figuring in the balance sheet, such as accounts payable
and accrued expenses are means of financing the project interest-free if types of trade
credit are customarily used; the open account, notes payable and trade acceptances.
(ii) Short-term debt financing
This is generally obtained from commercial banks, finance companies and, occasionally,
from development finance institutions (DFIs). However, in many developing countries
the experience of DFIs in financing the short-term requirements of the entrepreneurs
has been negative owning to ineffective monitoring and control mechanisms. Two
types of short-term debt financing are offered; unsecured and secured debt instruments.
The former are made by commercial banks, while the latter can be obtained from
finance companies as well as commercial banks.
Unsecured short-term debt instruments
An unsecured short-term debt is used to fund the operations of the fund, which is
expected in return to generate sufficient cash flow to reimburse the loan within one
year. These debt instruments are mainly used to finance working capital requirements.
They generally take the form of a line of credit, a revolving-credit agreement or a short-
term loan on a transaction-by-transaction basis. In addition, commercial paper and
bankers acceptances are issued by firms with a good financial standing, while deposits
from the public are used in few cases.
Line of credit
A line of credit is an agreement between a financial institution and a borrower allowing
the latter access to credit up to an agreed maximum amount. It is regarded as temporary
financing and is usually unsecured and valid for a period of one year, subject to
renewal. The expiry of the validity of the line of credit is usually set after end of the
firm’s financial year. This gives the bank time to receive the financial statements of the
firm, review its financial position and discuss with the firm manager its future needs in
the light of the results achieved. The amount of credit is based on an assessment of the
creditworthiness of the firm as evidenced by its past performance, and future needs as
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reflected by a projected cash budget for the following year. Should the need for Market Strategies and
Export Finance
borrowing peak at ` 8, 00,000 for instance, the company will usually request a line of
credit for ` 10,00,000 to have a margin of safety. Often the lender will request the
borrower to be out of the line of credit for a period of a month or two during the year
to ensure his or her ability to reimburse. A major drawback for the borrower is that the NOTES
line of credit does not constitute a legally-binding commitment on the part of the
lender to extend the line of credit if requested. In fact, many borrowers are not granted
extensions, especially if their creditworthiness deteriorates over the year.
Revolving credit agreement
Unlike the line of credit, a revolving credit agreement legally commits the bank to
extend credit up to the agreed maximum amount. Revolving credit agreements carry a
commitment fee, usually in the range of 0.5 per cent on the unused portion of the
credit agreement. Revolving credit agreements may extend over one year.
Short-term loan
A short-term loan differs from a credit line and a revolving credit agreement in that it is
generally sought to finance a defined need such as the completion of a specific job. In
such cases, the bank evaluates each request of the borrower separately on its merits.
The assessment is fundamentally based on the level of cash flow that is expected to be
generated to pay the loan. The higher the expected cash flow, the higher the possible
amount of the short-term loan. Under the terms of each agreement, the borrower signs
a promissory note detailing the date of reimbursement and installment amount (including
the interest charge).
(iii) Pre-shipment finance
There are normally two methods open to an exporter to obtain finance at the pre-
shipment stage. These are:
x Anticipatory Letter of Credit or Red Clause Credit
x Packing Credit
Anticipatory letter of credit
Also known as Red Clause credit, it is a credit granted against L/Cs which contain a
Red Clause. It is also called Anticipatory Credit as advance against payment is made
to the exporter in anticipation of shipment of goods.
A Red Clause L/C is a normal L/C which contains a special clause (usually typed in
red ink) authorizing the negotiating/advising or confirming bank to:
x Make immediate payment to the exporter in full or in part of the amount of the
L/C, or
x Make payment to the exporter from time to time as per L/C terms and against
specified document and/or fulfillment of specific conditions like:
o An undertaking from the export beneficiary to the effect that the amount
drawn will be utilized for the payment of the cost of raw materials to be
consumed by him.
o Presenting the relevant shipping documents to the bank for negotiation within
a specified period.
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Market Strategies and Thus, the main purpose of opening a Red Clause L/C is to enable the exporter
Export Finance
to procure materials and execute the foreign buyers order without locking up his own
funds. It contains clear instructions relating to the amount advanced, its time, mode of
repayment, interest payable, etc.
NOTES
Packaging credit—clean or secured
As discussed earlier, packaging credit can be clean or secured. However, any clean
advance may be converted into secured advance soon after the goods are procured
by the exporter for further processing manufacturing. A packaging credit may be
extended against (a) pledge, or (b) hypothecation, or (c) against trust receipt.
(iv) Other current liabilities
Several other items falling under current liabilities can be a source of short-term
financing. In fact, the normal operations of a company require working capital financed
in part by this group of accounts. By judiciously operating these current liabilities, an
important source of funds can be accrued to an exporting firm. These items can be
classified as current liabilities of a known amount, of an amount dependent on operations,
and of estimated amounts.
(v) Post-shipment finance
Post-shipment credit/finance means only any loan or any other credit provided by any
institution to an exporter of goods from India from date of extending the credit after
shipment of goods to the date of realization of export proceeds, and includes any loan
or advance granted to an exporter, on consideration of or on the security of any
drawback or any cash receivable by ways of incentives from the government.
2.5.1 EXIM Bank
Export-Import Bank of India is the apex bank which deals in providing project finance
and direct finance. The EXIM Bank has taken over the operations of the International
Finance Wing of the Industrial Development Bank of India (IDBI). It came into existence
on 1 January 1982 and started its operations from 1 March 1982. The headquarters of
the bank is situated in Mumbai and it has branches in India and abroad. The main
purpose of the bank is to finance medium and long-term loans to the exporters and
thus, facilitate international trade in the country. The main objectives of EXIM Bank
are:
x To provide financial assistance (medium and long-term) to exporters and
importers
x To promote international trade from the country
x To function as the principal financial institution for coordinating the working of
institutions engaged in providing trade finance
x To deal with all the issues that may be considered to be incidental or conducive
to the attainment of above objectives
The main functions of EXIM Bank are to provide fund based and non-fund
based assistance. This can be summarized as follows:
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50 Material
Export Finance
NOTES
Fig. 2.2 Functions of EXIM Bank
The fund based and non-fund based assistance can be further explained as:
1. Fund based assistance
(a) Assistance to exporters in India
x Assistance in the form of deferred credit exports
x Credit facilities for deemed exports
x Financing of Indian joint ventures abroad
x Financial assistance to units located in EPZ/SEZ and EOUs
x Availability of pre-shipment finance in order to procure raw materials and
other intermediate goods
x Financial assistance for exporting/importing machinery and equipment on
lease
x Foreign exchange loans for computer software exporters subject to
clearance from RBI
x Deferred credit financing facility for exports of consultancy, technology
and other services
x Export financing assistance for undertaking export marketing activities
through the export marketing fund
x The export development fund has been earmarked for undertaking
technology and economic survey to develop Indian exports.
(b) Assistance to Indian commercial banks
x Refinance facilities to lend to Indian exporters who extend term credit to
importers.
x Export bills rediscounting facility to commercial banks in India who have
earlier discounted bills of exporters.
(c) Assistance to overseas buyers
x EXIM Bank offers ‘Overseas Buyer’s Credit’ facility to foreign importers.
This is offered for importing capital goods and related services. The
repayment period is spread over a period of years.
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Market Strategies and (d) Assistance to overseas banks
Export Finance
x The EXIM Bank extends lines of credit to provide finance to financial
institutions overseas. These international financial institutions extend finance
to importers to buy capital goods.
NOTES x The Bank also provides relending facilities to banks in foreign countries
and makes available finance to the clients for import of goods into the
country.
2. Non-fund based assistance
(a) Guarantees and bonds: EXIM Bank provides guarantees as a non-fund based
assistance. These guarantees are usually in the form of bid bonds, performance
guarantee, etc. The commercial banks also assist in providing these guarantees.
(b) Advisory services
x The Bank advises Indian companies abroad in order to find sources of
financing abroad.
x The Bank also provides advisory services on international exchange control
practices.
x It also offers financial and advisory services for constructions abroad.
x The small scale manufacturers are also advised on the feasible markets for
exports and products.
x The bank also provides euro financing and global credit to Indian exporters.
x Forfeiting services are also offered for the exporters.
The EXIM bank also provides export financing programmes and promotes
exports through direct financial assistance, term finance, overseas investment finance,
pre-shipment credit, buyer’s credit, relending facility, export bills rediscounting, lines
of credit and refinancing schemes to commercial banks. In order to understand these
facilities, let us analyze them in detail.
1. Loans to Indian entities
x Deferred payment exports: The exporters are offered term finance to further
offer deferred credit to their overseas buyers. Commercial banks are also directly
involved in undertaking and sharing risks.
x Pre-shipment credit: This finance is available from EXIM Bank for execution
of export contracts and having a maturity of more than six months.
x Term loan for production of exports: The Bank also provides loans and
deferred payment guarantees to Export Oriented Units (EOUs), Free Trade
Zones and computer software exporters. Providing facilities for deemed exports
and both funded and non-funded facilities.
x Overseas investment finance: Indian firms which have established joint
ventures abroad are offered finance towards their contribution of equity in the
joint venture.
x Finance for export marketing: The bank also helps in the implementation of
export development plans.
2. Loans to commercial banks in India
x Rediscounting of export bills: Commercial banks have been granted the ability
to rediscount short-term export bills with the EXIM Bank. These banks are
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52 Material
authorized to deal in foreign exchange and the facility is provided for the unexpired Market Strategies and
Export Finance
usance period but less than 90 days.
x Refinance of export credit: These authorized dealers can obtain 100 per cent
refinance of the deferred payment loans from EXIM Bank for exports of Indian
NOTES
goods.
x Guarantees: The EXIM Bank along with commercial banks issue guarantees
required by Indian companies for various export contracts.
3. Loans to overseas entities
x Overseas buyer’s credit: EXIM Bank offers credit directly to foreign entities
for import of eligible goods and related services on deferred payment.
x Lines of credit: Finance is also available to financial institutions, governments
and agencies abroad.
x Relending facility to overseas banks: The Bank offers relending facility to
banks overseas and thus enables them to provide term finance. This term finance
is offered to importers from India across the globe.
The EXIM Bank offers a range of services for exports to their clients. The Bank
provides a range of information and services to aid in globalization of the Indian
organizations. The services being offered include searching of overseas partners,
identifying suppliers of technology, negotiating contracts and developing joint ventures
abroad. The advisory services of the bank are depicted in Figure 2.3.
Fig. 2.3 Advisory Services of EXIM Bank
2.6 IDBI
IDBI Bank Ltd. is today one of India’s largest commercial banks. For over 40 years, Check Your Progress
IDBI Bank has essayed a key nation-building role, first as the apex Development 7. When did EXIM
Bank start its
Finance Institute (DFI) (July 1, 1964 to September 30, 2004) in the realm of industry operations?
and thereafter as a full-service commercial Bank (October 1, 2004 onwards). As a 8. What are the
DFI, the erstwhile IDBI stretched its canvas beyond mere project financing to cover aspects that may
an array of services that contributed towards balanced geographical spread of industries, turn free zones
prohibited?
development of identified backward areas, emergence of a new spirit of enterprise and
evolution of a deep and vibrant capital market. On October 1, 2004, the erstwhile IDBI
Bank converted into a banking company (as Industrial Development Bank of India
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Market Strategies and Limited) to undertake the entire gamut of banking activities while continuing to play its
Export Finance
secular DFI role. Post the mergers of the erstwhile IDBI Bank with its parent company
(IDBI Ltd.) on April 2, 2005 (appointed date: October 1, 2004) and the subsequent
merger of the erstwhile United Western Bank Ltd. with IDBI Bank on October 3, 2006,
NOTES the tech-savvy, new generation Bank with majority Government shareholding today
touches the lives of millions of Indians through an array of corporate, retail, SME and
Agri products and services.
Headquartered in Mumbai, IDBI Bank today rides on the back of a robust
business strategy, a highly competent and dedicated workforce and a state-of-the-art
information technology platform, to structure and deliver personalized and innovative
banking services and customized financial solutions to its clients across various delivery
channels.
As on 31 March 2013 IDBI Bank has a balance sheet of ` 3,22,769 crore and
business size (deposits plus advances) of ` 4,23,423 crore. As a Universal Bank, IDBI
Bank, besides its core banking and project finance domain, has an established presence
in associated financial sector businesses like Capital Market, Investment Banking and
Mutual Fund Business. Going forward, IDBI Bank is strongly committed to work
towards emerging as the ‘Bank of choice’ and ‘the most valued financial conglomerate’,
besides generating wealth and value to all its stakeholders.
Role of IDBI
x As an apex financial institution, it coordinates the working of other financial
institutions.
x It assists in the development of other financial institutions.
x It provides credit to large industrial concerns directly.
x It undertakes other activities for the development of industry.
The IDBI has been established to perform the following functions:
x To grant loans and advances to IFCI, SFCs or any other financial institution by
way of refinancing of loans granted by such institutions which are repayable
within 25 years.
x To grant loans and advances to scheduled banks or state co-operative banks by
way of refinancing of loans granted by such institutions which are repayable
within 15 years.
x To grant loans and advances to IFCI, SFCs, other institutions scheduled banks,
state co-operative banks by way of refinancing of loans granted by such institution
to industrial concerns for exports.
x To discount or rediscount bills of industrial concerns.
x To underwrite or to subscribe to shares or debentures of industrial concerns.
x To subscribe to or purchase stock, shares, bonds and debentures of other
financial institutions.
x To grant line of credit or loans and advances to other financial institutions such
as IFCI, SFCs, etc.
x To grant loans to any industrial concern.
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x To guarantee deferred payment due from any industrial concern. Market Strategies and
Export Finance
x To guarantee loans raised by industrial concerns in the market or from institutions.
x To provide consultancy and merchant banking services in or outside India.
x To provide technical, legal, marketing and administrative assistance to any NOTES
industrial concern or person for promotion, management or expansion of any
industry.
x Planning, promoting and developing industries to fill up gaps in the industrial
structure in India.
x To act as trustee for the holders of debentures or other securities.
2.7 SERVICES OF EXPORT CREDIT GUARANTEE

CORPORATION (ECGC)
The government realized the need of covering the risk of exporting on credit. In order
to provide export credit insurance support to Indian exporters, the Government of
India set up the Export Risks Insurance Corporation (ERIC) in July 1957 which was
transformed into Export Credit and Guarantee Corporation (ECGC) in 1964. In 1983,
the Corporation’s name was again changed to Export Credit Guarantee Corporation
of India Limited. The various schemes of the ECGC facilitate the grant of short-term
loans to the exporters through their various credit risk insurance policies and financial
guarantees.
The major function of ECGC is to minimize the risk element in export business
and to facilitate the flow of finance from the banks to exporters. The ECGC is a
company wholly owned by the Government of India. It is essentially an export promotion
organization.
Exporters need insurance cover even for their credits provided by commercial
banks. This insurance cover to Indian exporters is provided by the ECGC. There are
so many risks that are involved in international trade. This insurance cover provided
by ECGC is against the risk of non-realization of export proceeds due to political or
commercial reasons and to provide guarantees to financial institutions to facilitate the
granting of credit facilities to exporters on liberal basis.
The major functions ECGC in reference to insurance cover are as follows:
x It offers insurance protection to exporters against payment risks.
x It provides guidance in export-related activities.
x It makes available information on different countries with its own credit ratings.
x It offers insurance protection to exporters against payment risks.
x It provides guidance in export-related activities.
x It makes it easy to obtain export finance from banks/financial institutions.
x It assists exporters in recovering bad debts.
x It provides information on credit-worthiness of overseas buyers.
x It provides a range of credit risk insurance covers to exporters against loss in
export of goods and services.
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Market Strategies and x It offers guarantees to banks and financial institutions to enable exporters obtain
Export Finance
better facilities from them.
x It provides guidance to exporters in export-related activities as well as information
on credit worthiness of overseas buyers in about 180 countries about which it
NOTES
maintains its own credit ratings.
x It also assists exporters in recovering bad debts.
The above are the normal risk policies of ECGC. ECGC also has some special
schemes to assist the exporters. These special schemes include packing credit guarantee,
post shipment credit guarantee and export production finance guarantee. To suit varying
needs of the exporters, the Corporation provides different types of covers which may
be divided into the following three broad groups:
x Standard policies issued to exporters to protect them against the risk of trading
with overseas buyers on credit terms;
x Financial guarantees issued to banks against the risks involved in providing
credit to exporters; and
x Special policies: Under its policies intended to protect the exporters against
overseas credit risks, ECGC bears the main brunt of the risk and pays the
exporter 90 per cent of his loss on account of ‘commercial’ risks and ‘political’
risks.
2.7.1 Export Credit Insurance covered by ECGC
The cover provided by ECGC is of four types:
1. SCR or standard policy
Shipments (Comprehensive Risks) Policy is a whole turnover policy designed to provide
continuing insurance for regular flow of an exporter’s shipment of raw materials,
consumer goods, consumer durables, etc. This policy covers both commercial and
political risks from the date of shipment. It is issued to exporters whose anticipated
export turnover for the next twelve months is more than 50 lakh. The appropriate
policy for exporters with an anticipated export turnover for next twelve months is less
than 50 lakh is the Small Exporter’s policy.
2. Risks covered under the standard policy
Under the Standard Policy, ECGC covers, from the date of shipment, the following
risks:
x Commercial Risks
(a) Insolvency of the buyer
(b) Failure of the buyer to make the payment due within a specified period,
normally four months from the due date
(c) Buyer’s failure to accept the goods, subject to certain conditions
x Political Risks
(a) Imposition of restriction by the government of the buyer’s country or any
government action, which may block or delay the transfer of payment
made by the buyer.
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(b) War, civil war, revolution or civil disturbances in the buyer’s country. New Market Strategies and
Export Finance
import restrictions or cancellation of a valid import license in the buyer’s
country.
(c) Interruption or diversion of voyage outside India resulting in payment of
additional freight or insurance charges which cannot be recovered from NOTES
the buyer.
(d) Any other cause of loss occurring outside India not normally insured by
general insurers, and beyond the control of both the exporter and the
buyer.
3. Risks not covered
The policy does not cover losses due to following risks:
x Commercial disputes including quality disputes raised by the buyers, unless the
exporter obtains a decree from a competent court of law in the buyer’s country
in his favour;
x Cause inherent in the nature of the goods;
x Buyer’s failure to obtain necessary import or exchange authorization from
authorities in his country;
x Insolvency of default of any agent of the exporter or of the collecting banks;
x Loss or damage to goods which can be covered by general insurers;
x Exchange rate fluctuation;
x Failure of the exporter to fulfill the terms of the export contract or negligence on
his part.
4. Packaging credit guarantee
Packaging credit refers to the credit granted by a bank to enable an exporter to pack
the goods meant for exports. It includes the loan or advance or credit granted by a
bank to an exporter for financing the purchase of raw materials and supplies required
for processing or manufacture of the goods as well as for purchase of packaging and
packing materials required to pack the goods to make them ready for their shipment to
the foreign country.
Exporters may not, however, be easily able to obtain such facilities from their
bankers for several reasons – the exporter may be relatively new to export business,
the extent of facilities needed by him may be out of proportion to the equity of the
Check Your Progress
firms or the value of collateral offered by the exporter may be inadequate. The bank is
required to be co-insurer to the extent of the remaining loss. 9. State two roles of
IDBI.
What are the loans and advances eligible for packing credit guarantee? 10. What are the
special schemes of
Any loan given to an exporter for the manufacture, processing, purchasing or packing ECGC?
of goods meant for export against a firm order or Letter of Credit qualifies for Packing 11. What is an SCR
Credit Guarantee. Pre-shipment advances given by banks to parties who enter into policy?
contracts for export of services or for construction works abroad to meet preliminary 12. What are the two
functions performed
expenses in connection with such contracts are also eligible for cover under the by IDBI?
Guarantee. The requirement of lodgement of Letter of Credit or export order for
granting packing credit advances is waived if the bank grants such advances in
accordance with the instructions of the RBI in that respect. Self-Instructional
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Export Finance 2.8 SUMMING UP
x Customer-centric organizations create a culture that exudes care and concern
NOTES for the customer. Such organizations manage a pool of information about their
customers to enable them to serve customers better than their competitors.
x Most companies are content with asking customers their opinions about products
that already exist but real market-oriented companies will allow customers to set
priorities for design. Market-oriented companies let customer desires drive the
R&D agenda.
x Market segmentation is one of the prerequisites for planning marketing activities
for any product. Segmenting, targeting and positioning (STP) are the three basic
components of strategic marketing in modern times.
x Segmentation of market is a process of identifying the agglomeration of buyers,
their wants, purchasing power, geographical locations, their buying attitudes
and behaviour to facilitate the targeting and positioning of the products.
x Using ‘niche marketing’, segmentation can allow a new company or new product
to target less contested buyers and help a mature product seek new buyers.
x The companies may make more efficient use of marketing resources by focusing
on the best segments for offering – product, price, promotion, and place
(distribution).
x A firm, which would like to involve itself in international business, may look for
its entry into the international market in several possible ways including:
Exporting, licensing, franchising, joint ventures, strategic alliances and wholly
owned subsidies.
x Identifying a marketing region is always better than being restricted to an individual
country for the purpose of cost-effective distribution networking.
x The firms preparing for international marketing should also keep track of the
international subsidies provided to the developing countries. A strong political
and economic information system would help the firms in preparing international
marketing plans more effectively.
x Free zones have become increasingly popular as trade promotion policy
instruments, especially in developing countries, to the point where in some
developing countries a large proportion of their exports currently originates in
free zones.
x Any type of incentive provided in a free zone would need to be phased out if
the free-zone programme is to be brought into conformity with the rules in the
SCM Agreement concerning export subsidies.
x The EXIM Bank has taken over the operations of the International Finance
Wing of the Industrial Development Bank of India (IDBI). It came into existence
on 1 January 1982 and started its operations from 1 March 1982.
x It provides assistance to exporters in India, commercial banks, overseas buyers,
and overseas banks as its fund based assistance.
x It provides guarantees and bonds, and advisory services as non-fund based
assistance.
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x IDBI Bank Ltd. is today one of India’s largest commercial banks. For over 40 Market Strategies and
Export Finance
years, IDBI Bank has essayed a key nation-building role, first as the apex
Development Financial Institution (DFI) (July 1, 1964 to September 30, 2004)
in the realm of industry and thereafter as a full-service commercial Bank (October
1, 2004 onwards). NOTES
x The government realized the need of covering the risk of exporting on credit. In
order to provide export credit insurance support to Indian exporters, the
Government of India set up the Export Risks Insurance Corporation (ERIC) in
July 1957 which was transformed into Export Credit and Guarantee Corporation
(ECGC) in 1964.
x Any loan given to an exporter for the manufacture, processing, purchasing or
packing of goods meant for export against a firm order or Letter of Credit
qualifies for Packing Credit Guarantee.
2.9 KEY TERMS

x Packaging credit: Packaging credit refers to the credit granted by a bank to
enable an exporter to pack the goods meant for exports.
x DFI: A development finance institution (DFI) is an alternative financial
institution which includes microfinance institutions, community development
financial institution and revolving loan funds.
x Niche marketing: Niche marketing is concentrating all marketing efforts on a
small but specific and well-defined segment of the population.

1. Markets can be segmented or targeted on a variety of factors including age,
gender, location, geographic factors, demographic characteristics, family
lifecycle, desire for relaxation or time pressures.
2. The psychographic variables include attitudes, lifestyle, hobbies, risk aversion,
personality traits, leadership traits, magazines read, television programmes
watched, and the brand loyalty.
3. Segmenting, targeting and positioning (STP) are the three basic components of
strategic marketing in modern times.
4. Personal preference can be categorized in the following three patterns:
x Homogeneous preferences for products or brands
x Diffused preferences showing greater variations for the brands across the
regions
x Clustered preferences indicating localized preferences of consumers for
the brands available
5. Two advantages of licensing are:
x Licensing is a quick and easy entry tool with little capital investment in the
foreign markets.
x Some countries offer licensing as the only means of tapping the market.
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Market Strategies and 6. The four models of franchising are: Manufacturer-Retailer, Manufacturer-
Export Finance
Wholesaler, Wholesaler-Retailer, Retailer-Retailer
7. EXIM Bank started its operations from 1 March 1982.
NOTES 8. The aspects that may turn free zones prohibited include the following:
x Requirement to use domestic over imported goods
x Requirement to export certain amount of the production
x Limitations on sales and exports into the national customs territory
(including the payment of certain taxes on those sales)
9. The two roles of IDBI are:
x As an apex financial institution, it coordinates the working of other financial
institutions.
x It assists in the development of other financial institutions.
10. The special schemes of ECGC include packing credit guarantee, post shipment
credit guarantee and export production finance guarantee.
11. SCR stands for Shipments Comprehensive Risks Policy.
12. The two functions performed by IDBI are:
x To grant loans and advances to IFCI, SFCs or any other financial institution
by way of refinancing of loans granted by such institutions which are
repayable within 25 years.
x To grant loans and advances to scheduled banks or state co-operative
banks by way of refinancing of loans granted by such institutions which
are repayable within 15 years.
1. What steps do the multinational companies follow to determine the segmentation
criteria?
2. What is indirect exporting? How does it function?
3. How is an international marketing entry plan developed?
4. What are the functions performed by IDBI?
Long-Answer Questions
1. Define market profiling. What are the steps involved in market profiling?
2. Discuss in detail the entry strategies of MNCs. Which strategy do you consider
the most suitable and why?
3. Discuss free trade zones. What does a member need to do to bring its free
zones into line with the SCM agreement?
4. The main functions of EXIM Bank are to provide fund based and non-fund
based assistance. Elaborate.
5. The major function of ECGC is to minimize the risk element in export business
and to facilitate the flow of finance from the banks to exporters. Explain.
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2.12 REFERENCES AND SUGGESTED READINGS Export Finance
Onkvisit, Sak and Shaw, JJ. 1995. International Marketing: Analysis and Strategy.
New Delhi: Prentice Hall of India. NOTES
Bhattacharya, B. 1991. Export Marketing: Strategies for Success. New Delhi: Global
Business Press.
Keegan, Warren. 1995. Global Marketing Management. New Jersey: Prentice Hall
Inc.
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International
UNIT 3 INTERNATIONAL MARKETING Marketing Decisions
DECISIONS
NOTES
Structure
3.0 Introduction
3.1 Objectives
3.2 International Product Planning
3.3 Product Design Strategy
3.4 New Product Development
3.5 Branding, Packaging and Labelling
3.6 International Pricing Strategy
3.7 International Channels of Distribution
3.8 Marketing Environment and Distribution Strategies
3.9 International Logistics
3.10 International Promotion and Advertising
3.11 Summing Up
3.12 Key Terms
3.0 INTRODUCTION
International marketing decisions involve decisions regarding the product—its
marketing, planning, designing, its channels of distribution, advertising and promotional
strategies. A product is a good, a service or an idea consisting of tangible and intangible
attributes that satisfies consumers; it is received in exchange for money or some other
unit of value. Product planning refers to the systematic decision-making related to all
aspects of the development and management of the products of a company, including
branding and packaging. It is essential for a firm to sell products which are essentially
the choice of potential consumers.
The scope of production and marketing of products is decided by the marketer,
based on its profitability and consumer recognition. However, it is the consumers who
actually influence the products that stay in the range of marketing. Therefore, it is
essential to plan for products in the market in such a way as to optimize the profit of
the firm and, therefore, its efficiency.
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International In this unit, you will study about various concepts related to the decisions
Marketing Decisions
involving international marketing, product planning, pricing and distribution strategies
in detail.
NOTES
3.1 OBJECTIVES
x Explain international product planning and design strategy
x Discuss the functions of branding, packaging and labelling
x Interpret international pricing strategy and methods of pricing
x Assess the distribution strategies of international marketing
x Discuss the role of logistics and supply chain management
x Describe the components of international promotion
3.2 INTERNATIONAL PRODUCT PLANNING

It is normally accepted that a product has achieved success when all investments
made for its commercialization and development have been recovered and the product
is still capable of providing satisfaction to consumers. The product must be capable
of earning substantial revenues to recover the full investment that the company has put
into it. The investments broadly include the cost of design, manufacturing and inventory,
market research, sampling and logistics and physical distribution. The product manager
has to ensure that the marketing programmes are designed to attain faster recovery of
investments. It is rather impossible to enter the global market in the existing era of
competition without proper product planning. The product launch must be carried out
in an energetic and creative style with effective promotional packages. In planning for
the product markets, it is essential to understand clearly the combinations of the expected
margins and turnover in terms of volume of the product. Quite often it is required to
operate on volumes than looking for higher margins. This may provide the marketer
the opportunity for wide coverage of the market at low margins to help him become
the market leader because no competitors may be able to sustain at such low margins,
due to economic problems associated with economies of scale. It is necessary to
position the new products in the new segments carefully by building image of the
brand, by means of a pre-launch publicity blitz, swamping the competitive pricing
strategy would help the product to penetrate into the market against competing brands
in the new segment. At the same time, it is required of the marketer to refresh the
consumer behaviour periodically and reorient brand image in tune with the existing
consumer segment by constantly building better communication strategies. The success
stories of the product would help in carrying out such a process. Figure 3.1 exhibits
the product planning strategy in the new and existing consumer segments.
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64 Material
International
Marketing Decisions
NOTES
Fig. 3.1 Product Planning Strategy
The high margin and low volume strategy will precipitate a distribution crisis for
the company and may generate irrecoverable brand loss by allowing the consumer to
switch to other brands that may provide satisfaction, as close substitutes. Conversely,
it would be difficult for the company to survive the competition if it decides to sell its
products at low margin (to gain the brand acceptance) but is unable to meet the supply
requirements in the market. Hence, while introducing the new products in existing
consumer segments, the company needs to take a holistic view and offer competitive
price and quality and new feature advantages to capture/enhance consumer preference
for the brand. High profile companies enjoy the premium market of their product
selling high volumes at higher margins. Companies aiming to be market leaders and
believing in operating with large volumes of products or extensive product line should
plan on low margins and high volumes, while the star companies may adopt the policy
of high margin-high volume. To achieve a sustainable market share in the existing
market, large companies build strong consumer relations, brand recall strategies and
reposition their product and brand periodically.
3.3 PRODUCT DESIGN STRATEGY

The product and business strategies of a foreign firm should be developed in reference
to the macroeconomic conditions of the host country. In other words, the definition of
the product objectives should emerge from business definitions developed in accordance
with the macroeconomic requirements of the host country. Foreign firms need to
analyze whether the success of their product or product line can be replicated in a new
market destination abroad and explore the factors that may lead the product approach
in the host country success. A decision must be made about which is the more
appropriate of two product design strategies—standardization or customization.
Standardization refers to offering a common product on a national, regional, or world-
wide basis, while customization signifies adapting a product by making appropriate
changes in it, to match local perspectives. The trade-off for a firm—deciding on
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International whether to opt for product customization or adaptation—largely depends on the size
Marketing Decisions
of the market for the identified product and off-take of the product over the short and
long run. Customization of the product may be chosen over standardization in order
to cater to the unique situation in each country. Yet, there are potential gains to consider
NOTES in product standardization. Inter-national marketers must examine all the criteria in
order to decide the extent to which products should vary from country to country. If
there are no new needs to be catered to, to make the product offering ready for any
market, a finding that would result in significant cost savings, the firm may decide to
standardize its products. Though product standardization may be a risky proposition
in the long run, as consumer behaviour is flexible and tends to change over time, some
international companies have succeeded in standardization of products for offering in
many countries. The General Electric Company’s debacles in the small-appliances
field in Germany and Polaroid’s difficulties with the Swinger camera in France are
classic examples of product standardization. At the same time, Volkswagen’s success
worldwide supports standardization.
Life Cycle of Products
The international markets are not always homogeneous and markets in different
countries for a given product display different stages of development at the same time.
This phenomenon may be explained through the product life cycle concept wherein
products go through several life cycle stages over a period of time, and in each stage
different marketing strategies are appropriate. There are four stages usually identified
with this process: introduction, growth, maturity, and decline, even for the products
distributed in markets overseas.
Customizing products for the local market
In developing market environments, firms should develop their product policies in
accordance with the requirements of the local markets. If the customer needs are the
basic ones and there are very few alternatives available to customers in the home
market, it would be appropriate for a firm to offer standardized products from the
existing product line. Under such circumstances, a firm may decide to offer a narrow
range of choice in product selection at a local market level. This would help in confirming
the cost effective and high profitability product offerings in the developing markets.
However, the product adaptation to match local conditions involves consideration of
many cost factors and it is necessary for a foreign firm to undertake a thorough cost
benefit analysis prior to making firm decisions on product policy. These costs may
relate to research and development; physical alteration of the product’s design, style,
features or changes in packaging, co-branding, performance guarantee, and the like. In
contrast with customization, no research and development is required in the process
of standardization, since manufacturing technology and quality control procedures
have been established, and performance has been tested and improved. If a product is
customized, presumably it will have greater appeal to the mass market in the host
country. A cost benefit analysis would help in determining the cost to customize the
odds in favour of reaping the benefits. The results of cost-benefit analysis on product
customization should be compared using the same analysis as applied to standardization.
The net difference indicates the relative desirability of the two strategies.
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International
3.4 NEW PRODUCT DEVELOPMENT Marketing Decisions
New products have to be developed by companies with utmost care. It is necessary to

understand and accommodate the needs of consumers—counter competitive threats, NOTES
ensure availability of post sales services and take into account the cost of marketing
the product. Despite the risks involved, however, new product development is essential
and companies need to make continuous efforts to develop new products, in order to
beat competitors.
x Limited creativity and paucity of new (and eminently useful) product ideas
x Fragmented markets
x Social, economic and technological limitations
x Government policies and restrictions
x Cost effectiveness of the process of new product development
x Resource crisis at various levels in the process, extending from the state of
product development to launching in the market
x Overly extended product development and launching time; and
x Short product life cycle—meaning either rapid technological obsolescence or
being displaced by better copy-cat versions.
The companies should strengthen their marketing network simultaneously while
launching the new products. It has been observed that the failure of new products is
often due to the lack of organizational teamwork. Thus, it is required to inculcate team
behaviour in developing the new products and popularizing them in the test market
segments. The results of the test markets may be further tested in the larger segments.
The process of new product development is exhibited in Figure 3.2.
Fig. 3.2 New Product Development Process

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International It is essential that a company conducts brainstorming exercises for understanding
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the basic and secondary needs for the product. These include listing the product
attributes, and identifying the forced relationship of other goods and services with the
new product. Idea generation in the process of new product development is a major
NOTES exercise. This technique calls for listing of all major attributes of the existing product
and the needed attributes in order to improve the same product. The forced relationship
of the new product with the existing accessories also need to be studied, e.g., developing
a new television set may be related with the consumer need of a clock-cum-timer,
multi-channel viewing on one screen, microphone attachment and a built-in video game.
Such a forced relationship has to be identified by the company before launching
the product. The morphological analysis calls for identifying the structural dimensions
of a problem and examining the relationship among them. The need identification can
be done by interacting with the potential and existing customers in a focus group meet.
The industrial marketers can identify new product ideas working in association with
the lead users of the product. However, brainstorming is also an important tool, which
stimulates group creativity. In a brainstorming exercise, the following processes are
developed:
x Welcome freewheeling and lateral ideas for better steering
x Encourage maximum number of ideas and categorize their utility
x Establish inter-relationship of ideas for an overall synergistic approach
x Understand that negative comments may be the stimuli for the birth of truly
breakthrough ideas.
The basic purpose of this exercise is to generate a large number of ideas. These
ideas need to be carefully screened in the interest of consumer satisfaction as well as
the company’s profit. In this process, the company should avoid the ‘drop and go’
errors. The former attempts dismiss potentially good but undeveloped ideas, while the
latter allows poorer ideas to move into the mainstream of commercialization. Hence
the purpose of screening the idea needs to be understood carefully. It is advisable that
every company develops its own idea-rating matrix on the basis of emerging ideas and
their usefulness. Product ideas have to be turned into concepts, and product concepts
can be turned into a brand concept. Concept testing calls for testing of these competing
concepts with an appropriate group of target consumers. Concepts can be presented
physically or symbolically. The consumers’ response may be summarized and the
strength of the concept may be judged across segments. The gap between consumer
need and product performance may be checked, and modified thereafter. Such concept
testing and product development methodology applies to any product or service.
Business analysis includes sales projections as applicable to one-time purchase,
frequently purchased or regularly purchased products. Estimates should also be made
in relation to the tendency of first purchase, replacement purchase or repeat sales.
Besides, the company should also assess the marketing costs and the profits from
commercializing the product. The statement of such estimates may stretch across the
regions, and years of sales (spatial and temporal) based on the following variables:
x Sales revenue
x Cost of the goods
x Gross margin
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x Development costs International
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x Marketing costs
x Allocated overheads
x Gross contribution NOTES
x Supplementary contribution
x Net contribution
x Discount contribution
x Cumulative discounted cash flow
Case Study: Godrej Pillsbury

According to Godrej Pillsbury, only 3 per cent of urban households in India own ovens.
So all cooker cake mix, is bound to click. This product allows the Indian homemaker
to ‘bake’ a cake at home in her pressure cooker. Available in a 150-gm pack which
makes a 300-gm cake, it comes in two flavours—chocolate and sponge. With this
product, Godrej Pillsbury also launched its national single-number toll-free helpline
on which trained personnel are available to help out. Beginning with the top 25 cities,
Godrej has rolled out the product to all major towns that have a population of over
100 thousand. Godrej Pillsbury is a joint venture (JV) between the Godrej group and
The Pillsbury Co. (which is part of the $21 billion global food and drinks giant, Diageo,
that also owns Burger King, Green Giant, Johnny Walker, Smirnoff and Bailey’s,
amongst others). In India, the JV has already launched Pillsbury Atta (wheat flour).
According to a company spokesperson, the launch of traditional oven cake mixes in
late 1998 had met with lukewarm response. The Pillsbury Cooker Cake Mix was
designed to explode the category.
The marketing testing can be done by using sales-wave research and controlled
test marketing method. The sales wave research enables the company to estimate the
repeat purchase rate where consumers spend their own money and choose this product
over other competing brands. The controlled test marketing is conducted in a given
territory of consumers across segments. Retailers and consumers in the vicinity thereof
are identified and the consulting firm conducting research delivers the product to the
selected outlets with total package of promotion. The responses of the consumers at
the outlets can be collected in a structured questionnaire or fed directly in the computer.
Such controlled test marketing allows the company to test the impact of retail response
as well as the buying behaviour of the consumers. Commercialization of the product is
a strategic decision in which the company should look into the appropriate time,
market and consumer segment to launch the product. The company has to derive the Check Your Progress
geographical strategy with a keen eye on the crucial logistics administration. The time 1. State two factors
of launch of the product may be considered looking into three common choice— obstructing growth
maiden entry or first look in the market, parallel entry with the similar or identical of new products.
2. What are the five
product of the competing brand and late entry when the firm delays positioning its
stages of the
product in the selected segment. The process of commercializing the product also adoption process?
prompts the adoption behaviour of the consumers. In conclusion there are five stages 3. Why is
in the adoption process—awareness about the product, interest generated in using or commercialization
of the product
adopting the product, evaluation of the product, trial of the product from the point of considered a
perceived use value and perceived price and final adoption of the product for use. strategic decision?
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Marketing Decisions 3.5 BRANDING, PACKAGING AND LABELLING
Brand is largely associated with the attributes of the product, benefits, user values,
NOTES culture, personality and behaviour. Branding decisions, therefore, are very important
for the company. In this process, the company should first take a decision on developing
the brand name and its need. Branding is necessary to get the identification of the
product and supplier, process supply orders, gain legal protection and good corporate
image. Figure 3.3 exhibits the process of branding decision-making in a company.
Branding also helps in building a loyal customer base for the product and organizing
the seller segments for better operational efficiency.
Fig. 3.3 Process of Branding Decision-Making
The company has to assess the strength and weaknesses of the existing brands
in the market before taking the branding decision for their product. The manufacturing
company may have several options on brand sponsorship. The product may be launched
in the market as a brand, which is also known as national brand, a distributor brand (as
happens in the case of edible oils, sugar, processed grains and in many products
which need re-packing) or as a licensed brand name. The brand category may be
chosen from the brand sponsorship in terms of national brand, private brand or licensed
brand. Deciding upon the category of brand, an appropriate brand name may be
selected. Brand names may reflect individual, blanket family name (umbrella brand)
for all products, separate family names for all products, or a company trademark. The
brand name should be short, easy to pronounce and convey proper meaning in the
language of the country/region. Double entendres and undesirable connotations must
be carefully avoided. The brand name should be such that it suggests some use, value
or attribute of the product and is distinct from the existing market brands. The brand
extension in the same company can be explained as product-line. It has been observed
that the majority of new product activities consist of line extensions. The company
may have four basic options in brand strategy—line extension, in which the existing
brand can be extended to new attributes in the existing product category; brand
extension, which enables the company to introduce new brand names to new product
categories; multi-brands may be used if new brand names are provided to the same
category of products; and, finally the new brands are obviously those where ‘brand
new’ brand names are used for the new product categories.
The company may have low price and high consumer loyalty and also more
trade leverage. It would be difficult to measure the brand equity of various brands in
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the market as the parameters are very subjective and the whole exercise may turn out International
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to be arbitrary. The brand equity has four major variables, viz., awareness, acceptability,
preference and brand loyalty and the integration of all these variables offer the high
brand equity for the company. The brand equity further leads to brand personality of
the company. The company may decide the brand personality strategy after analyzing NOTES
the strengths and weaknesses of the existing brands in the market. The research on
assessing the brand personality may be conducted by using the brand rating method
to get quantitative measures. The methods of photo sorting (trademark), phrase writing
and simulation games may be used for assessing the brand personality. The sample
consumers for this purpose should be self-directed, principled, externally directed,
status-oriented, action-oriented, consumers and non-driven consumers. The effective
strategy for implementing the brand personality measures would be to go for aggressive
advertising using the consumer reviews and comparative product advantages to good
effect. However, the consistency in the message should be taken care of properly.
Once positioned by the company in the market, the brand may have to be
repositioned over a period of time as the competitor may launch a brand close to the
company’s and cut into its market share. Shifts in consumer preferences may also
necessitate repositioning of the brand in the market. The repositioning exercise has to
be carefully done, analyzing the age and sex response to the company’s brand, packaging
and advertising response, revenue generation in the new market/consumer segment
and strength of the competitors. The brand positioning map exhibited in Figure 3.4
shows that positioning the brand at A would be the most profitable where the consumer
preference is good and is matched to the USP.
Fig. 3.4 Brand Positioning
Conversely, repositioning of the brand at E would not be favourable due to high

marketing cost or overcoming the competitors and re-orienting the consumer preference
for the brand. The brand promotion for the new users may generate good response
for the product sales but may also pose threats of competitors entering in the (wide
open) new segment. Hence, the decision on brand re-positioning should be made after
comparing the likely revenues and costs of each repositioning alternative. To identify
the best preference cluster and the most appropriate USP for positioning the brand
and building image is a must for any company. Hence, the most ideal brand positioning
would be at A with reasonably good USP and preference cluster for the product.
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International However, the company may aim at repositioning the brand at B and C over a period of
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time.
The brand extension in the same company can be explained as product-line. It
has been observed that majority of new product activities consist of line extensions.
NOTES
The company may have four basic options in brand strategy—line extension: in which
the existing brand can be extended to new attributes in the existing product category:
brand extension, which enables the company to introduce new brand names to new
product categories; multi-brands may be used if new brand names are provided to the
same category of products and, finally, the new brands: those where new brand
names are used for the new product categories. The branding strategy can be viewed
clearly as exhibited in Figure 3.5.
Fig. 3.5 Branding Strategy
Packaging
Packages have always served a practical function—that is, they hold the contents
together and protect goods as they move through the distribution channel. Packaging
is also a container for promoting the product and making it easier and safer to use.
Functions of Packaging
The critical functions of packaging include containing, protecting and promoting
products as well as facilitating the storage, use and convenience of the products. A
fourth function of packaging that is becoming more important now is to facilitate
recycling and reduce environmental damage.
x Containing and protecting products: The most obvious function of packaging
is to contain products that are liquid, granular, or otherwise divisible. Packaging
also enables manufacturers, wholesalers, and retailers to market products in
specific quantities, such as grams.
Physical protection is another obvious function of packaging. Most products
are handled several times between the time they are manufactured, harvested or
otherwise produced and the time they are consumed or used. Many products
are shipped, stored and inspected several times between production and
consumption. Some, like milk, need to be refrigerated. Others, like beer, are
sensitive to light. Still others, like bandages and medicines need to be kept
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sterile. Packages protect products from breakage, evaporation, spillage, spoilage, International
Marketing Decisions
light, heat, cold, infestation, and many other conditions.
x Promoting products: A package differentiates a product from competing
products and may associate a new product with a family of other products
NOTES
from the same manufacturer.
Packages use designs, colours, shapes, and materials to try to influence
consumers’ perceptions and buying behaviour. Packaging has a measurable
effect on sales. Appropriate packaging has been shown to improve sales by as
much as 50 per cent.
x Facilitating storage, use and convenience: Wholesalers and retailers prefer
packages that are easy to ship, store, and stock on shelves. They also like
packages that protect products, prevent spoilage or breakage, and extend the
product’s shelf life.
Consumers’ requirements for storage, use and convenience cover many
dimensions. Consumers are constantly seeking items that are easy to handle,
open, and reclose, although some consumers want packages that are tamperproof
or childproof. Consumers also want reusable and disposable packages.
Some firms use packages to segment markets. Different size packages appeal
to heavy, moderate and light users. Packaging convenience can increase a
product’s utility and therefore, its market share and profits.
x Facilitating recycling and reducing environmental damage: One of the
most important packaging issues today is compatibility with the environment.
Some firms use their packaging to target environmentally concerned market
segments.
Labelling
The label is an integral part of a package. Labelling can be generally seen in the form of
persuasive labelling or informational labelling. While persuasive labelling is mainly
concerned with the theme for promotion or the logo, informational labelling focusses
on providing information to the customer. Persuasive labelling does not give much
importance to information whereas informational labelling ensures that the customers
are more knowledgeable about the product and its usage after the purchase.
3.6 INTERNATIONAL PRICING STRATEGY

One of the challenges that international marketers face is trying to set prices for their
products and services in foreign markets. There are many variable factors that influence
international pricing, such as currency exchange rates, economic conditions, production
expenses, your competitors and the consumers in your target market. International
pricing strategies require careful planning and ongoing management in order to be
effective.
Getting your international pricing strategies right is crucial to the success of
your marketing efforts. The more you understand about your target market, the better
you will be able to set your prices at a level that will appeal to consumers whilst still
generating a positive return for your business. Let us discuss some of the pricing
strategies:
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International 1. Value Pricing
Marketing Decisions
Value pricing may be an appropriate strategy to practice with new products. Such a
strategy is also known as ‘skimming the market’. In this process, a high price is set for
NOTES the product to ‘cream off’ all available demand. The price is maintained for some
time, to allow the customers who regard the product as important to ‘upgrade’ them
into the high price bracket. In a broad sense, it is but product segmentation.
The value pricing approach would prove advantageous only when enough
product awareness is created among the consumers through advertisements,
demonstrations and effective consumer services. In the long run, such an approach
would create a specific group of customers or consumer segment for the product. For
instance, the electronic products of some companies like BPL-Sanyo and Philips
among the capital goods and some of the household consumable goods such as
packed food and condiments coming from capital-intensive units constitute such
consumer segments for their products.
The advantage of earning a high profit under the value pricing approach is
anticipated in the long run when there is consumer segmentation for the product with a
high recognition. However in this approach, the selling cost may shoot up reducing the
profit margin in the initial stages. In value pricing, another important factor to be
considered are the territorial characteristics—low purchasing power or high purchasing
power consumer segments, or a broader classification in terms of ‘rural’ and ‘urban’.
In the former, where the marginal propensity of consumption and income level of
consumers are low, value pricing, with a high product price and selling cost would not
be a profitable approach. In such areas, where there are low-income group consumers,
the product segmentation can be done formulating the ‘dumping policy’ i.e., a low
price strategy. The price of the product can be raised to the maximum in coherence
with the consumers’ purchasing and paying capacity in the long run, after the product
gets proper consumer recognition and makes headway in the market. Under such
circumstances, the selling cost will be lower as compared to the overhead costs.
If the customer’s economics are understood, it is possible to estimate the benefit
of purchasing the product or service. Company management should be asking itself,
‘What is the highest price that can be charged such that the customer is better off
buying from us?’ Value added pricing can be explained as a company provides
transportation and disposal services for infectious medical waste from small generators,
such as doctors and blood banks. As the regulatory and enforcement climates have
stiffened, customers have become increasingly sensitive to the problems associated
with proper disposal of this material. Unlike the competitors, who primarily price by
the weight of material removed, the company may charge a fixed fee per container.
2. Skimming Strategy
Skimming pricing is the strategy of establishing a high initial price for a product with a
view to ‘skimming the cream off the market’ at the upper end of the demand curve. It
is accompanied by heavy expenditure on promotion. A skimming strategy may be
recommended under the following business conditions:
x When the nature of demand is uncertain
x When a company has expended large sums of money on research and
development for a new product
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x When the competition is expected to develop and market a similar product in International
Marketing Decisions
the near future
x When the product is very innovative and the market is expected to mature very
slowly.
NOTES
Under these circumstances, a skimming strategy has several advantages. At the
top of the demand curve, price elasticity is low. Besides, in the absence of any close
substitute, cross-elasticity is also low. These factors, along with heavy emphasis on
promotion, tend to help the product make significant inroads into the market. The high
price also helps the segment market.
One may also turn to a penetration strategy with a view to achieving economies
of scale. Savings in production costs alone may not be an important factor in setting
low prices because, in the absence of price elasticity, it is difficult to generate sufficient
sales. Finally, before adopting penetration pricing, one must make sure that the product
fits into the lifestyles of the mass market. How low the penetration price should be
differs from case to case. There are different types of prices used in penetration
strategies: restrained elimination prices, promotional prices, and keep-out prices.
Box 3.1
Dow Chemical Company stresses penetration pricing. It concentrates on lower-
margin commodity products and low prices, builds dominant market share, and
holds on for the long haul. Texas Instruments also practices penetration pricing.
Texas Instruments starts by building a large plant capacity. By setting the price as
low as possible, it hopes to penetrate fast and gain a large market share. Penetration
pricing reflects a long-term perspective in which short-term profits are sacrificed
in order to establish sustainable competitive advantage. Penetration policy usually
leads to above-average long-run returns that fall into a relatively narrow range.
Price skimming, on the other hand, yields a wider range of lower-than-average
returns.
3. Pricing with Demand Curve

This approach may be followed for pricing the products that already exist in the
market and are mature with regard to sales realization in open market conditions. In
this process, unlike getting customers to upgrade themselves and form segments, the
pricing approach calls for widening the market and matching the product price with
product demand. In this process, a high price may be set initially, but there is a judicious
scaling down of the price and mopping up of all available demand at each price level.
The likely demand at various price levels is difficult to estimate but, the
implications pertaining to the results of sample survey can be used in pricing. The
sales estimates may represent the demand schedule and in a firm, even with these
points the curve can be drawn. Some preconditions may be reviewed to estimate the
demand of the product such as: (i) number of potential buyers, (ii) propensity to
purchase, and (iii) product attributes conducive to attitude building. The demand
curve has implications of these preconditions. If the price is changed there is a movement
along with the demand curve and if any of the preconditions of demand is changed,
there is a scope of shift in the demand curve to the higher or lower side. In case the
demand for the product is elastic, the price should not be kept high for any product.
Pricing strategies are subject to the very nature of the product. If it is a core product
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International made tangible without incurring scorching expenditure, it can be priced at higher
Marketing Decisions
margins, as any close competitor fails to match it. Marketing of such products depends
on the pricing strategies suitable at every level of the distribution network.
NOTES 4. Penetration Pricing

This policy may be adopted to penetrate into the market as quickly as possible to
secure cost advantages through pushing products in high volume. In case new
products—of qualities similar to those already existing in the market—have to be
introduced for crash sales in the market, the price may be derived in relation to its
competitive products. The important issue to be kept in view is the anticipated selling
cost and the volume of sales, to determine prices. The penetration price has to be a
little lower than the price of the similar products already in the market. The penetration
price is conceptually an artificial pricing approach to push the product into the market.
The real price may be fixed later in the process, to assess the demand elasticity of the
product in the primary and subsequent markets.
Penetration pricing is the strategy of entering the market with a low initial price
so that a greater share of the market can be captured. This strategy is used when an
elite market does not exist and demand seems to be elastic over the entire demand
curve, even during early stages of product introduction. High price elasticity of demand
is probably the most important reason for adopting a penetration strategy. It is also
used to discourage competitors from entering the market. When competitors seem to
be encroaching on a market, an attempt is made to lure them away by means of
penetration pricing, despite lower margins. A competitor’s costs play a decisive role in
this pricing strategy because a cost advantage over the existing manufacturer might
persuade another firm to enter the market, regardless of how low the margin may be.
5. Geographical Pricing
This strategy involves the exercise of a discriminatory pricing policy across the various
territorial market segments. The marketer who serves a number of distinct regions can
adopt this policy without creating psychological barriers either to the customers or
distributors in purchasing and selling the products. Consumers are quite aware that—
for whatever reasons—prices vary from country to country.
6. Dual Standards
This strategy is largely backed by the concept of ‘skimming in’ and ‘skimming off’
price setting. A marketer can choose a relatively lower price for the product in segments
where customer density is high but purchasing power is low. As such, a higher price
may be fixed in the segments of high purchasing power where ‘skimming off’ strategy
can be implemented. In setting up both the price standards, the marketing objective
should remain intact and the overall orientation of the marketing managers has to
remain the same.
7. Conspicuous Pricing
The skimming approach also applies to this pricing policy, where the price of the
product is kept higher than its substitutes in order to make it conspicuous, so the
product may be recognized as a symbol of social status.
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8. Psychological Pricing International
Marketing Decisions
This approach makes the customer feel that he is paying a relatively lower price for the
product. To stimulate such a view, the price is fixed in integral values very close to the
round numeric values, e.g., prices of Bata shoes @ ` 499/-, shirts in UK @ £3.99. NOTES
Such a price structure gives the customer a materialistic satisfaction in buying the
product.
9. Value-added Pricing
In this price-determining process, the company takes care of the value of its by-
products in the principal product and prices them accordingly. Such approaches are
generally applicable for evolving price strategies of semi-processed products like meat,
oilseeds, milk, chemicals, etc.
10. Complementary Product Pricing
The prices of the principal products are dependent on the pricing pattern of associated
products, and vice-versa. It is logical that the prices of complementary products should
be lower, e.g., film for cameras, battery for camera, etc., or else the customers may
withdraw the principal product from use. However, in the long run, manufacturers
stand to gain substantially from the sale of such complementary consumables, provided
they are their own brand, e.g., Kodak Cameras and Kodak film, HP Printers and HP
printer (inkjet) cartridges.
11. Price Discounts
This is one of the most popular strategies adopted by private companies in order to
attract the consumer towards their stocks and increase sales by offering a discount on
the price of the products either on selected or all items, in accordance with the business
state of the organization. The discounts are offered in terms of cash, kind or discount
vouchers, encouraging customers to buy the products of the company for the amount
discounted. Discounts offered by government supported organizations include:
x Cash discounts
x Quantity discounts
x Discount in kind
x Trade discounts
x Seasonal discounts
x Institutional discounts
x Grant-in-aid discounts
x Allowances
x Stock clearing discounts
A company may offer a discount either by making the customer pay less than
the prescribed price of the product or set a strategy to provide additional quantity of
products on the pre-set price. Such transactions refer to cash and quantity discounts.
For example, the policy of discount of a firm in kind may be given to a customer,
especially with a high technology principal product, e.g., memory storage device with
the computer. Trade discounts are incentives to the distributors for the promotion of
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International sales. The seasonal discounts on prices are related to the customers’ demand for the
Marketing Decisions
product at a particular time. For example, during festivals, clothes are in high demand
and are generally offered at seasonal discounts to boost sales. The handloom societies
patronized by the Government of India, also offer seasonal discounts subject to the
NOTES availability of grant-in-aid for sales from the Government. On the bulk procurement of
products, an institutional discount on the set price is offered by the companies to keep
up the customer relationship. The company, however, may decide to offer a clearance
sale discount on prices to ease inventory blockade (clean old stocks) and liberate
blocked cash. It also helps an organization to refill the product-line with products or
demand at par with current fashion or demand. The sales personnel of the company
also get some benefit as a token or recognition for the service rendered in terms of
price discount on selected products to keep their morale high in the lean season.
12. Discriminating Pricing
A company modifies its pricing strategy for its products according to the customer
segments, product forms, product image, location and time. These approaches are to
be decided on the basis of the competition prevailing in the market. However, a marketing
manager has to keep his corporate objectives in view before discriminating the price in
several forms stated above.
13. Promotional Pricing
Under specific circumstances, companies will temporarily price their products below
the list price to promote sales. In the process, companies often take the risk of quoting
prices even below the cost. This can destroy the competitor who lacks the wherewithal
to match such an offer and loses major market share in the process. How long can
such a drastic price cut be sustained depends on how deep a company’s pockets are,
and how far it is willing to go down this road and yet avoid a pyrrhic victory.
Forms of Promotional Pricing Strategy:
x Loss leader pricing
x Special event pricing
x Low financing
Since there is always a threat of copy cat responses from strong competitors,
such a policy should not be maintained for too long a period of time.
Pricing is a logical proposition keeping in view the competitive products in the
market. A company has to determine the price on the basis of internal economics with
reference to cost of production, business objectives, targets, marketing policies and
profit targets, and external forces like market demand, and strategies of competitors
with competitive products.
14. Mark-up Pricing
It is an elementary pricing method that is exercised by adding mark-up standards to
the cost of manufacturing or sourcing the product. There are considerable variations
in mark-ups among the different products. Thus, this methodology is not considered
to be scientific. However, mark-up pricing remains popular for several reasons: (i) it is
a cost-plus exercise and appears to be fairer for both customers and sellers (ii) sellers
feel that this approach is simple and (iii) price competition is minimized. The mark-up
price may be calculated using the formula as below:
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where, Pm = Mark-up price, Cpi = Unit cost price, Sr = Expected returns on sales ...(i) International
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The unit cost of the product may be calculated from the following formula:
where, Vc = Variable Cost, Fc = Fixed Cost and Sc = Unit Sales … (ii)
The expected return price on sales may be computed from the projection stated in the NOTES
following equation:
where Tr = Target Returns and Yc = Capital investment in marketing … (iii)
The mark-up price can be calculated substituting the values of unit cost and
expected returns drawn from equation (ii) and (iii) in equation (i).
15. Customer Expectation-based Pricing
Another approach is to price customer expectations. Experienced purchasers of
products and services have set ranges and frames of reference for pricing expectations.
Prices that are inconsistent with these expectations may be rejected without
consideration. A low price may be associated with an inferior product or service,
thereby being unacceptable to particular customers. A high price may be beyond what
another buyer considers reasonable for his/her expectations of the product’s benefits.
Ultimately prices should be set according to what the market will bear. This will be
influenced by competitive actions, customer expectations, and the company’s cost
structure. No final pricing decisions should be made until a breakeven analysis has
been performed which considers fixed costs, variable costs, and volume.
Price is a vital component of a marketing mix, also known as the ‘four Ps’ of marketing.
The other components are product, place and promotion, all of which constitute
costs. Price, on the other hand, generates a return as it supports the other marketing-
mix elements. Although supply and demand drive pricing decisions, they’re not the
only factors. Any number of pricing objectives may come into play, but four in particular
apply to most businesses.
Survival
Prices are flexible. A company can lower them in order to increase sales enough to
keep the business going. The company uses a survival-based price objective when it’s
willing to accept short-term losses for the sake of long-term viability.
Profit
Price has both direct and indirect effects on profit. The direct effect relates to whether
the price covers the cost of producing the product. Price affects profit indirectly by
influencing how many units sell. The number of products sold also influences profit
through economies of scale—the relative benefit of selling more units. The primary
profit-based objective of pricing is to maximize price for long-term profitability.
Sales
Sales-oriented pricing objectives seek to boost volume or market share. A volume
increase is measured against a company’s own sales across specific time periods. A
company’s market share measures its sales against the sales of other companies in the
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International industry. Volume and market share are independent of each other, as a change in one
Marketing Decisions
doesn’t necessarily spur a change in the other.
Status Quo
NOTES A status quo price objective is a tactical goal that encourages competition on factors
other than price. It focuses on maintaining market share, for example, but not increasing
it, or matching a competitor’s price rather than beating it. Status quo pricing can have
a stabilizing effect on demand for a company’s products.
Being merely a number, it might be tempting to believe that setting the price of a
product must be an easy task for a company to perform. It is not. Many external and
internal factors have to be considered together. The price should have some reference
to its costs, as they must be recovered at least in the long run. Most companies cannot
afford to sell at prices below cost for long periods. The price should be low enough to
attract customers but high enough to bring reasonable profits to the company. A
company might be tempted to maximize profits by charging higher prices, but the
customers may not consider the products worthy of the higher prices being charged
and may not buy at all. The price should match the positioning strategy of the company.
The value of a premium brand will be eroded if its price is low. In most situations, all
the above factors have to be considered simultaneously when prices are set.
Fig. 3.6 Methods of Pricing
1. Cost-oriented Pricing
One of the methods of pricing a product is on the basis of its cost. The company can
either set the price on the basis of the total cost of the product, or on the basis of its
variable cost.
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Full cost pricing International
Marketing Decisions
Variable and fixed cost per unit is added and the desired profit margin is added to the
total cost. This price is true for a given volume of sales/output. But if sales/output
goes down, fixed cost per unit goes up, so price should go up. Therefore, there is an NOTES
increase in price as sales fall. Sales estimates are made before a price is set which is
illogical. It focuses on internal costs rather than customer’s ability or willingness to
pay. There may also be technical problems in allocating fixed/overhead cost in multi-
product firms.
Inspite of its drawbacks, the method forces managers to calculate costs, so it
gives an indication of the minimum price necessary to make a profit. Breakeven analysis
can be used to estimate sales volume needed to balance revenue and costs at different
price levels.
Direct cost pricing
The desired profit margin is added to the direct cost to obtain a price. Price does not
cover full costs, and the company would be making a loss. The strategy is valid if
there is idle capacity as margin is covering some part of fixed costs. It is useful for
services in periods of low demand as they cannot be stored. But customers who have
paid higher amount may find out and complain. Direct cost indicates the lowest price
at which it is sensible to take business if the alternative is to sit idle. It does not suffer
from ‘price up as demand goes down problem’, as it happens in full cost pricing
method. It also avoids problem of allocating overhead charges. But when business is
buoyant, it does not take into account customers’ willingness to pay. It is not for the
long term as fixed cost must also be covered to make profits. But it is a good short-
term strategy to reduce impact of excess capacity.
2. Competitor-oriented Pricing
Another method of pricing a product is on the basis of the competitor’s price. A
company can operate at a competitor’s price level if its products are undifferentiated.
It may adopt a more aggressive stance by lowering its price to win bids, or to get a
larger market share.
Going rate pricing
There is no product differentiation, i.e., there is some sort of perfect competition. All
companies charge the same price and smaller players follow the price set by market
leaders. This is not an attractive proposition for marketers. Marketers like to differentiate
their offerings and have a degree of price discretion. Even for commodity products,
differential advantages can be built upon for which premium prices can be charged.
Competitive bidding
The usual process involves drawing up a detailed specification for a product and
putting it out for tender. Potential suppliers quote a price which is confidential and
known only to themselves and the buyer (sealed bid). A major focus for suppliers are
the likely bid prices of competitors.
Expected profit = Profit × Probability of winning
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International As the quoted price will increase, profits will rise, but the probability of winning
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the bid will fall. The bidder uses past experience to estimate a probability of clinching
the deal at each price level. Expected profit peaks at a particular bid price.
Table 3.1 Competitive Bidding
NOTES
Bid price Profit Probability Expected profit
2000 0 .99 0
2100 100 .9 90
2200 200 .8 160
2300 300 .4 120
2400 400 .2 80
2500 500 .1 50
The company would quote a price of $2,200 as it stands to make the maximum
profit at this price with 80 per cent probability of winning the bid. But calculation of
probability of succeeding goes haywire where competitors are desperate to win an
order. Such competitors would quote very low prices to win the bid, as they are
willing to take the lower profits. A successful bidder needs to be aware of competitors’
motives and circumstances, and therefore it needs to install a competitor information
system. It needs to be aware of competitors who have idle capacity because such
competitors will quote low prices to win a bid, so that they can utilize their idle capacity.
Salespeople have to be trained to know details of past unsuccessful and successful
bids. They should be trained to draw successful bid prices from customers and then
to record these in a database mentioning order specification, the quantity of orders
and successful bid prices. However, it needs to be kept in mind that not all buyers will
inform true figures therefore the buyers should be graded for reliability.
3. Marketing-oriented Pricing
Prices have to be in tune with marketing strategy. Prices should be linked to strategic
objectives, distribution, positioning, promotions, and product advantages. Pricing
decision depends upon other decisions made earlier in the planning process. Price will
be dependent on positioning strategy for new products and on strategic objectives for
existing products.
Pricing new products
(i) Positioning strategy: For any new product there are planned potential target
markets. For instance, the target market for calculators comprises scientists,
engineers, bankers, accountants, students and public. Choice of target market
is an important factor to determine the price that could be charged. If engineers
are targeted, price would be higher. It would be lower for general public and the
lowest for students. A company would slowly reduce its price to attract other
segments, or it can continue to serve the segment which places higher value on
its product, and hence continues to pay higher price.
Therefore, for a new product, a company must decide its target market, and
estimate the value that customers place on the product. A new product is
successful if the price that it sets reflects the value that the customers place on
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82 Material
the product. When a company has multiple target markets, it introduces modified International
Marketing Decisions
versions of the product in each one of its target markets, and prices each version
in line with respective values that each target market places on the product.
When a company decides to launch different versions of a product, at different
prices, targeted at different target markets, it should check if the customers of NOTES
the more premium version will trade down once cheaper versions are available.
An engineer will buy a scientific calculator even if it is very highly priced in
comparison to simpler calculators because the latter will not serve his purpose.
If different versions cannot be sufficiently differentiated to be able to keep their
customers, a company should desist from launching simpler and cheaper versions
for as long as possible, because the customers who had hitherto bought the
premium version will start buying the cheaper version, as these too will serve his
purpose sufficiently.
(ii) A combination of high price and high promotion expenditure is called rapid
skimming strategy. The high price provides high margins and heavy promotion
causes high level of product awareness and knowledge. A slow skimming strategy
combines high price with low levels of promotional expenditure. High price
means big profit margins but high level of promotion is believed to be
unnecessary, perhaps because word of mouth promotion is more important
and product is already well-known, or because heavy promotion is thought to
be incompatible with the product image as with cult products. This strategy,
(i.e., skimming) is useful if there is patent protection.
A company practices rapid penetration strategy if it combines low prices with
heavy promotional expenditure. Its aim is to gain market share rapidly, perhaps
at the expense of a rapid skimmer. Slow penetration strategy involves combining
a low price with low promotional expense. This strategy is used by own label
brands. It is not necessary to promote to gain distribution and high profit margins
can be obtained because of low promotional expenditure.
PROMOTION
HIGH LOW
HIGH Rapid skimming Slow skimming

P
R
I
C
E LOW Rapid penetration Slow penetration
Fig. 3.7 New Product launch Strategies
(iii) It is important to understand the characteristics of market segments that can

bear high prices. The segment should place a high value on the product which
means that its differential advantage is substantial. Calculators provide high
functional value to engineers and they will be willing to pay high prices for them.
Perfumes and clothes provide psychological value and brand image is crucial Self-Instructional
Material 83
International for such products to be acceptable. High prices go well with premium brand
Marketing Decisions
image. High prices are also more likely to be viable where consumers have a
high ability to pay.
A company can afford to price its products at higher levels if the consumer of
NOTES
the product is different from the person who pays for it. Products for children
or stationery items for a company’s employees come under this category. The
user simply focuses on the suitability of the product and does not bother much
about the price when selecting a product.
A company can also afford to charge a high price if there is lack of competition
among supplier companies. The company does not fear that its customers will
switch over to competitors because of its high prices.
A company can also charge a high price from its customers if there is high
pressure on them to buy. A business traveller rushing to meet a deadline with a
customer will be willing to pay a much higher price for an air ticket than a
normal passenger who is not so hard pressed.
(iv) Low price is used when it is the only feasible alternative. Product may have no
differential advantage, customers are not rich and pay for themselves, have little
pressure to buy and have many suppliers to choose from. A company cannot
charge a premium price for such a product and it has to be content with charging
a going rate price. But if a company wants to dominate its market, it has to price
aggressively to attract customers from competing brands. Since the product
does not have any meaningful differential advantage, the only way to increase
market share is by lowering price. But such a strategy cannot work if it does not
have a low cost structure. A company which seeks to dominate a market through
aggressive pricing should use new technologies to produce and distribute its
product at a lesser cost. It should always achieve economies of scale. A company
can increase its price once it has garnered a satisfactory level of market share,
but it may not always be a good idea since customers may feel that the product
is not differentiated enough to deserve premium pricing. It should instead earn
its money on after sales service and spare parts.
(v) Price sensitivity of customers may change over time. When products are novel,
customers are willing to buy them at higher prices because it serves their unique
requirements or provides self-esteem. But when the same product becomes
widely used, customers start considering the price as important element in their
choice criteria. Also when customers’ income increases, products about which
they were price sensitive are bought without much regard to its price.
Pricing existing products
Strategic objective for each product will have major bearing on pricing strategy. For
example, if a company wants to develop a premium brand it will price its products
higher, but if it wants to capture the mass market, it will have to price its products
lower.
x Build objective: The company wants to increase its market share. In price
sensitive markets, the company has to price lower than competition. If competition
raises prices, the company should be slow to match them. But if competition
reduces prices, it promptly matches or undercuts it further. For price insensitive
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84 Material
products, price will depend on the overall positioning strategy appropriate for International
Marketing Decisions
the product. If the product is positioned as premium, it will have to be priced
higher but if the product is targeted at the mass market, the price has to be lower
and competitive.
NOTES
x Hold objective: The company wants to maintain its market share and profits.
The company’s pricing policies are essentially reactionary in nature. It maintains
or matches price relative to the competition. The company reduces price if
competition reduces price in order to hold sales or market share. If the
competition increases price, the company also increases its price, as it does not
want to compromise on its profitability.
x Harvest: The company is focused on increasing its revenues. It wants to maintain
or raise profits even if sales fall. The company sets premium prices in order to
achieve this objective. It does not match competitor’s price cuts, but price
increase is swiftly matched. The company is proactive in revising its prices
upwards.
x Repositioning strategy: Price change will depend on the new positioning
strategy. If the objective is to build a premium brand, the company will price its
product higher, but if the company wants to reposition the product for the mass
market, it will have to lower its price and make it competitive.
A company cannot set its price in isolation. The pricing policy of a company is
instrumental in achievement of its financial and strategic goals. The pricing policies of
a company also send strong signals to customers about the positioning plank of the
company. Therefore price can be decided only after knowing the positioning strategy
and strategic objective.
4. Value to the customer
Price should be accurately keyed to the value to the customer. The more value that a
product gives compared to the competition, the higher the price that can be charged.
There are four ways of estimating value to the customer:
Buy response method
A company asks customers if they would be willing to buy at varying price levels. Up
to ten prices are chosen within the range usual for the product. Respondents are
shown the product and asked if they would buy the product at, say $100. The first
price quoted is near the average for the product category and other prices are stated at
random. The percentage of respondents indicating that they would buy is calculated
for each price and plotted to form the buy-response curve. The curve shows the
prices at which willingness to buy drops sharply and give an indication of acceptable
price range.
The methodology focuses on respondent’s attention exclusively on price, which
may induce an unrealistically high price consciousness. But the method gives the
company a good idea of the value that the customers place on the company’s product.
Customers weigh price against product features and benefits of the company’s products
and competitors’ offerings. If a competitor has launched a product with more features
and benefits at a lesser price, customers will take into consideration the existence of a
better product at a lesser price, and will value the company’s product’s lower.
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Material 85
International Trade-off analysis
Marketing Decisions
A company creates product profiles, in which it describes product features and prices,
and then asks respondents their preferred profile. When a customer evaluates product
NOTES profiles, he sees price as just one part of the offering, and his choice reveals the trade-
offs that he is willing to make between features and price. The company analyses
customers’ preferences for particular profiles, and is able to gauge the relative importance
of each feature, and also its price. After knowing the customers’ preference for product
attributes and the price they are willing to pay for them, the company can create the
right combination of product features and price.
A limitation of this method is that respondents are not asked to back up their
preferences by being required to buy their preferred combination of features and
price. They may not buy their preferred choice when they are actually making a purchase.
Experimentation
During experimental pricing research, a company sells the same product in different
stores and at different prices. In a controlled store experiment, stores are paid to sell
the product at different prices. For example, a company selects 200 stores to test two
prices. It chooses 100 stores at random and allocates them the lower price, and the
rest are allocated the higher price. The company compares the sales and profit between
the two groups of stores, and it decides the price at which it will earn maximum
profits. A variant of experimental pricing research tests the impact of price differences
between the company’s brand and a competitor brand. The company offers a price
differential of say, `10 in one half of the stores and ` 20 in other half of the stores. The
company analyses how the difference in price between its brand and the competitor
brand impacts sales, and decides an appropriate price for its product.
In test marketing, a company sells the same product in two areas using an
identical promotional campaign, but keeps the prices different in the two areas. The
two areas should match in terms of target customer profile so that results can be
compared, i.e., difference in sales in the two areas can be attributed to difference in
prices. It needs to carry out the test for a long enough period so that trial and repeat
purchase at each price can be measured. But it should be wary of competitors, who
may act to invalidate the results. They may launch special promotional programmes in
the test areas, making it difficult for the company to attribute its sales figure to the
price it is charging. This distortion is especially possible, when product is not highly
differentiated and therefore introducing a cheaper version would make a premium
buyer buy that cheaper version.
Economic value to customer (EVC) analysis
Experimentation is more useful in consumer products. EVC analysis is used for industrial
products. Economic value to the customer is the value that industrial buyer derives
from the product in comparison to the total costs that he incurs in procuring and
operating the product. A high EVC may be because the product generates more revenues
for the buyer than competition or because its total cost of procurement plus operating
costs are lower over the product’s lifetime (Price = Setup costs, i.e., purchase cost +
operating costs). If a company has an offering that has high EVC, it can set a high
price and yet offer superior value compared to competition, as the operating cost of
the customer is lower or the customer is able to derive greater value from the product.
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86 Material
The essential idea is that a company buys a product to enable it to earn revenues at as International
Marketing Decisions
less an expenditure as possible. So a product with high EVC is preferred by industrial
customers. The EVC analysis is particularly revealing when applied to products whose
purchase price represents a small proportion of the lifetime costs to the customer.
NOTES
4. Dumping
Dumping occurs when goods are exported at a price lower than their normal value.
Generally, this results in goods being sold in another country for less than their price in
the original market or at less than production costs. This may mean that domestically
produced goods are more expensive to buy than the imported and dumped goods,
undermining the local economy and production sectors. To prevent this, a non-tariff
barrier may be implemented, called an anti-dumping duty. This is a duty levied at a
value equal to the difference between the goods’ export price and their normal value.
Dumping is also the term informally used to describe what happens when a
product is declared unfit for sale but is then sold at below cost. This can lead to goods
banned in the exporting country because they are dangerous products being ‘dumped’
on another (often very much poorer) country.
5. Transfer Pricing
Transfer pricing is a profit allocation method used to attribute a multinational
corporation’s net profit (or loss) before tax to countries where it does business. Transfer
pricing results in the setting of prices among divisions within an enterprise. Transfer
prices are charges for goods and services between controlled (or related) legal entities
within an enterprise. Legal entities considered under the control of a single corporation
include branches and companies that are wholly or majority owned ultimately by the
parent corporation. Certain jurisdictions consider entities to be under common control
if they share family members on their boards of directors.
In principle a transfer price should match either what the seller would charge an
independent, arm’s length customer, or what the buyer would pay an independent,
arm’s length supplier. While unrealistic transfer prices do not affect the overall enterprise Check Your Progress
directly, they become a concern when they are misused to lower profits in a division of 4. What is cost-
an enterprise that is located in a country that levies high taxes and raise profits in a oriented pricing?
country that is a tax haven that levies no or low taxes. Transfer pricing is the major 5. What is
tool for corporate tax avoidance. psychological
pricing?
6. Retrograde Pricing 6. What is the
difference between
When an export order is received, with the buyer specifying the price or when the persuasive labelling
and informational
exporter has to accept prevailing market price, retrograde pricing will help to find out
labelling?
its profitability. Retrograde pricing is the process of working backwards from a given 7. How can value to
market price to access whether the export will be profitable the customer affect
pricing?
8. What is meant by
3.7 INTERNATIONAL CHANNELS OF dumping in
DISTRIBUTION international
marketing?
9. State the full form
A firm may organize indirect export through the intermediaries or export agents of the of EVC.
parent country. On the contrary, in direct exporting, foreign markets are reached by
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Material 87
International exporters through agents located outside their parent markets. Exporting is a low risk-
Marketing Decisions
low investment strategy wherein 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.
NOTES Exporting activity requires small capital for a quick start. Exporting is also a good way
to gain international experience. A major part of the overseas involvement of large
firms is through export trade managed by the various channels involved in the process.
Indirect Exporting
Some companies, which occasionally carry out export activities, use the services of
the broker. Brokers are the middlemen who bring buyers and sellers in contact for a
negotiated commission or by charging a brokerage fee. They are just the trade facilitators
and do not take the ownership of the product. These brokers operate in international
markets independently and do not belong to any firm.
The Manufacturer’s Export Agent (MEA) may be an exclusive agent engaged
by the firm to offer services as desired by the firm. MEAs are vested with the right to
take marketing decisions on behalf of the firm, arrange negotiations and trade agreements
and the delivery of the consignment to the buyer.
The Combination Export Manager (CEM) provides services over and above
the broker and the MEA by way of taking over the entire export operations of a firm on
a commission basis. The export operations involve a variety of activities like identifying
the country, markets, analyzing consumer behaviour, product designing, technological
improvements, competitive pricing, distribution, promotion, negotiations with the
governments of countries, public relations and collecting marketing information.
Group export forums are associations of exporters who collectively manage
exporting activities. These forums are recognized by the government of the parent
country and provide admissible concessions on export activities like licensing, taxes
and duties infrastructure.
Middlemen who have a base in the parent country of the exporting firm also
function as one of the channels for indirect exports.
Company-based managers are the salaried personnel of the exporting firm and
possess the responsibility of total export management.
Direct Exporting
In direct exporting activities, the firm appoints its own export representatives for
conducting the export operations in the concerned markets or countries.
The Merchant Middlemen are a type of intermediary based in foreign markets:
they buy products on their own and resell them to the identified countries functioning
with substantial sales managers. They may also take up export activities without involving
any indirect channel. Such offices may also be networked as an effective distribution
channel for a region in order to cater to identify countries thereof.
Documentation
Firms opting to enter international markets through exporting activities may choose to
engage the goods listed under open general license which does not involve a heavy
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documentation process. However, the goods that are not controlled, regulated or
88 Material
prohibited by other government departments need to be reported to customs prior to International
Marketing Decisions
export by means of export declaration. On the contrary, regardless of their value,
export of all goods that are controlled, regulated, or prohibited need to be supported
by valid permits, licenses, or certificates required by the government departments or
agencies that regulate the export of these goods. NOTES
Direct Exporting is Independent

A firm also opts for direct exporting as a platform to enter into the destination country.
This approach is the most ambitious and difficult as the exporting firm handles every
aspect of the exporting process independently, from market research and planning to
foreign distribution and collections. Consequently, a significant commitment of
management time and attention is required to achieve good results. However, this
approach may lead to maximum profits, higher control and long-term growth.
3.8 MARKETING ENVIRONMENT AND

DISTRIBUTION STRATEGIES
Distribution may be either direct from manufacturer to retailer or from manufacturer to
customer or indirect, involving the use of one or more intermediaries such as wholesalers
or agents, to reach the customer.
1. Channel Structure Strategy
The channel structure strategy is aimed at reaching the optimal number of consumers
in a given time schedule at the lowest possible cost while maintaining the desired
degree of control. In implementing this distribution strategy the company should make
the comparison of direct versus indirect distribution on the basis of the following
parameters:
x Cost
x Product characteristics
x Degree of control
x Other factors
The cost factor includes distribution costs, opportunity costs incurred in the
process of distribution in case of non-availability of the product, inventory holding
and shipping costs. The product attributes may be measured in terms of replacement
rate, gross margin, service requirements and the time involved in search thereof. The
degree of control is generally greater when direct distribution is followed. Other factors
include adaptability, technological changes and social/cultural values. Efficient
implementation of channel structure strategy will effectively result in performing direct
distribution. However this may result in the high marketing costs and needs a large
degree of control. Foreign firms need to consider the following issues for channel
selection for effective distribution:
x Market access
x Multiple markets, seasonality, safety, channel length
x Value-added competencies
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Material 89
International x Resources, logistics and control, competitive skills
Marketing Decisions
x Financial consideration
x Building distribution network, revenue-cost implications, operating capital
NOTES requirements
x Flexibility and control conditions
x Channel network and participation, procedural control
x Channel strategy illustration
x Sales forecasting, selling approaches, cost factors, promotion and creativity,
control
Customers receive comprehensive information about the product, company
and distribution channel in this strategy and acquire strong image of the product and
brand. This strategy would also help in building the indirect distribution vice-versa at
lower marketing costs, less control and limited channel management responsibilities.
The channel strategy decisions include deciding to manage or coordinate operations in
the channel of distribution, becoming a member of a vertically coordinated channel, or
of a conventional channel system. The following factors need to be assessed in the
choice of the channel strategy:
x Market access
x Value-added competencies
x Financial considerations
x Flexibility and control considerations
2. Distribution Scope Strategy
Distribution scope strategy is advantageous for establishing the distribution of goods
and services effective with the target customers. The company may choose to implement
the exclusive distribution strategy wherein one retailer is granted sole rights in serving a
given area or an intensive distribution approach, in which a product is made available
at all possible retail outlets. The company can also prefer to have the selective distribution
approach to serve many customers but not through all the retail outlets in a given area
that distribute the product. This strategy should be followed with the objective to
serve chosen markets at a minimal cost while maintaining the desired product image.
The core issues associated with international distribution channels are listed below.
x Market considerations
x Selling capabilities
x Product know-how
x Credit-worthiness
x Business image or personality
x Geographical coverage
x Strategy building ability
x Inventory handling
x Customer service
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x Successful track record
90 Material
3. Multiple Scope Strategy International
Marketing Decisions
Multiple channel strategy employs two or more different channels for distribution of
goods and services. Multiple-channel distribution has two basic categories—
complementary and competitive. In complementary approach, each channel handles a NOTES
different non-competing product or market segment and two different and competing
channels sell the same product in the competitive type of the multiple channel distribution
strategy. This strategy may be followed to achieve optimal access to each individual
market segment in order to increase business. Complementary channels are used to
reach market segments otherwise left unserved, while the competitive channels are
used with the hope of increasing sales. The requirements for implementing this
distribution strategy are market segmentation and cost/benefit analysis. The
complementary channels may be promoted by assessing geographic considerations,
volume of business, need to distribute non-competing items, and saturation of traditional
distribution channels in the given operational area of the company. However, the use
of competitive channels can be a response to environmental changes. Figure 3.8 exhibits
the channel management strategy that can be used for identifying the multiple distribution
channels and developing a balanced strategy for effective implementation of distribution.
Fig. 3.8 Channel Management Strategy
Advantages of distribution strategy

x Different services, prices, and support provided to different segments
x Broader market base
x Increased sales
x Possible dealer resentment
x Control problems
x Possible over-extension
However, over-extension can result in decrease in quality/service and may have
negative effects on long-run profitability. It is necessary to properly configure the
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Material 91
International channel for optimum goal realization. The major requirements for configuring the channel
Marketing Decisions
appropriately are:
x Distribution intensity: Number of client accounts, periodicity and extent of
reordering, services and satisfaction
NOTES
x End user configuration: Market segments, product information, company
profile, guiding skills for decision-making
x Product attributes: Product line, lifecycle, application and value-added qualities
x Manufacturer’s capabilities and resources: Brand strength, bargains, terms
and conditions
x Service functions: Services offered, inventory and retail management
x Skills of intermediaries: Managing trade-offs, business correspondence,
communication skills, developing effective sales plans
4. Channel Modification Strategy
In case the channels so configured are not responding to the distribution needs of the
market, they may be modified. The channel modification strategy introduces a change
in the existing distribution arrangements on the basis of evaluation and critical review
in order to maintain an optimal distribution system, given a changing environment.
Evaluation of internal/external environmental shifts is required to implement changes in
consumer markets and buying habits in the retail lifecycle, in the manufacturer’s financial
strength, and in the product lifecycle. One of the requirements of the channel modification
strategy is continuous evaluation of existing channels, cost/benefit analysis, consideration
of the effect of the modified channels on other aspects of the marketing-mix and
ability of management to adapt to the modified plan. This strategy may nudge the
company towards adopting an optimal distribution system for dealers and customers
by giving effect to the changes suggested.
An important step in selecting the distribution strategy is deciding how many
levels of organizations need to be included in the vertical channel and the intermediaries
to be selected at each level. The measurement of distribution intensity in the selected
markets helps in deciding how many channel levels to use and the types of intermediaries
to select. An industrial products manufacturer may choose either distributors or sales
agents, which are independent organizations that receive commissions on sales to
contact industrial buyers. It is important to know where the targeted end-users might
be expected to purchase the products of interest. The selected intermediaries should
provide convenient and easily accessible outlets to the market segments targeted by
the producer. Analysis of buyer characteristics and preferences provides important
information for selecting firms patronized by end-users. This in turn guides decisions
concerning additional channel levels, such as the middlemen selling to the retailers that
contact the market target customers. The complexity of the product, special application
requirements, and servicing needs are useful in guiding the choice of intermediaries.
Looking at how the competing products are distributed may suggest possible types of
intermediaries. The breadth and depth of the products to be distributed are also
important considerations because intermediaries may want full lines of products.
Large producers with extensive capabilities and resources have a lot of flexibility
in choosing intermediaries. These producers also have a great deal of bargaining power
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with the middlemen, and they may be willing or capable to perform certain distribution International
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functions. Such options are limited for small producers with constraints of capability
and resources. The functions required to be performed in moving products from
producer to end-user include various channel activities such as storage, servicing, and
transportation. Studying these functions is useful in choosing the types of intermediaries NOTES
that are appropriate for a particular product or service. Evaluation of the experience,
capabilities, and motivation of the intermediaries and channel membership is also
important in configuring the channels. The companies in particular or within the same
industry often vary in skills and experience. The more complex the channel network,
the more challenging it is to complete various distribution functions. The selected
channel configuration typically takes into account several important trade-offs. However,
the agents make it necessary for the manufacturer to perform several functions, such
as inventory stocking, invoicing and service.
5. Channel Control Strategy
Administration by a member of the channel structure in order to establish control of
the channel and provide a centrally organized effort to achieve common goals may be
defined as the channel control strategy. This strategy has as its core objectives to
increase control, to correct inefficiencies, to realize cost effectiveness through experience
curves and to gain efficiencies of scale. Commitment and resources to fulfill leadership
obligations are vital in implementing this strategy for distribution. Typically, the channel
controller is a large firm with market leadership/influence. However it is not always
observed. The implementation of channel audit is also one of the necessary tools for
exercising the channel control. The core elements of channel audit include distribution
and logistics, delivery cost, channel profit, selling capabilities, competitive strategies,
etc. The successful implementation of this strategy would result in increased control,
professional management, maximizing market impact and elimination of internal and
external inefficiencies. The channel control strategy also helps in central programming
and achieving the operating economies for increased profitability.
6. Conflict Management Strategy
The conflict management strategy would help in resolving conflict among channel
members. This strategy may be followed to devise a solution acceptable to the
conflicting members so that they cooperate to make it work. The choice of a strategy
for solving the conflict needs reasonable bargaining by the affected parties and a give-
and-take attitude. The bottom line must be favourable enough to both parties to induce
them to accept the terms of the bargain. This strategy would however provide scope
for frequent formal interactions with the other party to develop an appreciation of each
other’s perspectives and willingness to interact to solve problems. Sometimes it is
required to bring a neutral third party to resolve the issue by means of conciliation,
mediation, or arbitration (compulsory or voluntary). The effective implementation of
this strategy of distribution would provide a clean platform for business by eliminating
snags in the channel and revealing results that are mutually beneficial to the parties
involved. However, there is also a need for management of time and effort and increase
in costs while implementing this strategy. The strategy for developing effective distribution
system is to focus on the collaborative planning, forecasting and replenishment (CPFR)
approach. This strategy may be developed in association with leading distribution
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International agencies and suppliers in the region. The company developing the CPFR with another
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distribution company should agree on the scope of collaboration and develop a joint
business plan. It is preferable to work out a single forecast on the product and consumer
demand in the operational market area. In this process the company may identify and
NOTES resolve the exceptions related with the consumer forecast and develop single order
forecast. The company may generate orders finally on the basis of constrained order
forecast.
3.9 INTERNATIONAL LOGISTICS

The concept of logistics is understood as the integrated management of forecasting,
inventory control, transportation, warehousing, and order entry and customer service
product planning functions by a large number of companies in the contemporary
business environment. Logistics and supply chain management is the art of managing
the flow of materials and products from the source of production to the end user. This
system includes the total flow of material right from the acquisition of raw materials to
the delivery of finished products to the customers. The function of physical distribution
is a component of the logistics system that involves the outward movement of the
goods and services from the company or the source of production or supplies. On the
contrary, physical supply refers to the portion of the logistics system concerned with
the inward movement of the goods and services to the delivery points. The function of
distribution is the combination of activities associated with advertising, sales and physical
transfer of the goods and services to the retail and wholesale delivery points. It is
therefore obvious that logistics management is an important function in the marketing
process. Effective logistics management can improve both cost and customer service
performance of the company. The components of integrated logistics management are
tabulated in Table 3.2.
Table 3.2 Logistics Management: The Integrated Pipeline
Supply Operations Distribution

x Production/Source x Production planning x Forecasting
x Purchasing x Scheduling x Customer service
x Inward transportation x Ad hoc inventory for x Finished goods inventory
x Raw material and production x Warehousing
ad hoc inventory x Outward transport
In an increasingly competitive market, most companies are looking to streamline

their operations in an integrated manner to manage the flow of materials from the
production point to the sales outlets and end users. The integrated concept of managing
the supply chain is an analytical exercise, one that is able to transcend internal operational
problems. The implementation of the integrated pipeline of the logistics variables help
achieve functional integration and operational effectiveness. It is also necessary for
developing an appropriate supply chain. Managers have to think about their supplies,
operations and distribution activities as a pipeline and as inter-related. The inter-functional
linkages in the logistics management have further implications on the cost, service and
time. The cost factor refers to the full cost of processing and moving goods from the
source of production to the distribution points. The efficiency in the delivery of goods
is a function of reliability, quick replenishment of stocks, minimizing the transit and
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storage losses and maintaining the lead-time delivery of the goods to the use points. International
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Time is an important factor in the management of logistics pipeline that may be viewed
from the point of total consumption of time in moving the goods, through the pipeline
from the source of production to the end user. The pipeline approach provides a
mechanism for analyzing the impact of operational policy of each function, and NOTES
identifying the conflicts and inconsistencies thereof. The advantages of the pipeline
concept of logistics management are many.
Benefits of Pipeline Concept in Aiding Efficiency of Logistics and Distribution
Strategies
x Determining the long term production lead time on the system inventory
x Impact on marketing promotions on the operating costs and effective net margins
x Budgeting transport operations—net cost and savings
x Storage and warehousing cost estimation for the movement of goods—buffer
stocking, retail stores and transit distribution sheds.
The pipeline analysis provides the potential benefits of lower costs, better service
and effective time management for the movement of goods and services. The logistics
networking for the pipeline concept is exhibited in Figure 3.9. The process of decision-
making in providing better logistic support begins from the stage of raw material
supply. The second stage is managing the inventory at the manufacturing point and
facilitating the outward movement of goods. The movement of goods to the intermediate
storage points and retail points are also functions that require appropriate logistic
decisions. The logistics management has greater bearing on just in time (JIT) system
that requires a close coordination of various backward and forward functions. Through
efficient supply chain management, companies can improve the efficiency of logistics
operations. The supply chain needs to be managed for effective delivery of goods and
services to all channel members including suppliers, manufacturers, distributors and
customers. Supply chain management is beneficial in that all the above entities in the
system behave as if they are part of the same company and attempt to significantly
enhance performance across the board. Supply chain manager of the company should
understand the following seven principles of efficient supply chain operations:
1. The manager should understand customer values and requirements. He should
know that any seeker of information about the goods and services of the
company is a customer and in this process, a wholesaler or carrying and
forwarding agent is a customer of the manufacturer, a retailer is a customer of
wholesalers and an end user of the goods and services is a customer of the
retailer as well as of the manufacturer. The requirements of customers may be
assessed in terms of satisfactory delivery of the goods, merchandising support
and value-added services.
Fig. 3.9 Logistics Networking for Pipeline

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International 2. Effective logistic planning can be done by the manager through comprehensive
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mapping of the logistics assets across the operational area and not just in the
company. The information on locations of distributors, storage and warehousing
facilities, transporters, railway rake points, shipment and cargo movement points,
NOTES intermediate outlets, retail outlets, franchisees or vendor managed outlets are
helpful in making decisions on inventory deployment, distribution scheduling,
transport and storage and other infrastructure facilities.
3. It is necessary for the manager to organize customers for easy flow of goods
and information. This task requires aligning supplier’s needs with the customer’s
buying process. This may be defined as single window policy of logistics
management and can be pursued by the companies by providing electronic
connectivity. For example, Torrent Pharmaceuticals Ltd. has a wide distribution
network at regional, area and district levels for the distribution of the medicines
through regional sales agents, area stockists and retail druggists and chemists.
The regional sales manager in consultation with the area and district sales managers
collects information of the stock replenishment requirement to various channels.
The orders are placed with the company via electronic mail or fax that helps
speedy movement of goods to the destinations. The electronic network helps
Torrent Pharmaceuticals Ltd. not only to process the orders quickly but also to
monitor the inventory at various points.
4. The manager should work for establishing a more responsive supply chain
through integrated sales and operational planning strategies. The role of
information flow in the business process is exhibited in Figure 3.10. This task
requires sharing real time demand and forecast information both within the
company and across the supply chain. Information is one corporate resource
that enables the managers to make positive decisions. Information sharing helps
in managing supply chain, sourcing and procurement and customer service.
Such information inflow and dissemination assists in improving design and
engineering aspects, research and development, exploration of new business
areas, new product development and all marketing functions.
5. The company should consider leverage manufacturing and sourcing for flexible
and efficient supply chain operations. Leverage manufacturing concept may be
explained with an example of postponement or intentional slow down of
production process to reduce the inventory at the source of production or
developing multiple stock keeping points for storage in the lean season. The
physical distribution in these units may be activated when required. Automatic
replenishment programmes may be linked to the production sources and the
stocking points. Companies can also use the demand signals such as point of
sales data as a yardstick for marketplace activity.
Fig. 3.10 Role of Information Flow

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across all channels and customer segments. Such action strengthens the strategic
partnership and supply chain management operations.
7. Companies must develop customer-driven performance measures to drive the
NOTES
behaviour of all channel members and customers. This would help in tracking
the economic performance and extended supply chain to the new areas.
It is essential for companies to manage the demand chain for their product
along with supply chain management. The rationalization of the product line, new
product development, pricing, promotion and extolling the product’s comparative
advantages over competing brands needs to be taken up before starting production
and commercialization. The framework of demand-supply chain management is exhibited
in Figure 3.11. Customers need to be segmented according to product and tailor-made
marketing policies followed for each segment. The value additions in the distribution
of the goods need to look into the strategy issues such as product priorities, finance,
display, point of purchase material, retailer’s schemes, etc., to be assessed by the
company to make the channel members proactive. This process integrates the supply
chain management with the demand chain management. It takes close collaboration
between manufacturers, distributors, and retailers to build demand through effective
consumer marketing and merchandising.
Fig. 3.11 Framework of Demand-Supply Chain Management
Manufacturers and suppliers are abandoning their traditional adversarial relation-

ships characterized by price haggling and hedging bets on product orders in favour
of collaborative-commerce model designed to be mutually beneficial. In order to bridge
the path for new alliances, vendors are rolling out enhanced supply-chain planning
and forecasting tools and supplier relationship management (SRM) technologies that
provide real-time access to the demand, inventory, price, sourcing, and production
data to be shared by manufacturers and their suppliers. Some companies have started
collaborative effort with appliance vendors, but they plan to implement the system
with other vendors.
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International
Marketing Decisions Ford Motor, in Dearborn, Michigan, USA is using supply-chain planning software from
SynQuest to determine delivery-route schemes for each auto part at the lowest overall
transportation cost while supporting just-in-time manufacturing requirements at Ford
assembly plants. The software is designed to model Ford’s complex inbound network,
NOTES
which includes transportation routes, cross docks, and plant and supplier operations.
Ford has 46 manufacturing and assembly plants in North America and 500 suppliers,
says Frank Taylor, Ford’s vice president of material planning and logistics. The software
allows Ford to simultaneously evaluate multiple sets of variables including
transportation mode, frequency, and freight costs to orchestrate inbound parts
movement. As a result of the deployment, Ford’s inbound network has reduced errors
such as missing a part at a plant, from thousands per million to single-digit errors per
million. The suppliers of Ford Motors also benefit from this system.
Collaborative-commerce technology is designed to encompass a product’s life

from cradle to grave including product design, sourcing, procurement, supplier
negotiation, demand planning and forecasting, and price and revenue optimization.
These leading-edge applications can bring suppliers into the product design process
and work in real time to support inventory levels for just-in-time manufacturing. The
SAP and ERP applications use advanced-planning macros to enable collaborative
planning, forecasting, and replenishment. Through collaborative planning, a company
can communicate to the suppliers about inventory on a common site: suppliers can
know instantly what is coming down the pipe and can change production. An enterprise
does not have to communicate with each supplier. On the sales side, collaborative
commerce helps manufacturers coordinate products from different business units and
make better forecasts. For instance, a PC vendor could use collaborative commerce
to build a purchase order, orchestrating all of the different purchase-order components
out of different divisions.
Developing Logistics Strategy
Strategy-building for effective logistics management is a multi-functional concept and
needs inter-disciplinary approach. This involves physical distribution, services, and
cost and customer care in an integrated manner. The number of locations of distribution
points, warehouses, modes of transport, cost-service factors, carrier selection, inventory
positioning, inventory levels, order – entry and processing, delivery information, transit
loss management, soiled stock replacement, replenishment schedule, time management,
delivery and remittance collection schedule are the various functions associated with
the strategy planning for logistics.
The cost-service curve of logistics strategy exhibited in Figure 3.12 reveals that
a company may select a high service position (A) by providing a network of warehouses,
use of premium transport mode that is safer and faster as compared to the existing
modes, higher inventory levels and also high service. On the other hand, a company
may select low-cost positioning (B) with minimum infrastructure support. However,
most companies do not operate at maximum efficiency and they are positioned at the
lower end of the curve. Such companies must develop suitable strategies for efficient
delivery of goods and services at optimal cost.
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NOTES
Fig. 3.12 Cost-Service Curve of Logistics Strategy
Logistics play an important role in contributing to the value proposition of a

company, as far as the customer is concerned. Customer value can be increased by
reducing overweight inventories by way of continuous replenishment of stock at every
level to keep the distribution chain active and moving. The structural decisions in
developing the logistics strategy compel managers to think of the most suitable channel
policy so as to route goods and services through routine channels or to reach the
customers directly. Some of the companies do not have distributors, for example
Eureka Forbes Ltd. The company deals in vacuum cleaners and water purifiers and
reaches its products and services directly to the customer through its sales personnel.
This helps the company in reducing the cost of distribution and analyzing the customer
requirements more closely, and to augment customer value. Companies that are
associated with multi-brands and wide operational areas on the other hand look for a
distributor network. Such decisions are taken as structural plans in companies. Structural
decisions are complex and require careful examination. However, amidst new
technologies and new operating options available to the companies, these structural
decisions provide opportunities to the companies to achieve more at fewer costs and
create value in the whole process of logistics management. The logistics strategies
also require functional efficiency in transportation, warehousing and materials
management. The implementation of logistics strategy involves adequate data base,
information flow, appropriate policies and procedures, organizational system and change
management. The logistics managers thus, need to coordinate with various section
personnel in the organization to prepare for better decision-making. Check Your Progress
10. What is a channel
structure strategy?
3.10 INTERNATIONAL PROMOTION AND 11. What is direct
ADVERTISING exporting?
12. What is a
collaborative-
Promotion is a form of corporate communication that uses various methods to reach a commerce
targeted audience with a certain message in order to achieve specific marketing technology?
objectives. 13. State the benefits of
pipeline concept in
Like most marketing decisions, an effective promotional strategy requires the aiding efficiency of
marketer to understand how promotion fits with other pieces of marketing especially logistics and
distribution
in product distribution, pricing, and target markets. It is important to know that marketers strategies.
should not work in a vacuum when making promotion decisions. Rather, the overall
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International success of a promotional strategy requires input from others in impacted functional
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areas.
NOTES Adopting the right kind of promotional strategy is the most crucial issue of entering
markets of many countries. The prime objective of any promotion strategy is to make
consumers aware of all features of the product or service in various market segments.
The buying decisions of consumers are based on the awareness of product features
and related characteristics. For most firms, an effective promotion strategy is an
approach by which they can disseminate information about the products or services.
Dissemination of the right kind of information will positively influence their decisions
about buying the product or service and convince them to use its services. Promotion
is an effective tool to achieve this goal.
Market promotion always requires an effective assessment of the international
market. This can be done through careful planning. There is a need for detailed planning
of the final product and services. Marketers have at their disposal a number of
promotional strategies through which they can communicate with whomsoever they
need to. The main promotional channels are:
x Advertising
x Sales Promotion
x Publicity and public relations
x Direct Marketing
x Personal Selling
Each of these has its advantages and disadvantages, and its relevance and
effectiveness have to be analyzed in relation to a given set of circumstances. Promotion
is more complex while operating across international boundaries, so it is not surprising
that companies make mistakes. They make mistakes in domestic markets too!
x Coca-Cola made the mistake of launching ‘New Coke’ in the US, only to
withdraw it soon after.
x Hoover lost its position as the No. 1 brand for vacuum cleaners in UK after a
successful sales promotion and they struggled to deliver on their promises.
x Unilever had a problem with their ‘Power’ brand (Persil Power or Omo Power,
depending on the market), which (according to their competitors), harmed
clothes. Unilever never withdrew the product, but consumer confidence was
lost.
Newspaper articles and textbooks often feature mistakes made by major
companies in dealing with their promotional programmes in international markets. Here
are some which have been reported. Please note, sometimes the company concerned
denies these!
x McDonald’s in the Netherlands used a photograph of a Michelin three-star French
chef and a particular breed of chicken which comes from a region of France.
The French considered this advertisement as insulting to French cuisine.
x Goodyear tyres used advertising which claimed superior performance over other
competitors, when at that time; comparative advertising was against the law in
Germany.
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x McDonald’s had a problem with Ronald McDonald in Chinese markets, where International
Marketing Decisions
the clown’s white face was associated with death.
x Vidal Sassoon’s Wash ‘n’ Go shampoo was advertised with the model taking a
bottle of shampoo out of a locker, to go to a shower. In Western European
NOTES
markets, lockers are associated with sports centres; in Eastern Europe they are
associated with work. Locals could not understand why people would want to
wash their hair at work.
x UK’s Marks and Spencer’s had problems entering the German market. Locals
found it difficult to accept that a clothing store also sold food products.
x Marks and Spencer’s also got Christmas stock into their Amsterdam store too
late for the present-giving period, which is at the start of December in Amsterdam
unlike in UK, when it is on Christmas Day.
x Coca-Cola withdrew the 2 litre bottle from the Spanish market, because the
fridges in Spain could not accommodate such a large bottle.
x Disney had a poor start to its European theme park, called Euro Disney, as it
misunderstood the European leisure and holiday habits.
To rectify these mistakes it is advisable for firms to take the following steps in
developing their promotional strategies in international market.
Planning Promotional Campaigns
x Promotional campaigns affect more than just the consumers who purchase the
product or service. These could be suppliers, intermediaries, the government,
local community, bankers and creditors, media organizations, shareholders, and
employees.
x Research to determine a multi-market target audience is required as firms become
more internationally involved.
x Corporate image advertising should be conducted.
x Umbrella campaigns must also be made.
x Global image campaigns must be done.
Campaign Objectives
x Global objectives
x General guidelines and control for broad-based campaigns (consistency of
message)
x Regional objectives
x Local objectives
x Specific and measurable targets (awareness, image, market share) for individual
markets
x The budget
Audience Characteristics
The strategy is to reach the intended target audience with the minimum of waste.
Marketing strategist needs to know the following:
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International x Media distribution (number of copies)
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x Media audience composition
x Advertising exposure
NOTES x Advertising perception
x Consumer response
Based on current trends in international marketing, the following issues require
focused planning for promotional campaign by any organization.
x Establishing identity
In developing a promotional image, the first requirement is developing identity. Identity
and image are not similar in promotional strategies. Identity is what firms really are.
Image is how others see the firm. Identity includes characteristics like facilities, location,
price, and attractions.
x Deciding on product
Deciding on the product that has to be communicated through promotion is also an
important part of the promotional strategy. A product theme should be derived from
the identity of the product. Product themes can be defined as one main idea or message
that the firm wants to communicate with promotional efforts.
x Identifying target audience
There is also the need to identify and contact target audience in promotion strategies.
Target audience may be defined as the set of people that the firm wants to reach with
its product/service information. The target audience may be identified as local or non-
local visitors, repeat or first-time visitors, families or singles, and young or old. Different
groups in the target audience have different needs.
For example, as a part of target audience we may say that senior citizens needs
are different from those of young adults. When firms are developing their messages
they should address some of these needs.
x Establishing objectives
There is also the need to establish specific objectives based on what a firm wants the
outcome of its strategy to be.
x Developing message content
There are two types of information that firms can use:
x Informative
x Persuasive
x Evaluation
Promotion strategies need to be periodically evaluated. Otherwise creating and
implementing a promotional strategy can drain a firm’s resources. An evaluation should
assess the progress that the firm has made towards meeting its established objectives.
Generally, it is good to wait one year after implementing the strategy to see if it works
because promotional effects can be cumulative. The firm should always be ready to
make changes.
Firms should also focus on the following issues in their promotional strategies
in international markets:
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1. Market Segmentation International
Marketing Decisions
The macro view of the number of markets the company wishes to serve provides the
foundation for market segmentation process by defining the generic market promotion
strategy options. However, managers should remember what Tom Peters said—
NOTES
‘Markets never buy anything. Only customers buy’. In other words, selecting countries
is a broad brush approach; choosing market segments is getting closer to understanding
the details of market behaviour. Through market segmentation, the firm tries to get
close to buyer behaviour to develop appropriate marketing programmes.
Accordingly, the first step in the focused market segmentation process is to
identify and define groups of customers with common needs within their chosen
markets. Segmentation in international markets is based on similar variables as in
segmentation in domestic markets. Geography, demography and culture (the ‘who
they are’ factors) have been important segmentation variables in international markets.
2. Positioning
Positioning is the process of creating and sustaining a unique, distinctive and favourable
impression of a product or service in the minds of customers. This implies that
companies position products. Actually, all they can do is help consumers to position
them. Marketers cannot manipulate people’s thinking.
There are two extremes of positioning which translate across international
markets. These are high touch—based on image and service, and which are high
involvement purchases. For example, American Express is well-known for their charge
card and travel services. Their global positioning is based on high levels of customer
service, especially in relation to credit cards. This indicates a solution to a common
problem—most travellers fear that they will lose their money while travelling.
The other extreme is high tech positioning, which relies on product features,
and the fact that buyers seek technical information on these attributes. Intel positions
itself on the value that consumers derive from the Intel experience. Nokia and Ericsson
have traditionally focused on these areas, but are increasingly moving towards high
touch positioning. Nike is widely known as a global player. Its corporate strategy was
always based on finding capital and cheap labour in other countries. It grew to national
dominance in the US in the 1970s taking the share of Adidas and Puma, the previously
dominant European companies. It developed its international sales in the 1980s and
1990s, based on the ‘Just Do It’ brand mantra, and a close link with high profile sports
personalities. These were chosen for local relevance—each country features sports
characters to whom local people can relate.
A second key player in this market was Reebok, which started as a UK-based
company, which targeted women who used the shoes for aerobics. The owner of the
Reebok brand in the US decided to expand into the male market. This was and
subsequently done in other countries too.
Nike and Reebok rely on the link to sporting heroes. While Nike focuses on
mass appeal sports, Reebok concentrates on tapping important, but more localized
sports, such as cricket in the UK, handball in Scandinavia and baseball in Japan.
Nike thus went from a US domestic strategy, to a global strategy. Their target
segment and position is consistent in all its markets, although it is locally interpreted.
Reebok has changed target segments over time, in gender, geography and interests.
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Marketing Decisions
smaller niches in various sports markets. Each, thus, has its own market space, and
faces different competitors.
3. Market Targeting
NOTES
Targeting is the process of selecting which and how many market segments should be
served. This choice reflects company objectives and strengths, and reviews the
attractiveness of segments, in terms of market growth, size, extent and intensity of
competition. Keegan identifies three global targeting strategies which are consistent
with his model of standardization and adaptation.
x Standardized or undifferentiated global marketing, which is the same
marketing mix in a mass market worldwide.
x Concentrated global marketing, which involves selling the same product
with the same marketing mix, but focused on a small segment of the market.
x Differentiated global marketing, which involves offering a range of different
marketing mixes to two or more markets.
These targeting strategies reflect at a micro level the macro decisions on
competitive strategy and market coverage which is at the heart of international marketing
decisions.
Advertising is an impersonal form of promotion that is delivered through selected
media outlets that, under most circumstances, require the marketer to pay for message
placement. Advertising has long been viewed as a method of mass promotion in that a
single message can reach a large number of people. But, this mass promotion approach
presents problems since many exposed to an advertising message may not be within
the marketer’s target market and, thus, may be an inefficient use of promotional funds.
However, this is changing with new advertising technologies and with the emergence
of new media outlets that offer more options for targeted advertising.
Advertising also has a history of being considered a one-way form of marketing
communication where the message receiver (i.e., target market) is not in a position to
immediately respond to the message (e.g., seek more information). This too is changing.
For example, in the next few years, television viewers will be able to click a button to
request more details about a product that they have seen on their favourite TV
programme. In fact, it is expected that, over the next 10–20, years advertising will
move from a oneway communication model and become one that is highly interactive.
Another characteristic that may change as advertising evolves is the view that
advertising does not stimulate immediate demand for the product advertised. That is,
customers cannot quickly purchase a product they see advertised. But as more media
outlets allow customers to interact with the messages being delivered, the ability of
advertising to quickly stimulate demand will improve. The importance of advertising
can be judged by the spending on advertising. By one estimate, worldwide spending
on advertising exceeds (US) $400 billion. This spending in many countries is mostly
on media outlets, such as television, radio and newspapers.
Organizations differ on the role advertising. Some organizations may spend less
on advertising and, instead, spend on other promotion options such as personal selling
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through a sales team. For some smaller companies, advertising may be on a very small International
Marketing Decisions
scale, consisting of occasional advertisements and small ads in the classified section
of a local newspaper.
Functions of Advertising Agencies NOTES
Professionals at advertising agencies and other advertising organizations offer a number
of functions including:
x Account Management
x Creative Team
x Researchers
x Media Planners
Various Methods of Advertising
1. Product-oriented Advertising
Product advertising focuses on promoting a specific product to a targeted audience.
Marketers can achieve this through a range of approaches starting from one that simply
provides basic information about a product (informative advertising) or one that makes
blatant appeals to convince customers to purchase a product (persuasive advertising)
that may include direct comparisons between the marketer’s product and its competitor’s
offerings (comparative advertising). The goal is to create curiosity in the market and
interest when the product is launched.
2. Image Advertising
Image a dvertising is primarily done to enhance an organization’s perceived importance
to a target market. Image advertising also involves educating the targeted audience on
some issue. For instance, image advertising may be used in situations where a merger
has occurred between two companies and the newly-formed company has taken on a
new name. In this situation, there is a need to educate customers about the merger of a
company to maintain and enhance the image of that organization.
3. Advocacy Advertising
In advocacy advertising, most times organizations send a message intended to influence
a targeted audience. For instance, an organization may take a stand on a political issue
which it feels could negatively impact them and will target advertisements to voice their
position on the issue.
4. Public Service Advertising
Sometimes advertisements directed at social causes, such as teenage smoking, illegal
drug use and mental illness, may run on television, radio and other media without any
cost to organizations sponsoring the advertisement.
5. Advertising Trends
Like most areas of marketing, advertising is changing rapidly. Some argue that change
has affected advertising more than any other marketing function. The more important
trends in advertising include:
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International 6. Digital Convergence
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Digital convergence in advertising refers to a growing trend for using computer
technology to deliver media programming and information. Convergence allows one
NOTES media outlet to take advantage of features and benefits offered through other media
outlets. The convergence of television and internet opens many opportunities for
marketers to target customers in ways not available with traditional television advertising.
Online marketing is a new concept which has developed on account of increased use
of the Internet the world over. Consumers need not approach anyone. The goods or
products can be selected from the comfort of home and a fixed order can be placed.
The consumer receives the article at his doorstep and that too as per his choice and
preference.
A firm may face the following four major difficulties in communicating
internationally:
x Sometimes, there is a communication gap and the message may not get through
to the intended recipient. This may be on account of lack of knowledge about
the media.
x Again, because of diversity in cultural and social factors, the message may
reach the target audience but may not be understood or may be misunderstood.
x Sometimes it may be understood but still may not induce the recipient to take
the action desired by the sender.
x The effectiveness of the message can be impaired.
In the world of globalization, when peoples’ preferences are similar, unifying
advertising can be of great help. The international advertiser must make sure that
advertisements are not inappropriately extended into markets. Decisions like media
selection and selection of advertising agencies are crucial.
Standardization vs Adaptation of International Advertising
Most of the time, large and multinational organizations prefer to go for standardization
in advertising. The reasons are as follows:
Merits of Standardization
x Allows multinationals to maintain a consistent image and identity throughout the
world.
x Minimizes confusion among consumers who travel frequently.
x Allows a singly coordinated advertising campaign across different markets.
x Results in considerable savings in media costs, advertising costs, and advertising
illustrative materials.
Products Suitable for Standardized Advertising
x Luxury products
x High-tech products
x Experiential products
x Favourable country image products
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The support for global advertising is threefold. First, it has significant economic International
Marketing Decisions
advantages. Standardized advertising lowers the costs of value creation by spreading
the fixed costs of developing the advertisements over a large number of countries.
For example, in the early 1980s, Levi Strauss paid an advertising agency $550,000
NOTES
to produce a series of TV commercials. By reusing this series, the company enjoyed
significant cost savings. Over a 20-year period, Coca-Cola saved $90 million by using
certain elements of its campaign globally.
Second, there is the concern that creative talent is scarce and hence that one
large effort to develop a campaign will produce better results than forty or fifty smaller
efforts.
A third justification for a standardized approach is that many brand names are
global. With a substantial amount of international travel today and considerable overlap
in media across national borders, many international firms want to project a single
image to avoid confusion caused by local campaigns that conflict with each other.
This is particularly important in regions such as Western Europe, where travel
across borders is as common as travel across state lines in the US.
Media Decisions
The major channels that are involved in media decisions are as follows:-
x Print publications providing global coverage with regional language and content
editions
x Pan-regional radio, television and the Internet.
The following are the important global media characteristics:
x Targetability
x Client-compatible editorial
x Editorial quality
Who advertises in the global media?
x Airlines, financial services as well as telecommunication, automobile, and tobacco
companies
The promotional message
The following are the factors in developing the message:
x Diffusion of the product or service into the market
x Criteria on which customers evaluate the product
x The product’s positioning
x The idea is to have a world brand
x A product that is manufactured, packaged and positioned the same way around
the world
x Localize international symbols with regional or country area themes and
personalities
The Media Campaign Approach
x What type of outside services to use?
x How to establish decision-making authority?
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International x Outside services chosen by their quality of coverage
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x The value of outside expertise
x Creative development skills
NOTES x Specialty marketing knowledge
x Conflict in the use of mega-agencies
x Conflict of interest when two competitors are represented by the same agency
Decision-Making Authority
x Centralized or decentralized decisions about advertising
x Centralization = scale, synergy, consistency
x Decentralization = proximity, flexibility, sensibility
x Overall organizational goal to continually improve advertising quality at the local
level
x Coordinated decentralized approach to pan-regional campaign development
x Strong central control
x Knowledge of local markets
Measuring of Advertising Effectiveness through:
x Typical effectiveness-testing techniques
x Pre-testing of copy appeal and brand recognition
x Post-testing of product or brand recognition
x Measuring campaign’s impact on sales
x Sales increases and sales pattern changes
x Increases in consumer awareness and recall
Most commonly, advertisements are placed through an appropriate advertising
media. Each advertising media, has its own method of accepting advertisements. These
are based on different advertising cost structures (i.e., what it costs marketers to place
an ad), different requirements for accepting ad designs (e.g., size of the ad), the different
ways placements can be purchased (e.g., direct contact with media or through third-
party seller), and different time schedules (i.e., when the ad will be run). Understanding
the nuances of different media is the role of a media planner, who looks for the best
media match for a client and also negotiates the best deals.
Media planning is a process of selecting media time and space to disseminate
advertising messages in order to achieve marketing objectives. Media planning facilitates
firms to determine which media to use—television programmes, newspapers, bus-
stop posters, instore displays or banner ads on the web. It also helps firms in deciding
when and where to use media in order to reach the desired audience.
The media planner’s role can be that of a brand contact. Instead of focusing
solely on what medium is used for message dissemination, media planners also pay
attention to the creation and management of brand contact. Brand contact is any
planned and unplanned form of exposure to and interaction with a product or service.
Television commercials, radio ads and product sampling are major examples of planned
forms of brand contact. Word-of-mouth contact is generally regarded as an unplanned
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brand contact—advertisers normally do not plan for word of mouth contact. From International
Marketing Decisions
the consumer’s perspective, however, unplanned forms of brand contact may be
more influential because they seem to lack the kind of manipulation that advertising is
sometimes deemed to use.
NOTES
The brand contact perspective shows how the role of media planners has
expanded. First, media planners have moved from focusing only on traditional media
to now focusing on integrating traditional media and new media. New media—cable
and satellite television, satellite radio, business-to-business e-media, internet, movie
screen advertising and videogame advertising—is playing an increasingly significant
role.
Secondly, it has been observed that media planners are making more use of
product placements, currently, in lieu of advertising insertions. Advertising insertions,
like print ads or television commercials, are made separately from the content and are
inserted into it. The ads are distinct from the articles or TV programmes, and not a
part of them. As a result, the ads seem intrusive. In contrast, product placement (also
called brand placement or branded entertainment) blends product information with the
content itself. Whether content is a television programme, movie, video game or any
other form of entertainment, product placement puts the brand message into the
entertainment content.
Finally, the role of media planners has expanded as media planners have moved
beyond planned messages to take advantage of unplanned messages as well. While
planned messages are what advertisers initiate, like an ad, press release or sales
promotion, unplanned messages are often initiated by people and organizations other
than the advertisers themselves. Word of mouth, both online and offline, is one form
of unplanned message. Although advertisers have little direct control over the flow of
unplanned messages, they can facilitate such a flow.
Media objectives are also based on two key components: target audience and
communication goals. The target audience component of the media objectives defines
who the intended target of the campaign is. The communication goals component of
the media objectives defines how much of the audience the campaign intends to reach
and how many times it will reach them. In short, media objectives are a series of
statements that specify what exactly the media plan intends to accomplish. The objectives
represent the most important goals of brand message dissemination, and they are the
concrete steps to accomplish marketing objectives.
Marketers should consider the range of communication tools that they can mix to
communicate their marketing and branding messages. Personal selling, direct marketing,
sales promotion, and advertising are some examples of important marketing
communication tools widely used in international marketing.
Check Your Progress
1. Personal selling: Personal selling consists of verbal communication between a 14. What is the prime
salesperson or selling team and one or more prospective purchasers with the objective of any
objective of making or influencing a sale. Many companies feel that personal promotion strategy?
selling is a better strategy to manage the interface of buyer and seller and therefore 15. What is media
planning?
annual expenditures on personal selling are larger than advertising. However,
advertising and personal selling strategies share some common features, including
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International creating awareness of the product, transmitting information, and persuading
Marketing Decisions
people to buy. Personal selling is an expensive way of persuading the buyers as
compared to most other ways of advertising. Salespeople can interact with
buyers to answer questions and overcome objections, they can target buyers,
NOTES and they have the capacity to accumulate market knowledge and provide
feedback.
2. Direct marketing: Direct marketing includes the various communication
channels that enable companies to make direct contact with individual buyers.
The common direct marketing techniques are catalogues, direct mail,
telemarketing, television commercials, radio, magazine, newspaper, electronic
shopping and kiosk shopping, etc. The distinguishing feature of direct marketing
is the opportunity for the marketer to gain direct access to the buyer. Direct
marketing expenditures account for a large portion of promotion expenditures.
Electronic shopping is one of the newer forms of direct marketing.
3. Sales promotion: Sales promotion is a marketing activity that provides extra
value or incentive to the sale force, distributors, retailers or ultimate consumers,
at the same time, stimulating sales. It is defined as ‘a direct inducement that
offers an extra value or incentive for the product to the sales force, distributors
or the ultimate consumer with the primary objective of creating an immediate
sale’.
All sales activities can be divided into two broad categories:
(a) Consumer-oriented sales promotion: These promotions are designed in a
manner as to draw the attention of consumers and induce them to purchase the
retailer’s merchandize. It is also called pull strategy. Activities like samples,
coupons, contests, rebates, event sponsorship, and sweepstakes etc fall in this
category. The objectives of consumer-oriented sales promotion are to obtain
trail and repurchasibility. Consumer-oriented sales promotion will also help in
increasing brand value by increasing consumption. This strategy will also help
in targeting specific markets which will in turn defend customers.
Let us take the example of coupons to understand the consumer oriented sales
promotion better. Using coupons as a sales promotion strategy will come with
both advantages and disadvantages. Vishal Mega Mart, VLCC, Shopper’s Stop
from time to time comes up with the discount coupons strategy to increase
sales which offers price reduction on specific items. This is targeted towards
price conscious customers. An added advantage is also that the customer does
not have to rely on the retailer to avail the discounted coupon; it comes straight
from the company. Most of the time coupons are given to pull the customer
towards the store. Ones he receives the coupon he visits the store and is drawn
to fresh arrivals. This leads to added revenue and increased sales of new products.
Giving out of coupons is regarded as a great sales strategy with most retailers
today. Coupons are given out in contests, television and radio shows, road
rallies; beauty parlours etc. This encourages even non-users to try a brand or
current consumer repurchasibility.
(b) Trade-oriented sales promotion: Trade-oriented sales promotions aim at
kindling in-store merchandising which influences the different levels of stocks
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held by the wholesalers and retailers. It also helps in expanding product International
Marketing Decisions
distribution to new target areas in the country. It further creates a high level of
excitement about the product among those responsible for its sale. Some of the
objectives of trade-oriented sales promotions are to obtain distribution of new
products in the market which helps in maintaining a trade support from the NOTES
recognized brands in the country and abroad by opening up new sales areas.
These are directed at the dealer network of the company so as to motivate it to
sell more of the company’s brand as compared to other brands. It rests on the
basic assumption that if the dealer network is provided with large incentives, it
is likely to push the company’s brands on priority in comparison to the
competitor’s brand. It is also known as push strategy. Activities like dealer
incentives, point of purchase displays (POP), training programmes and
cooperative advertising are designed to motivate distributors and retailers to
promote the brand.

In 1965, a top body named the Federation of Indian Export Organizations (FIEO) was
constituted with its registered office in Delhi. It was set up as a common and coordinating
platform for different export organizations involving the commodity councils and boards
and the service organizations and institutions.
The basic activities of the FIEO involve:
x Convening meetings, conference seminars and workshops to provide opportunity
to all sectors of the exporting community and export promotion institutions in
India to review, discuss and, wherever necessary, to formulate recommendations
to the Government and other authorities, on problems, prospects and potentials
of India’s exports.
x Arranging ‘round-table’ conferences of business interests in India with trade
missions and other business teams on a visit to India.
x Inviting leading business interests and economic and trade missions from abroad
specially for a tour of industrial and commercial centres in India.
x Projecting Indian goods and services abroad through various media including
films, exhibitions, advertisements and publications.
x Sponsoring outgoing multi-interest trade and economic missions and special
teams of government recognized export houses, consultancy firms,small scale
industries and individual study-cum-sales teams.
x Promoting trade, economic and technical cooperation between India and other
countries by the way of international seminars and creating special infrastructure
for follow-up.

A large proportion of employees are engaged in sales activities. Efficiency and
effectiveness of a sales force are very strong determinants of competitiveness of a
company. Managing a sales force is an intricate task because most salespeople work
away from the direct supervision of their managers.
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International
Marketing Decisions
NOTES
Fig. 3.13 Management of the Sales Force
Setting Objectives
Salespeople are given their individual sales targets. A sales manager consults with his
salespeople, and gains their commitment to their individual sales targets. It is important
that the sales manager monitors the progress of his salespeople, and removes any
obstacles that may arise in the salespeople achieving their sales targets. Though a
salesperson likes to be left alone, he does not mind a sales manager monitoring his
work if his interventions help him achieve his sales target. A sales manager also sets
input objectives such as time spent developing new accounts or time spent introducing
new products. He may also specify the number of calls expected per day and the
customers who should be called upon.
Fig. 3.14 Recruitment and Selection
High calibre salespeople should be recruited. If a company’s most successful

salespeople were put in a territory by replacing the average ones, 20 per cent increase
in sales should be expected in two years. Work practices of the company and
independence are more important than earnings, as the key attraction to a selling career.
Sales managers need to discover the reasons why people want to become salespeople
in their industry so that they can develop recruitment strategies that reflect those desires.
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Recruitment Process International
Marketing Decisions
The recruitment process follows five stages.
1. Preparation of job description and personnel specifications
Top ten qualities sought in sales people by sales managers of large companies are NOTES
communication skills, personality, determination, intelligence, motivation, product
knowledge, educational background, confidence, appearance, resilience and tenacity.
Research has reduced the above ten qualities to two—empathy and ego drive. Empathy
is the ability to feel problems and needs of the customer in the same way and with the
same intensity that the customer does. Ego drive is the need to make a sale in a
personal way, i.e., the salesperson will feel miserable if he is not able to make the sale,
and not merely for money. Job description will include job title, duties and
responsibilities, technical requirements, geographic area to be covered and degree of
autonomy given to sales people.
2. Sources of recruitment and method of communication
A company asks for references from its employees, hires a recruitment agency, visits
educational institutes, lures competitors’ employees and even prospects employees of
other industries. It reaches its prospective employees mostly through advertising—its
advertisement should contain a headline which catches the fancy of prospective
employees. It has been found that the size of advertisement correlates with the number
of people who apply for the job.
3. Application and content
A prospective employee is asked to fill an application form, the contents of which
allow the company to verify if a prospective employee is qualified in terms of
educational qualification and relevant experience. A company uses the application
form to shortlist candidates. Since the application form contains facts about the
candidate, its contents act as a starting point for interviewers during the interview. A
company refers back to a candidate’s application form when it considers his
employment.
4. Interview
Screening and selection interview is employed. Overall objective is to form a clear and
valid impression of strengths and weaknesses of each candidate. An interviewer is
interested in knowing if he is physically presentable, which he does by watching his
appearance and listening to him talk. The interviewer wants to know about the
candidate’s achievements, which he does by probing his educational qualifications
and successes in his previous jobs. He also wants to know if the candidate has personal
qualities like perseverance and empathy, and asks the candidate to give examples of
how he has demonstrated these qualities. He is also interested in knowing if the candidate
possesses dispositions like maturity and sense of responsibility. It may also be
worthwhile to know if the employee pursues any interests that may help him in his
sales career. The interview should start with easy to answer questions that allow the
candidate to talk freely and relax. Interviewer should be courteous and appear interested
in what the candidate says. Open questions like ‘can you talk about your experiences
selling automobiles’, encourage interviewees to express themselves. Probes can be
used to prompt further discussions. At the end of the interview, the candidate should
be told when a decision will be made and how it will be communicated.
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International 5. Supplementary selection aids
Marketing Decisions
Psychological tests should be used only when it can be validated that test scores
correlate with success in sales job. For example, a psychological test that is useful in
selecting computer salespersons may be irrelevant when selecting automobile
NOTES
salespersons. Role playing is useful in estimating potential of applicants, but it is
useful only in estimating a candidate’s potential in making short term sales. It is not
useful when a salesperson’s major job responsibility would be to build long term
relationships with customers.
Training
Training should include product knowledge and development of selling skills. A
salesperson is successful when he performs his selling skills automatically—without
consciously thinking about them. A training programme should include knowledge
about the products of the company as well as those of competitors, selling skills,
selling procedures, report preparation and customer relationship management. Training
in management of long term customer relationship as well as context specific selling
skills should be given. A training programme should include in-the-field training, where
a salesperson can practice his selling skills under the tutelage of an experienced sales
manager. Best sales people do not always make the best sales managers as other skills
like teaching and motivating others are needed.
Motivation and Compensation
A company cannot design programmes to motivate its salespeople to excel unless it
develops a comprehensive understanding of its salesperson as individuals, their
personalities and their value systems. There is no single blanket programme to motivate
all salespeople, and a company has to provide the enabling conditions in which a
salesperson motivates himself.
Tasks of sales managers in motivating salespeople
x A sales manager learns what each salesperson values and what each one wants
to achieve for himself and the company.
x He increases responsibility of salespeople who are willing to work harder.
x He understands that training improves a salesperson’s motivations as well as
capabilities by creating strong linkages between effort and performance.
x He provides targets that are challenging, but attainable—salespeople believe
that they can attain them if they work hard.
x He rewards those performances that the salesperson wants to improve, i.e., if a
salesperson wants to sign up new customers, his incentive is based on his
opening new accounts.
x He provides both financial and non-financial rewards, and believes that both
can motivate.
x He assures salespeople that they can be successful either by working harder or
by working smarter, i.e., by employing effective selling skills and by developing
more efficient call planning.
x He convinces a salesperson that he will sell more if he works harder and that he
will be duly rewarded for his hard work. He takes care to find out what reward
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an individual salesperson values and rewards him accordingly. And when he International
Marketing Decisions
unilaterally decides the rewards that are to be given, he tries to convince
salespeople that the rewards are worth their effort.
Types of salespersons
NOTES
x Some salespeople have decided the type of life they want. They try to maintain
their standard of living by earning a predetermined amount of money.
x Some of them are satisfiers. They perform at a level just sufficient to keep their
jobs.
x Some salespersons make trade-offs. They allocate their time based upon
personally determined ratio between work and leisure that is not influenced by
the prospect of higher earnings.
x Some of them are goal oriented. They prefer recognition as achievers by peers
and superiors, and tend to be sales-quota oriented, with money mainly serving
as recognition of achievement.
x Some of them are strictly money oriented. Their aim is to maximize their earning.
Family relationships and leisure may be sacrificed in pursuit of money.
Managers must categorize their sales people before deciding their motivational
and compensation plan. The first three will not be motivated by commission opportunities
but the last two will be.
Three types of compensations plans
x Fixed emoluments: The salesperson gets fixed emoluments, i.e., they are not
linked to performance. When a salesperson’s salary is not linked to the amount
of sales that he generates, he is likely to carry out tasks such as serving existing
accounts and providing technical help to customers. It provides security, but he
does not have the opportunity to increase income by increasing sales. The
system may be perceived unjust if high performing salespeople are not paid
more than low performing salespeople.
x Only incentives: The salesperson’s emoluments are linked to the amount of
sales that he generates. The salesperson has obvious motivations to make a
sale, but sometimes he may become too overbearing with customers, and
become too desperate to close a sale. He just wants to sell and does not want to
carry out tasks such as serving existing accounts or providing technical help to
customers. The system produces high turnover, as salespeople who are not
able to sell, do not have any motivation to continue.
x Salary plus incentive: At times salesperson’s emoluments are fixed and the
rest are linked to the amount of sales that he generates—around 60 per cent of a
salesperson’s salary may be fixed. This system provides financial security, which
most people need, but it also provides strong incentives for ambitious salespeople
to put extra efforts so that they can earn more. This is the most popular method
of paying salespeople. A company may also pay bonus for specific achievements
like achieving a desired level of penetration or a desired level of customer
satisfaction.
Evaluation of Salespeople
A sales manager needs to know how his salespeople are performing in terms of
achieving their sales targets, and carrying out other tasks like providing technical backup
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International to customers. He identifies the weak areas of performance of each salesperson, and
Marketing Decisions
then provides incentives to improve performance in those areas—if a salesperson is
weak in opening new accounts, he is provided incentive for each new account that he
opens. He tries to identify strengths and weaknesses of each salesperson. He assigns
NOTES tasks to individual salespeople in ways that allow them to capitalize on their strengths.
He arranges training programmes to take care of their weaknesses.
Fig. 3.15 Evaluation of Sales People
Quantitative measures of performance

x Based on output: Sales, profits, sales per customer and number of new
customers signed up.
x Based on input: Number of calls made, calls per customer, calls on new
customers and number of prospective customers visited.
Most companies fix targets for quantitative measures, and then they compare
the performance of their salespeople against the targets. The process helps the
companies to identify the weaknesses and strengths of each salesperson. Sales managers
should probe deep to know as to why a salesperson is not achieving his targets, and
then take appropriate corrective measures. For example, a salesperson may not be
signing up enough number of new accounts because he is not making enough number
of calls on prospective customers, and making too many of them on existing customers.
Qualitative measures of performance
A company should create linkages between quantitative and qualitative measures. For
example, if a salesperson is generating low sales per customer, his sales manager
should carry qualitative assessment of his selling skills and product knowledge.
A sales manager should be able to assess if an individual salesperson is likely to
successfully close a deal that he has been pursuing. Such an assessment will enable
him to pitch in if he concludes that the salesperson is unlikely to get the customer’s
order. One way to know whether a salesperson will win an order or not is to directly
ask the salesperson whether he believes that he will be able to close the sale successfully.
But, most salespeople do not let the sales manager know that they are faltering when
they are asked directly about their chances to win an order. Therefore, a salesperson
should ask a series of questions to delve deep into how the deal is progressing, and
make a judgment from answers that he receives. A statement like ‘the customer has
asked for product demonstration’ reveals that sales process is proceeding in the right
direction, but a statement like ‘the customer likes the product’ does not reveal if the
sales process is moving at all. A sales manager should seek specific and detailed
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answers—a salesperson is likely to win an order if his responses are assured and International
Marketing Decisions
credible, and he is likely to lose an order if his responses are thin and unconvincing.
The sales manager will join the salesperson in soliciting the customer if he is convinced
that the salesperson cannot do it alone. The sales manager will be more proactive and
diligent in doing so if the customer is likely to bring large amount of revenues, and also NOTES
if the salesperson is otherwise valuable to the organization.
The faltering salesperson should be counselled, and the sales manager should
take him under his wings for some time till he regroups himself to be on the beat again.
Evaluation and control of total sales operations
Companies need to be in control of their sales operation. Sometimes they may have to
take drastic actions to ensure that the sales organization is achieving its targets. One
company which suspected that its sales people had become complacent moved every
salesperson to a different territory, and sales increased.
3.11 SUMMING UP
x It is normally accepted that a product has achieved success when all investments
made for its commercialization and development have been recovered and the
product is still capable of providing satisfaction to consumers.
x The product must be capable of earning substantial revenues to recover the full
investment that the company has put into it.
x The product and business strategies of a foreign firm should be developed in
reference to the macroeconomic conditions of the host country. In other words,
the definition of the product objectives should emerge from business definitions
developed in accordance with the macroeconomic requirements of the host
country.
x New products have to be developed by companies with utmost care. It is
necessary to understand and accommodate the needs of consumers – counter
competitive threats, ensure availability of post sales services and take into account
the cost of marketing the product.
x It is essential that a company conducts brainstorming exercises for understanding
the basic and secondary needs for the product. These include listing the product
attributes, and identifying the forced relationship of other goods and services
with the new product.
x Brand is largely associated with the attributes of the product, benefits, user
values, culture, personality and behaviour. Branding decisions, therefore, are
very important for the company. Check Your Progress
x The company has to assess the strength and weaknesses of the existing brands 16. When and why was
in the market before taking the branding decision for their product. The FIEO constituted?
manufacturing company may have several options on brand sponsorship. 17. What are the
quantitative
x The product may be launched in the market as a brand, which is also known as measures of
national brand, a distributor brand (as happens in the case of edible oils, sugar, performance?
processed grains and in many products which need re-packing) or as a licensed
brand name.
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International x Once positioned by the company in the market, the brand may have to be
Marketing Decisions
repositioned over a period of time as the competitor may launch a brand close
to the company’s and cut into its market share.
x Packages have always served a practical function – that is, they hold the contents
NOTES together and protect goods as they move through the distribution channel.
Packaging is also a container for promoting the product and making it easier
and safer to use.
x The label is an integral part of a package. Labelling can be generally seen in the
form of persuasive labelling or informational labelling.
x While persuasive labelling is mainly concerned with the theme for promotion or
the logo, informational labelling focusses on providing information to the
customer.
x Pricing is a logical proposition keeping in view the competitive products in the
market. A company has to determine the price on the basis of internal economics
with reference to cost of production, business objectives, targets, marketing
policies and profit targets, and external forces like market demand, and strategies
of competitors with competitive products.
x Being merely a number, it might be tempting to believe that setting the price of a
product must be an easy task for a company to perform. It is not. Many external
and internal factors have to be considered together. The price should have
some reference to its costs, as they must be recovered at least in the long run.
x A firm may organize indirect export through the intermediaries or export agents
of the parent country. On the contrary, in direct exporting, foreign markets are
reached by exporters through agents located outside their parent markets.
x Distribution may be either direct from manufacturer to retailer or from
manufacturer to customer or indirect, involving the use of one or more
intermediaries such as wholesalers or agents, to reach the customer.
x The concept of logistics is understood as the integrated management of
forecasting, inventory control, transportation, warehousing, and order entry and
customer service product planning functions by a large number of companies
in the contemporary business environment.
x Promotion is a form of corporate communication that uses various methods to
reach a targeted audience with a certain message in order to achieve specific
marketing objectives. Like most marketing decisions, an effective promotional
strategy requires the marketer to understand how promotion fits with other
pieces of marketing especially in product distribution, pricing, and target markets.
3.12 KEY TERMS

x Standardization: It refers to offering a common product on a national, regional,
or world-wide basis.
x Customization: It signifies adapting a product by making appropriate changes
in it, to match local perspectives.
x Skimming: It is the strategy of establishing a high initial price for a product
with a view to ‘skimming the cream off the market’ at the upper end of the
demand curve.
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International
3.13 ANSWERS TO ‘CHECK YOUR PROGRESS’ Marketing Decisions
1. Two factors obstructing growth of new products are:

x Social, economic and technological limitations NOTES
x Government policies and restrictions
2. The five stages in the adoption process are—awareness about the product,
interest generated in using or adopting the product, evaluation of the product,
trial of the product from the point of perceived use value and perceived price
and final adoption of the product for use.
3. Commercialization of the product is a strategic decision in which the company
should look into the appropriate time, market and consumer segment to launch
the product.
4. One of the methods of pricing a product is on the basis of its cost. The company
can either set the price on the basis of the total cost of the product, or on the
basis of its variable cost. This type of pricing is called cost-oriented pricing.
5. Psychological pricing makes the customer feel that he is paying a relatively
lower price for the product. To stimulate such a view, the price is fixed in
integral values very close to the round numeric values, e.g., prices of Bata
shoes @ ` 499/-
6. While persuasive labelling is mainly concerned with the theme for promotion or
the logo, informational labelling focuses on providing information to the
customer.
7. Price should be accurately keyed to the value to the customer. The more value
that a product gives compared to the competition, the higher the price that can
be charged.
8. Dumping occurs when goods are exported at a price lower than their normal
value. Generally, this results in goods being sold in another country for less than
their price in the original market or at less than production costs.
9. The full form of EVC is Economic Value to Customer.
10. The channel structure strategy is aimed at reaching the optimal number of
consumers in a given time schedule at the lowest possible cost while maintaining
the desired degree of control.
11. In direct exporting activities, the firm appoints its own export representatives
for conducting the export operations in the concerned markets or countries.
12. Collaborative-commerce technology is designed to encompass a product’s life
from cradle to grave including product design, sourcing, procurement, supplier
negotiation, demand planning and forecasting, and price and revenue
optimization.
13. Benefits of pipeline concept in aiding efficiency of logistics and distribution
strategies are:
x Determining the long term production lead time on the system inventory
x Impact on marketing promotions on the operating costs and effective net
margins
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International x Budgeting transport operations—net cost and savings
Marketing Decisions
x Storage and warehousing cost estimation for the movement of goods—
buffer stocking, retail stores and transit distribution sheds.
14. The prime objective of any promotion strategy is to make consumers aware of
NOTES
all features of the product or service in various market segments.
15. Media planning is a process of selecting media time and space to disseminate
advertising messages in order to achieve marketing objectives. Media planning
facilitates firms to determine which media to use—television programmes,
newspapers, bus stop posters, in store displays or banner ads on the web.
16. In 1965, a top body named the Federation of Indian Export Organizations (FIEO)
was constituted with its registered office in Delhi. It was set up as a common
and coordinating platform for different export organizations involving the
commodity councils and boards and the service organizations and institutions.
17. The quantitative measures of performance are:
x Based on output: Sales, profits, sales per customer and number of new
customers signed up.
x Based on input: Number of calls made, calls per customer, calls on new
customers and number of prospective customers visited.
1. How can we customize products for the local market?
2. What are the functions of packaging?
3. Differentiate between geographical and psychological pricing.
4. What are the objectives of pricing?
5. What are the advantages of distribution strategy?
6. How can a logistics strategy be developed?
7. What are the basic activities of Federation of Indian Export Organizations (FIEO)?
1. Discuss how product planning and product design strategy are integral to
international marketing.
2. What are the functions of branding, packaging and labeling?
3. Discuss international pricing strategy and pricing methods.
4. What are the distribution strategies of international marketing?
5. ‘Logistics and supply chain management is the art of managing the flow of
materials and products from the source of production to the end user.’ Discuss.
6. Adopting the right kind of promotional strategy is the most crucial issue of
entering markets of many countries. Explain.
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International
3.15 REFERENCES AND SUGGESTED READINGS Marketing Decisions
Agrawal, D.K. 2003. Logistics and Supply Chain Management. New Delhi: Macmillan.
John Coyle, C. Langley, Brian Gibson, Robert Novack, Edward Bardi. 2008. NOTES
Supply Chain Management: A Logistics Perspective. Boston: Cengage Learning.
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Organization
UNIT 4 ORGANIZATION AND and Planning
PLANNING
NOTES
Structure
4.0 Introduction
4.1 Objectives
4.2 New Perspectives on Organization: Corporate Networking
4.3 Dimensions of International Planning and Strategy
4.4 International Marketing Information System
4.4.1 Types of Marketing Research
4.5 Summing Up
4.6 Key Terms
4.0 INTRODUCTION
Planning helps an organization to chart a course for the achievement of its goals. The
process begins with reviewing the current operations of the organization and identifying
what needs to be improved operationally in the upcoming year. From there, planning
involves envisioning the results the organization wants to achieve, and determining the
steps necessary to arrive at a successful position.
Strategic planning is an organizational management activity that is used to set
priorities, focus energy and resources, strengthen operations, ensure that employees
and other stakeholders are working toward common goals, establish agreement around
intended outcomes/results, and assess and adjust the organization’s direction in
response to a changing environment. In this unit you will study about such changing
dimensions of international planning and strategy, marketing research, and marketing
information systems. The effective role of corporate networking in an international
environment is also discussed.
4.1 OBJECTIVES
x Recognize the role of corporate networking in present day business organizations
x Discuss the changing dimensions of international planning and strategy
x Explain the components of management information system
x Summarize the changing perspectives in marketing research
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Organization
and Planning 4.2 NEW PERSPECTIVES ON ORGANIZATION:
CORPORATE NETWORKING
NOTES Corporate networking is an effective low-cost marketing method for developing sales
opportunities and contacts, based on referrals and introductions – either face-to-face
at meetings and gatherings, or by other contact methods such as phone, email, and
increasingly social and business networking websites.
‘Networking’ in marketing should not be confused with computer networking/
networks, which is different terminology, relating to connection and accessibility of
multiple computer systems.
Corporate networking offers a way to reach decision-makers which might
otherwise be very difficult to engage with using conventional networking methods.
In addition, corporate networking brings with it the added advantage of
recommendation and personal introduction, which are always very helpful for developing
business opportunities.
The traditional methods for driving organizational excellence in global
organizations are not enough. The most effective organizations make smart use of
employee networks to reduce costs, improve efficiency and spur innovation.
The role of the Information Technology is growing day by day. Chief Information
Officers are given new and challenging roles almost every day to improve work force
efficiency. Beyond providing an efficient operational support, top management expects
the IT personnel to be a strategic business partner. They are required to forecast the
impact of emerging technologies, lead the development of new IT-enabled products
and services, and drive adoption of innovative technologies that make them different
from the competitors.
Chief information officers are given the task to address these challenges by
relying on the same managerial tools they use to pursue operational excellence—
establishing well-defined roles, best practice processes and formal accountability
structures. But the use of these traditional tools is not enough.
For delivering operational excellence and innovation it is important to design
networks of informal collaboration. Within IT organizations in large global companies,
innovative solutions often emerge unexpectedly through informal and unplanned
interactions. This happens because two people solve an issue from entirely new
perspectives. What we get is two different outlooks for a single problem. Successful
execution flows from the networks of relationships which eventually help employees
to handle situations that do not fit cleanly into established processes and structures.
Chief information officers learn to harness and balance both formal and informal
structures to create efficient and innovative global IT organizations. Informal
collaboration tend to be far less visible to senior leaders even though individual
employees may be able to identify local patterns of collaboration, and broader
configurations. Organizational network analysis offers a useful methodology to help
executives to assess broader patterns of informal networks and then take steps to align
networks with strategic imperatives.
Network survey and analysis software allow senior managers to gather a wide
range of data from employees about their collaborations. Due to the deeper insights
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available after the brainstorming session, the employees are asked to characterize the Organization
and Planning
nature of their discussion—Was the talk session useful? Did it help them anyway in
reducing the stress level or not?
Apart from giving critical information about key network junctions, network
NOTES
analysis help senior managers to detect structural problems—such as hidden logjams
or gaps that affects strategy execution. Senior leaders who understand employee
interactions and know what makes for effective internal networks are in a position to
reduce collaborative costs and network inefficiencies. They can work in the following
four ways to improve performance:
x Effective global collaboration: Organizations can construct teams to leverage
diverse expertise and drive adoption of new ideas across geographies.
x Work force engagement and performance: Evaluating the network
characteristics of high performers can help employees to improve their own
performance. It can help leaders identify individuals who are capable of
energizing the organization.
x Collaboration with business partners and external stakeholders: By
creating a detailed map of the existing cross-departmental relationships, chief
information officers can evaluate the areas of innovations, the areas where
sufficient support is being provided and the areas where investments should be
made.
x Check on costs and network inefficiencies: Although collaboration is often
seen as a virtue but too much of collaboration at too many organizational levels
can be negative. Therefore it is important to reduce network connectivity at
places where collaboration fails to produce any value.
IT organizations must check on the result of this interdependency – What happens
on one project might have implications for related applications, infrastructure choices,
business processes and data models. Therefore, IT employees tend to interact with
colleagues to make sure that potential solutions do not create fresh problems. However,
such collaborations can be costly and even counterproductive if too many people are
involved in meetings, e-mail chains and decisions.
Corporate networks can have an enormous impact in transforming rigid
organizations into flexible units that is capable of adapting and innovating. In making
these changes, chief information officers and other business leaders have to let go
some of their traditional management methods. They need to embrace a different and a
more collaborative management model. Organizational charts and standardized
processes are important but they are not flexible enough to support the types of
internal and external collaborations and partnerships that companies need to maximize
value.
Check Your Progress
1. How is corporate
4.3 DIMENSIONS OF INTERNATIONAL PLANNING networking
AND STRATEGY different from
computer
networking?
In the modern world each nation state is sovereign and independent from other countries. 2. What is effective
In reality, however, no country can completely survive in isolation. They are economically global collaboration?
mutually dependent on each other. Even the most inward-looking regimes have realized
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Organization the limitations of closed economies in terms scarcity of their own resources. They
and Planning
also realized the benefits of opening up their borders. These changes in the orientation
of most economies have led to an enormous amount of activity in the international
marketplace.
NOTES
There was massive expansion of economic activities in the last decade of
twentieth century. There is widespread realization that a global economic boom has
been one of the drivers for greater efficiency and productivity. Never before in world
history have businesses been so deeply involved in and affected by international global
developments.
Current global forces are converging to build the foundation of a new global
economic order. The structure of a world economic order is by and large governed by
the market system. It has now become difficult for countries to escape the effect of
the ever-increasing number of domestic firms exporting, importing, and/or manufacturing
abroad. Today, five trends show up as the most dynamic that are influencing the
shape of international marketing.
x Interdependence of the world economies
x Rapid growth of regional free trade areas such as EU, NAFTA, ASEAN and
APEC
x Increase in wealth and growth in most parts of the world, enhancing the purchasing
power
x Evolution of large markets such as Brazil, China, India, Malaysia, Russia, Hungary
and Poland
x Availability of advanced methods of communication and transportation due to
developments in information technology
These forces have led to an astounding growth in international marketing and
have contributed to a perception that the world has become a smaller and interdependent
place. If we look at Nestlé, a Swiss multinational company, claim that its products are
sold in every country in the world. It has factories in more than 80 countries and it has
many brands that are recognized all over the world. Toyota and its subsidiaries have
their presence in more than 170 countries making it the only auto company which has
the largest presence in the world. The political and economic scene has dramatically
changed after the 9/11 episode and the war in Afghanistan and Iraq. The interdependence
among the nations and markets has however not been affected. Companies to beat
recession have become even more aggressive to capture new markets.
With the increasing globalization, companies find they are unavoidably enmeshed
with foreign customers, competitors and suppliers, even within their own borders.
They face competition from domestic firms and as well as from foreign firms. Sony,
Panasonic, Mitsubishi, Nokia, Fujitsu, Toyota and Nissan are formidable opponents
in a competitive struggle for European and world markets though they have a significant
presence and demand for their products in Europe and North America. Many familiar
domestic companies are now foreign controlled. When you shop for groceries at
A&P supermarkets or buy Alka-Seltzer, you are buying indirectly from a German
company. Some well-known brands no longer owned by US companies are Carnation
(Swiss), Brooks Brothers clothing (Canada) and the all-American Smith and Wesson
handgun, is now owned by a British firm. Most countries are involved in international
trade and investment.
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In fact, foreign investment in Western countries by other industrialized countries Organization
and Planning
is quite common. Companies from Germany, Japan, the United States and the United
Kingdom lead the group of investors, followed by companies from Switzerland, The
Netherlands and France.
NOTES
The international marketing planning task depends on the level of involvement
of companies in the various marketing activities in a country. Exporting and licensing
give minimum country involvement but joint ventures involve more in-country activity
and give a greater degree of integration and control. Wholly owned subsidiaries give
the organization almost total control. Because of the ‘external uncontrollable’
international planning is rather more difficult than domestic planning. Planning can be
standardized, decentralized or interactive.
x Standardized plans
In this process of international marketing there are numerous advantages like cost
savings on limited product range and economies of scale both in production and
marketing, for example fertilizers and uniformity of consumer choice across the world.
But standard plan may not be advantageous if different market characteristics make
uniform products inappropriate, for example, fresh milk products and environmental
obstacles disallow standardization; for example lack of refrigerated transport in
developing countries.
x Decentralized plans
Decentralized plans take local conditions into consideration. Products which are offered
are customized therefore there is scope of high cost and more resource consuming.
x Interactive plans
In this approach headquarters devises branch policy and a strategic framework, and
subsidiaries interpret these under local conditions, for example Nestlè. Headquarters
coordinates and rationalizes advertising, pricing and distribution. Planning can either
be a long term or a shot term activity. Increasingly planning is becoming fairly routine.
Most companies operate ‘annual operating plans’ although these are often ‘rolled
forward’ to cover a few years hence.
Operation of Plans
To implement any kind of plan in international marketing perspective there is need to
develop information system appropriate to plan. It has been noticed that there is need
of three types of information:
x Knowledge of the market: This is one of the most vital information that requires
implementing any marketing plan in international perspective. The major
information of customers, competitors and government are essential to include
in this category
x Knowledge of the product: There is also need to collect information related to
the formal product, its technology and its core benefit
x Knowledge of the marketing functions: For effective implementation of the
plan there is need to gather required information of various marketing functions
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Organization In the formulation of international marketing plan there is also need to make
and Planning
distinction between domestic market plan and international marketing plan. The
Table 4.1 summarizes major distinctions between domestic and international marketing
plans.
NOTES
Table 4.1 Domestic Marketing Planning vs International Marketing Planning
Domestic Marketing Planning International Marketing Planning
1. Single or limited languages and nationality 1. Multilingual/multinational/multicultural

factors
2. Relatively homogeneous market 2. Fragmented and diverse markets
3. Data available, usually accurate and collection 3. Data collection a large task requiring
is easy significantly higher budgets and personnel
allocation
4. Political factors relatively unimportant 4. Political factors frequently vital
5. Relative freedom from government interference 5. Involvement in national economic plans;
government influences business decisions
6. Individual corporation has little effect on 6. ‘Gravitational’ distortion by large companies
environment
7. Chauvinism helps 7. Chauvinism hinders
8. Relatively stable business environment 8. Multiple environments, many of which are
highly unstable (but may be highly profitable)
9. Uniform financial climate 9. Variety of financial climates ranging from over-
conservative to wildly inflationary
10. Single currency 10. Currencies differing in stability and real value
11. Business ‘rules of the game’ mature and 11. Rules diverse, changeable and unclear
understood
12. Management generally accustomed to sharing 12. Management frequently unautonomous and
responsibilities and using financial controls unfamiliar with budgets and controls

Often, complications arise out of situations that are ambiguous or are not routine.
Such situations affect an organization’s operations. In addition to managing the resources
under their control on a daily basis, managers have to face such major challenges
almost every other day. This is because managing operational tasks and responsibilities
is different from managing strategies. Managers who are used to the former will find
that in order to manage strategies, they need to be able to do much more. They need to
develop the skills to look at the big picture; to conceive the situation faced by a
business as a whole instead of smaller parts; and to make quick decisions on the basis
of their conceptualization of situations or issues.
Importance of Strategy
Formulation of a good strategy helps a company attain its desired goals. A strategic
plan provides an employee a clear vision of the purposes and objectives of the
organization. The formulation of strategy forces the organization to analyze the
prospects of change in the near future and prepare itself for change. Strategic formulation
helps the organization plan its capital budgeting. So, even if organizations have limited
funds to invest, they can allocate capital funds more effectively to attain a higher rate
of return on the investments.
On the contrary, an organization without a clear strategic plan destroys its goodwill
in the market. The organization becomes purely reactive to external pressures and less
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effective at dealing with the change. In highly competitive markets, an organization Organization
and Planning
without a rational strategy is likely to be defeated by its rivals and may face a declining
market share or sales.
The formulation of a reliable strategy can be executed through the following steps:
NOTES
x A company must opt for the industry it desires to engage in – it needs to
formulate its corporate strategy first.
x The organization should then formulate its ‘mission statement’ consistent with
its business definition.
x The organization must develop its strategic objectives or goals and set
performance objectives.
x Based on its objectives and analysis of both internal and external factors of the
environment, the organization must form a specific business strategy that will
fulfil its corporate goals.
x The organization should then implement the business strategies by taking specific
actions such as reducing prices, forging partnerships and venturing through
new distribution channels.
x Finally, the organization needs to review the effectiveness of its strategy along
with the performance evaluation and change its policy as per the requirement by
repeating the above steps.
These steps form the core of strategic management in the organization.
Functions
The main function of strategic management is to make crucial decisions about important
issues facing the organization and also see to it that the strategies are implemented.
The most important elements of strategic management are:
x Discerning the strategic position of an organization
x Implementing strategies
x Making strategic choices keeping the future in mind
Purpose of Strategic Management
The purpose of strategic management is enumerated in Table 4.2
Table 4.2 Purpose of Strategic Management
Strategic position x Scanning the external environment

x Meeting stakeholders’ expectations
x Utilizing resources and
competencies
Strategic choice x Identifying alternative strategies
x Evaluating the alternatives
x Selecting the strategies
Implementation of strategy x Modifying the organization

structure and design
x Planning and allocating resources
x Managing strategic change
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Organization 1. Strategic Position
and Planning
The strategic position of a company is determined by the influences that the changes
in the external environment may have. The strategic position is affected by the advantages
NOTES that the resources within the organization may have, or the opportunities they may give
rise to. It is also affected by the wants and expectations of the stakeholders, managers,
shareholders and unions associated with the organization.
Scanning the external environment
The organization exists and functions in an environment that is far from simple. It
exists in a continuously changing environment wrought with legal, technological,
commercial, social as well as political complexities. These complexities impact some
businesses more than others and that too in different ways. In some cases, these
changes may lead to opportunities whereas in other cases, these may threaten the very
existence of an organization.
Utilizing resources and competencies
The strategic capabilities of an organization largely depend on its competencies and
internal resources. These form the internal influences. The organization should be able
to identify the factors that are hindering the future strategic choices in order to deal
with them accordingly. Some resources such as the core competencies may give rise
to competitive advantages. The core competencies generally deal with skills, knowledge
and activities.
Meeting stakeholders’ expectations
The organization is influenced by a number of factors including the stakeholders’
expectations. Some strategies designed by the management may not be approved by
the stakeholders. If the stakeholders are more powerful, they will influence the
management’s strategy and even modify it to suit them. In case the management is
more powerful, their strategy will ultimately be accepted by one and all. Another
factor that influences the organization strategy is the culture followed within the
organization as well as by the world outside. The strategic position of an organization
can be evaluated and determined by the combined influence of its own capability as
well as the political, social and cultural environment within and outside.
2. Strategic Choice
In order to make strategic choices, you have to first understand the corporate-level
factors as well as the business unit-level factors that form the foundation of the strategic
choices for the future. You also have to get an idea of the available options for
developing strategies, that is, the technique to be followed and the channel or path to
be adopted. You know that strategies are formed at various levels. At the corporate
level, that is, the highest level, the strategy formulation mainly takes into consideration
the various business units and how they can be improved with active contribution
from the corporate centre. It is but natural that the small business units look up to the
corporate centre as a parent for all their needs—channelizing the resources in the right
direction, allocating finances appropriately, building brand image as well as marketing
their products or services. Strategic choices at this level are made to provide the
organization with a competitive edge based on a thorough study of the market and
customers’ demands and expectations.
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3. Implementation of Strategy Organization
and Planning
Putting the selected strategies into action is concerned with ensuring that the structure
and design of the organization are conducive to implementation; the resources are
planned, managed and allocated in a manner favourable to implementation; the processes NOTES
are designed in a suitable manner; the relationship between the departments and units
facilitates productivity, performance and action.
Once the organization is structured and designed suitably, the next step is to
plan and allocate the limited resources available to facilitate strategy implementation
and ensure optimum utilization with optimum profit. At the same time, the planning and
allocation should adjust with the demands of the external environment in order to
provide a competitive advantage.
Finally, strategy implementation also involves effective restructuring and re-
engineering, that is, effective management of strategic change. Examples of managing
strategic change involve how successfully an organization takes care of a restructuring
or reengineering exercise carried out in the company and the fallout of the same. It can
also involve how an acquisition process is integrated with the acquiring company.
Building Success through People, Purpose and Performance
The success of an organization is governed by the level of bonding it has with its
customers; the techniques it employs to please them, give them value-added services
and improve customer satisfaction. In addition, the organization should also stay
focused on its strategic business plan and objectives for the future. In other words, it
should stay connected to its people, customers as well as its corporate goals and
ideas.
x Firstly, to connect, there must be an emotional link. Connecting implies building
emotion.
x Secondly, to connect, we must create a strong feeling. Most of us do not feel
especially connected with our casual acquaintances because we do not feel
strongly about them.
x The third part of the definition of connect is to create a positive, uplifting
relationship.
Unfortunately in business, people create strong emotional links but the relationship
is neither positive nor uplifting. Success is built on the connections we make with
people and ideas. Whether it is connecting with customers to improve their service
experience, or connecting with the strategic business plan and objectives for the coming
year, the foundation of success lies in connecting.
Great organizations foster the right kind of connection between the company,
its mission and its employees.
What are strategic business units?
When a company possesses different businesses or portfolios of merchandise, the
most common technique that a company adopts is to form strategic business units
(SBUs). In order to segregate the units or segments, each performing a similar set of
activities, many companies are organized on the basis of operating divisions. These
divisions are also known as profit centres or SBUs.
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Organization SBUs are generally formed when there exists a number of businesses, each
and Planning
unique in some way or the other, either in terms of merchandise or in terms of markets
in which they operate.
There are various levels of strategy involved in the process of SBUs. At first,
NOTES
there is a corporate-level strategy and then there are SBU-level strategies. We also
need to realize that there are differences in their functional areas in terms of marketing,
finance, production and operations. Therefore, functional-level strategies are required
at both the corporate and SBU levels.
Figure 4.1 shows the functional-level strategies at the corporate level.
Fig. 4.1 Functional-level Strategies
Strategies for International Business

The field of study of global business strategies effectively addresses the interdisciplinary
issues of organization theory, business strategy, marketing and international management
for optimizing the firm’s performance. Choosing an international strategy, be it adaptation
or standardization, depends upon a firm’s ability to match its marketing strategy with
the external environment. An abstract contingency framework is often conceived
between the business’s critical variables like capacity utilization and high sales revenue
and particular relationships between these variables and their successful implementation
that leads to high performance levels. One of the important features impacting global
business strategies is the World Trade Organization (WTO) rules on trade in goods
and services, Intellectual Property Rights and Foreign Direct Investment.
Global business strategy can be defined as the strategies exercised by the
companies, businesses or firms functioning in a global business environment and
serving consumers worldwide. Global business strategies are closely linked to the
strategic decisions of the businesses aimed at meeting their short and long-term
objectives. The short-term objectives relate to the improvement of the company’s
day-to-day operations while the long-term objectives are usually targeted towards
increasing profits, sales and the company’s earnings ensuring growth and stability of
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132 Material
The fundamental strategic choice for a Multinational Corporation (MNC) is Organization
and Planning
about the extent to which it opts for global integration and standardization or
differentiation and responsiveness to national and local differences. The strategic
decision of MNCs is influenced by the location of economic activities, need to
coordinate subsidiaries and the extent of centralization/decentralization of the company. NOTES
An organization that is established in the international market may use some
strategies to achieve success in the competitive world of international business. These
strategies are as follows:
x International strategy
x Multi-domestic strategy
x Global strategy
x Transnational strategy
1. International Strategy
In an international strategy, a company strives to create its value in the international
market. For this purpose, the company needs to produce those products and provide
those services that are valuable in foreign countries and other local companies of the
country face problems in producing and providing. Microsoft, for example, designs
and develops a number of software in its country and establishes its subsidiaries in
foreign countries to implement distribution strategies of the company for marketing its
products. Its subsidiaries are also responsible for handling customers of foreign
countries.
2. Multi-domestic Strategy
In a multi-domestic strategy, companies first concentrate on the domestic market of its
country. Companies select a goal of achieving maximum responsiveness from its local
customers. They often need to modify their marketing and distributing strategies for
achieving their goal. For example, some companies may introduce many new activities
related to production, marketing and developing of products for attracting customers
in their local markets.
3. Global Strategy
In a global strategy, a company has to follow a low-cost strategy for its business
process. This means a company which uses global strategy for its business always
concentrates on specific markets. It is never concerned with the entire international
market for its product distribution as in the international strategy. It mainly focuses on
gathering profit through cost reduction in different markets, according to the experience
curve. An experience curve determines the variance in the reduction of product cost.
This variance is observed by a study of production and sale of the product. According
to the observation, production cost of a product is based on two factors: learning
effects and economies of scale. Learning effects refer to the cost saving that comes
from doing a work again and again and thus, eliminating the need for special training to
a person. Economy of scale refers to the reduction in the cost of a product that arises
due to its large amount of production. Figure 4.2 shows an experience curve.
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Organization
and Planning
NOTES
Fig. 4.2 Experience Curve
4. Transnational Strategy
In a transnational strategy, a company transfer’s its services and products from one
market to another, i.e., from home market to foreign subsidiaries’ market and vice
versa. It also transfers its services and product from one foreign subsidiary to another
foreign subsidiary. Transfer of skills and products between different markets is known
as global learning.
Advantages and Disadvantages of Different Strategies
All the strategies such as international, multi-domestic, international and transnational
are aimed at enabling a company make profits in the international market. However,
these strategies have their own advantages and disadvantages as shown in Table 4.3
Table 4.3 Advantages and Disadvantages of Various Strategies
Competitive analysis and strategy

In formulating strategies for businesses, the management should consider the strategies
of the firm’s rivals. In industries with a high level of concentration, competitive analysis
becomes an inevitable part while planning strategies. Competition in most global
product/markets is intense. In the fertilizer industry for example, few companies dominate
the market, including Norsk Hydro. Substitute competition has also become an
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increasingly bitter battleground, with products being able to replace others as technology Organization
and Planning
and tastes have changed.
Marketing plans are important components of international marketing management.
NOTES
International marketing companies need to develop effective marketing plans. These
plans vary by duration.
There are short-run marketing as well as long-run marketing plans.
Marketing plans should also include and focus on scope of plan. By clearly
defining the scope of the plan, marketing managers fully understand the focus of
international marketing in different part of the world.
The development of marketing plan may have a bottom-up or top-down
approach. In case of bottom-up approach, each unit working in different countries
develop their plan by taking into consideration demand, product, price, promotion,
competitors, and environment factors etc. They submit their plan to their head-office
further for suggestions and approval for implementation. Head office, by taking
consideration of mission, vision and availability of resources provides suggestions
for implementation. This approach is known as bottom-up approach. This is applicable
in case of companies who have adopted decentralized approach and further mostly
markets customized products according to cultural, social needs of different countries.
In top- down approach, strategic unit of company from top develop the marketing
plan by taking into consideration mission, vision and availability of resources.
Marketing strategy is an important component to develop the objectives of the
marketing plan. It includes selecting and analyzing the target market(s) and creating
and maintaining an appropriate marketing mix that satisfies the target market and
company. A marketing strategy articulates a plan for the best use of the organizations
resources and tactics to meet its objectives. There is also need to adopt focused
approach by developing marketing strategy that is consistent with the marketing plan.
There is no need to pursue projects that are outside the companies’ objectives or that
stretch the companies’ resources.
The plan includes executive summary also. In this summary critical points of
the plan are summarized. There is also a comprehensive situational analysis by taking
into account prevailing external and internal environmental factors. There is also SWOT
analysis of the plan that analyses opportunities and threats, which are present in the
international markets. There is also need to include specific objectives which marketing
plan focuses to achieve.
The major elements of marketing strategies are target markets. A target market is
group of persons/companies for whom a firm creates and maintains a marketing mix
that specifically fits the needs and preferences of that group. Simultaneously there is
also a need to develop a marketing mix to reach the target market. The marketing mix
is designed around the buying motive-emphasizing the marketing concept. The marketing
environment affects the marketing mix, which is only controllable to a certain extent.
There is also need to determine the needs of the target market before developing the
marketing mix. Along with marketing plan, there is also need to match target markets
with financial projections, controls and further evaluation. Marketing control process
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Organization consists of establishing performance standards, evaluating the actual performance by
and Planning
comparing it with the actual standards, and reducing the difference between the desired
and actual performance.
Financial projections should be developed by including sales forecasting. The
NOTES
methods used in sales forecasting are judgmental and quantitative. The plan also involves
where the organization would like to be and how to get there, which involves goal
setting and strategy determination. Therefore, organization structure should be created
before planning. The situational analysis, objectives, strategy and tactics which are
vital components of any marketing plan should be developed by taking into
consideration appropriate organizational structure.
The major advantages of marketing plan are as follows:
x Gives rise to systematic thinking
x Helps prepare for exigencies
x Gives activity continuity
x Integrates functions and activities
x Helps in a continuous review of operations
4.4 INTERNATIONAL MARKETING INFORMATION

SYSTEM
Marketing information is formally gathered, stored, analyzed and distributed to managers
in accordance with their informational needs at regular intervals on a planned basis.
The marketing information system is built upon an understanding of the
informational needs of marketing, and it supplies that information when, where and
how the managers require it. Data are derived from the marketing environment and
transferred into information that marketing managers can use in their decision making.
MIS has four components:
x Collection of data from internal sources on continuous basis
x Collection of data from internal sources on ad-hoc basis
x Scanning of environment
x Marketing research
Check Your Progress 1. Collection of Data from Internal Sources on Continuous Basis
3. What are the two
major advantages
MIS converts financial and transactional data like revenue of a product, customer or a
of marketing plan? distribution channel into a form that can be used by the marketing department to
4. What are the formulate its strategy. This is done by disaggregating the database of sales and assigning
important elements it to products and customers. Information like allocation of discounts, promotional
of strategic
management? and transport costs to products and customers are stored in the MIS. The detailed
5. Why is knowledge description of transactions with the customers and the associated costs allow marketers
of the market to carry out analysis of their marketing activities.
important in
international MIS can also be used to monitor the performance of salespeople. MIS keeps
marketing? record of the revenues that a salesperson has generated and the profit that he has
earned on his revenues. It also keeps a record of visits and calls he has made, and new
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accounts he has opened. It also records the revenues and profits that a salesperson Organization
and Planning
has generated on each of the products and the customers that have been assigned to
him. Such information helps managers in guiding the efforts of the salesperson, so that
he is able to achieve company’s targets. For example, a salesperson may be generating
most of his revenue from his existing customers, but the company might be more NOTES
interested in acquiring new customers. Therefore, the salesperson has to be directed
to make more calls and visit more new customers than existing ones.
2. Collection of Data from Internal Sources on Ad-hoc Basis
The data of customer transactions and associated costs can also be used for specific
purposes. Management may look at how sales have reacted to a price increase or
change in advertising copy. Capturing data on MIS allows specific analysis to be
conducted when needed.
3. Scanning of Environment
Environmental analysis whereby economic, social, demographic, legal and technological
forces are monitored, is part of MIS. Economic, social, demographic, legal and
technological forces govern the context within which the company, its suppliers and
distributors and its competitors operate. A company should have a team of experts to
scan the environment on a regular basis so that the company is not caught unaware
when a change in the environment threatens to impact the company’s operations
adversely. It acts on an early warning system, and gives the company time to prepare
to face the new future. For example, a company may learn about the government’s
intention to enforce new pollution norms, and it may set in motion a process that
enables it to meet the new norms when they are finally enforced. Another company
may see demographic changes of younger customers and dual-income families as
huge opportunities and may set in processes to design new products and services for
them. Environmental scanning gives time to companies to tackle their threats and
harness their opportunities
4. Marketing Research
Marketing research is concerned with the provision of information about markets and
reaction of these to various product, price, distribution and promotion actions.
Marketing research helps in designing an appropriate marketing mix—each component
of the market mix should correspond exactly with what the customers want to buy and
how they want to buy, which only marketing research can reveal. There are two ways
in which marketing research can be conducted:
x Data is collected from external sources on a continuous basis –television audience
is monitored to find out the programmes they are watching, and consumer
panels are formed to record household purchases over time.
x Data is collected from external sources on ad hoc basis—survey is conducted
to find out why a product is not meeting its revenue goals; an advertisement is
shown to prospective customers to find out its usefulness in triggering purchase,
and a survey is conducted to find out if a brand meets its customers’ emotional
need of exclusivity.
We will discuss the 4th component of MIS
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Organization 4.4.1 Types of Marketing Research
and Planning
There are two categories of marketing research: primary research and secondary
research.
NOTES
1. Primary Research and its Problems
When marketers collect original data it is referred to as primary marketing research. A
major step of primary research involves designing a research plan, collecting information,
inputting data, and producing and analyzing results. Primary research is often very
expensive to undertake. But the selection of primary research always depends on the
nature of the problem that marketer would like to test in the market.
There are two basic types of primary research methods—quantitative and
qualitative.
x Quantitative Research
The process of gathering data by using quantitative means and then evaluating it by
using statistical analysis, followed by a structured and well-controlled scientific research
design, is known as quantitative research. This data can also yield numerical values
that can be analyzed using statistics. There are many forms of quantitative research
like surveys, tracking and experiments.
x Qualitative Research
Qualitative research gathers information that requires researchers to interpret the
information being gathered, mostly without the benefit of statistical support. Researcher
skills and competencies in interpreting respondents’ comments and activities are most
important in qualitative research. This form of research can offer very good information.
But in the case of qualitative research, its relevancy is often associated with the data
collection method. For example, a researcher may want to know more about how
customers make purchase decisions.
A major problem with qualitative research is that it can be time-consuming and
expensive and, consequently, only a very small portion of the total population generally
participates in the research.
Quantitative Research is generally conducted through individual interviews, focus
groups and observational research.
2. Secondary Research and its Problems
The most popular and widely used research method is collecting data through secondary
research. This means that accessing information that others have already gathered.
Secondary data, whether domestic or international, must be reviewed carefully to
determine sources, research instruments, sample sizes, and regency. Further problems
exist in using secondary sources of information, such as the reports’ language. Source
credibility is an issue-any organization, including national governments will distort
information for political reasons making even official population data unreliable for
some countries. Different sources may give apparently contradictory information, with
no obvious reason for the differences, so it becomes difficult to determine the most
reliable sources. Average figures, such as the population density or income may be
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misleading, as these can be concentration of population in certain urban areas or Organization
and Planning
wealth may be unequally distributed.
Difference between classifications in data may cause problems in the comparison
of results which means consistency of information between countries. The definition
NOTES
of a supermarket is smaller in some African countries than in European countries.
Differences in classifications may reflect other differences in culture or demography.
For example, comparisons of the ‘youth’ market need an understanding of the age that
people graduate from high school or university. In Scotland, students can graduate
from university by 20; in Germany they may be in their middle or late 20s before they
graduate. This may also impact on other aspects, such as the age of marriage.
Cultural Differences, including the role of women within the home and the job
market, and cultural influences on purchase choice preferences also may make it difficult
to compare ‘like with like’. Products may serve different functions between markets-
for example, bikes can used principally for transportation or for leisure - which
means it is important to appreciate such differences before comparing results across
countries. It explains why customers would prefer different features on the bicycles.
Finally economic differenced, such as buying power and exchange rates, may distort
data.
It is rare that secondary data will provide the answers to all your marketing
problems. The lack of reliability and limited range of secondary sources of information
mean that gaps in research are even more likely in some international markets. Original
research will be required even where valid secondary sources of information exist.
Managers must review research needs against the cost of gathering the
information. Research costs (e.g. cost per interview) vary between markets. It is too
expensive to gather all topics and all markets, so marketing managers with responsibilities
across markets must set research priorities. Small markets, in particular, may not justify
high research costs. Marketing managers must also coordinate original research when
comparisons are being sought across markets. It is often difficult where it is being
managed from a distance, for example from international or regional headquarters.
The marketing research process for international markets is identical to that in domestic
markets. Essentially, this goes through the following stages:
x Identification and definition of the problem
x Development of the research plan
o Objectives
o Data collection instruments
o Samples
o Roles and responsibilities
x Implementation of the research plan
x Recording and analyzing the research results
x Reporting or communicating the results
Most companies do not use the results of the marketing research that they carry out.
Marketing research has to be conducted differently if their results have to influence the
way a company markets its products.
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Organization Market researchers focus on finding out how a change in a variable impacts
and Planning
customer behaviour. They have developed a sophisticated understanding of how
customers behave, and have also devised ways to measure their behaviour. But
companies want to know as to what they should do to take benefit of a customer
NOTES reacting in a particular manner to particular stimuli. Market researchers have advised
marketers as to what they should do to prompt customers to buy their products.
Optimization models have been successfully used in pricing, i.e., at what price the
company earns the maximum profit. Similar optimization models need to be developed
to help marketers decide advertising intensity, product portfolio, discounts and
distribution intensity. Marketers want to know as to what they should do to attract and
retain customers, and earn maximum profits from them.
Market researchers focus on the short-term. They want to find out how a
proposed price change will affect sales. Such focus on the short term can have
disastrous results. For example, a company found out that its sales increased
substantially every time it sold its product on a discount. It was encouraged to offer
deeper discounts, and also offer such discounts more frequently. The result was that
its product was sold only when it was on discount, and within a few years its brand
value declined dramatically. It is imperative that market researchers start focusing on
the long term impact of a company’s product, pricing, advertising and distribution
strategies.
Market researchers focus on collecting data from secondary sources and carrying
out controlled experiments. If marketing research has to produce actionable findings,
such findings have to come from conducting experiments on real customers in actual
buying scenarios—change price of products being sold in a store and see how it
impacts sales. Market researchers have to learn to carry out experiments on large
number of customers and find out ways to measure changes in customer behaviour
when variables like pricing, number of salespeople or advertising intensity are changed.
They have to develop the infrastructure to carry out such large research projects, and
invest in technologies that will enable them to measure changes in customer behaviour.
Then they have to ensure that they are heard and their recommendations are implemented.
4.5 SUMMING UP
Check Your Progress
x Corporate networking is an effective low-cost marketing method for developing
6. What are the four
components of
sales opportunities and contacts, based on referrals and introductions - either
MIS? face-to-face at meetings and gatherings, or by other contact methods such as
7. What are the two phone, email, and increasingly social and business networking websites.
ways of conducting
marketing
x The traditional methods for driving organizational excellence in global
research? organizations are not enough. The most effective organizations make smart use
8. How can MIS be of employee networks to reduce costs, improve efficiency and spur innovation.
used to monitor the
performance of
x The role of the Information Technology is growing day by day. Chief Information
salespeople? Officers are given new and challenging roles almost every day to improve work
9. What are the two force efficiency.
categories of
marketing x Beyond providing efficient operational support, top management increasingly
research? expects the IT personnel to be a strategic business partner — to forecast the
business impact of emerging technologies, lead the development of new IT-
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enabled products and services, and drive adoption of innovative technologies Organization
and Planning
that differentiate the organization from competitors.
x With the increasing globalization, companies find they are unavoidably enmeshed
with foreign customers, competitors and suppliers, even within their own borders.
NOTES
They face competition from domestic firms and as well as from foreign firms.
x The international marketing planning task depends on the level of involvement
of companies in the various marketing activities in a country. Exporting and
licensing give minimum country involvement but joint ventures involve more in-
country activity and give a greater degree of integration and control. Wholly
owned subsidiaries give the organization almost total control.
x Formulation of a good strategy helps a company attain its desired goals. A
strategic plan provides an employee a clear vision of the purposes and objectives
of the organization. The formulation of strategy forces the organization to analyze
the prospects of change in the near future and prepare itself for change.
x Strategic formulation helps the organization plan its capital budgeting. So, even
if organizations have limited funds to invest, they can allocate capital funds
more effectively to attain a higher rate of return on the investments.
x The main function of strategic management is to make crucial decisions about
important issues facing the organization and also see to it that the strategies are
implemented.
x The field of study of global business strategies effectively addresses the
interdisciplinary issues of organization theory, business strategy, marketing and
international management for optimizing the firm’s performance.
x Choosing an international strategy, be it adaptation or standardization, depends
upon a firm’s ability to match its marketing strategy with the external
environment.
x Marketing plans are important components of international marketing
management. For international marketing companies need to develop effective
marketing plans.
x The marketing information system is built upon an understanding of the
informational needs of marketing, and it supplies that information when, where
and how the managers require it. Data are derived from the marketing environment
and transferred into information that marketing managers can use in their decision
making.
x Environmental analysis whereby economic, social, demographic, legal and
technological forces are monitored is part of MIS. Economic, social,
demographic, legal and technological forces govern the context within which
the company, its suppliers and distributors and its competitors operate.
x Marketing research is concerned with the provision of information about markets
and reaction of these to various product, price, distribution and promotion
actions.
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Organization
and Planning 4.6 KEY TERMS
x Transnational strategy: In a transnational strategy, a company transfer’s its
NOTES services and products from one market to another, i.e., from home market to
foreign subsidiaries’ market and vice versa.
x Multi-domestic strategy: In a multi-domestic strategy, companies first
concentrate on the domestic market of its country. Companies select a goal of
achieving maximum responsiveness from its local customers.
x MIS: Management information system (MIS) provides information that
organizations require to manage themselves efficiently and effectively.

1. ‘Networking’ in marketing should not be confused with computer networking/
networks, which is different terminology, relating to connection and accessibility
of multiple computer systems. Corporate networking offers a way to reach
decision-makers which might otherwise be very difficult to engage with using
conventional networking methods.
2. Under effective global collaboration organizations can construct teams to leverage
diverse expertise and drive adoption of new ideas across geographies. By
carefully studying collaboration challenges across functions and geographies,
the team can identify gaps and enhance connectivity and best practice transfer
in targeted ways.
3. Two major advantages of marketing plan are that a marketing plan:
x Gives rise to systematic thinking
x Helps prepare for exigencies
4. The most important elements of strategic management are:
x Discerning the strategic position of an organization
x Implementing strategies
x Making strategic choices keeping the future in mind
5. Knowledge of the market is important because it is one of the most vital
information that requires implementing any marketing plan in international
perspective. The major information of customers, competitors and government
are essential to include in this category.
6. The four components of MIS are:
x Collection of data from internal sources on continuous basis
x Collection of data from internal sources on ad-hoc basis
x Scanning of environment
x Marketing research
7. Two ways of conducting marketing research are: collecting data from external
sources on a continuous basis and on ad hoc basis.
8. MIS can be used to monitor the performance of salespeople. MIS keeps record
of the revenues that a salesperson has generated and the profit that he has
earned on his revenues.
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9. The two categories of marketing research are: Organization
and Planning
x Primary Research and
x Secondary Research
NOTES
1. What is the difference between standardized plans and decentralized plans?
2. Discuss the steps involved in the operation of plans.
3. What are strategic business units?
4. How can environmental analysis be considered a part of MIS?
1. ‘Corporate networking is an effective low-cost marketing method for developing
sales opportunities.’ Discuss.
2. Discuss the different strategies used for international business.
3. ‘The marketing information system is built upon an understanding of the
informational needs of marketing, and it supplies that information when, where
and how the managers require it.’ Discuss.
4. What are the changing perspectives in marketing research?
4.9 REFERENCES AND FURTHER READINGS

Vasudeva, P.K. 2010. International Marketing, New Delhi: Excel Books.
Jain, Subhash C. 2001. International Marketing, Delhi: South Western Thomson
Learning.
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Trade Liberalization and
UNIT 5 TRADE LIBERALIZATION AND Export Procedure
EXPORT PROCEDURE
NOTES
Structure
5.0 Introduction
5.1 Objectives
5.2 WTO and Trade Liberalization
5.2.1 Liberalization and Indian Economics
5.3 International Marketing Institutions
5.4 India’s Foreign Trade and Balance of Payments
5.4.1 Trends in Balance of Payments
5.4.3 Non-Resident Inflows
5.5 Export Procedure
5.6 Summing Up
5.7 Key Terms
5.0 INTRODUCTION
One of the most recurrent arguments for trade policy reform in developing countries
was the debt crisis unleashed in the early 1980s. The World Bank and the IMF began
to recommend development strategies based on market oriented reforms, which
included as a basic component the reduction of trade barriers and the opening of
international trade to foreign competition. In general, trade liberalization has been
considered a more efficient instrument for promoting export diversification and growth
than some of the earlier schemes used for this purpose. These include export subsidies
and export incentives.
In this unit, you will study about India’s foreign trade and balance of payments
position, various marketing institutions that help in international marketing and also
about the role of WTO in trade liberalization.
5.1 OBJECTIVES
x Discuss the role of WTO in trade liberalization
x Classify international marketing institutions and discuss their objectives
x Explain export procedure and recognize the importance documentation
x Examine India’s foreign trade and balance of payments position Self-Instructional
Material 145
Export Procedure 5.2 WTO AND TRADE LIBERALIZATION
World Trade Organization (WTO) is the only international body dealing with the rules
NOTES of trade between nations. Its purpose is to help trade flow smoothly through a system
based on rules and to settle trade disputes. It is a single institutional framework
comprising of various agreements and commitments and a wide array of policy
instruments affecting trade in goods, services and intellectual properties. It provides
not only a forum for multilateral liberalizations on rule-making, but also a unique,
advanced mechanism for the fair and objective resolution of trade issues. All
arrangements and agreements arrived at come under the auspices of WTO.
It is usual to hold a ministerial conference once at least in two years. The
operations of the ministerial decisions and agreements are regularly overseen by the
General Council, which is further responsible for acting as the dispute settlement body
and overseeing the Trade Policy Review Mechanism concerned with the complete set
of trade issues dealt with by the WTO. Subsidiary bodies have also been established
by it such as a TRIPs Council, a Services Council and a Goods Council.
The fundamental objective of WTO, as explained in its preamble, is to provide
the maximum opportunity to the contracting parties for ‘expanding the production and
trade in goods and services, while allowing for optimal use of the world’s resources in
accordance with the objective of sustainable development.’ (Final Act, 1994). Thus,
WTO aims at improving the standard of living, level of employment and output and
optimal utilization of the world’s resources. It tries to ensure the preservation of
environment all over the world. The thrust of its activities is to secure a better share of
growth in international trade, especially for the least developed countries.
WTO aims to perform the following functions:
x Through various councils and committees, implement the twenty-eight agreements
contained in the final agreement of GATT.
x Try to resolve trade disputes through a conciliation mechanism.
x Resolve unresolved disputes relating to trade between the member countries
through the WTO’s dispute settlement court.
x Keep all vital data relating to world trade in its data bank.
x Act as a watchdog of international trade by monitoring and examining the trade
transactions of member countries.
x Implement the agreements relating to tariff and non-tariff cuts by the member
countries.
x Treat all trading partners at par while settling trade disputes.
x Provide a platform to the member countries to negotiate freely on various issues
relating to world trade.
In brief, the WTO is a very powerful body that attempts to ensure fair distribution
of world resources through the provision of an uninterrupted and friendly trade
environment to member countries.
There are a number of ways of looking at the WTO. It’s an organization for
liberalizing trade, it’s a forum for governments to negotiate trade agreements, it’s a
place for them to settle trade disputes. It operates on a system of trade rules.
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5.2.1 Liberalization and Indian Economics Trade Liberalization and
Export Procedure
The results of excessively inward-looking trade strategy on one hand and the need for
modernization and technology up-gradation of the Indian industry on the other, certain
policy measures in the direction of trade liberalization were initiated. The trade policy NOTES
cannot be viewed in isolation; it should be seen in the context of the overall economic
policy. One of the important features of the new economic policy is a move towards a
more open economy by liberalizing the foreign investment policy and imports. The
redesigning of the policy covers some measures that have been taken. They can be
broadly grouped as:
x Realization of exchange rate policy
x Import liberalization
x Export incentives
x Simplification of procedural formalities
Salient features of the new economic policy (NEP) of India
x Abridgement of the role of the public sector
x Substantial enlargement of the scope of the private sector
x Substantial enlargement of the private sector by de-licensing (with some
exceptions) and removing the restriction under the Monopolies and Restrictive
Trade Practices (MRTP) Act on expansion, mergers, amalgamations and
takeovers
x Liberalization of the policy towards foreign capital and technology
Reform of the trade policy regime
x Exchange rate adjustment: To make the exchange rate more realistic and to
encourage exports and discourage imports, the rupee was devalued.
x The role of subsidies in export promotion has been substantially reduced by
abolishing the cash compensatory support (CCS). It was considered that the
CCS was serious drain on the exchequer.
x Liberalisation of imports by substantially eliminating licensing, quantitative
restrictions and other regulatory and discriminatory controls.
x Procedural simplification.
x Convertibility of the rupee: As a first step towards total convertibility of rupee, a
scheme of partial convertibility of the rupee was introduced in March 1992.
Accordingly, exporters got 40 per cent of the foreign exchange earnings
converted into rupee at the official rate.
Export-Import Policy
The Export-Import Policy announced the Exim Policy, for the first time in March,
1992.
Objectives
The principal objectives of the Exim Policy are:
x To establish the framework for globalization of India’s foreign trade.
x To promote the productivity, modernization and competitiveness of the Indian
industry and thereby, to enhance its export capability.
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Trade Liberalization and x To encourage the attainment of high and internationally accepted standards of
Export Procedure
quality and thereby, enhance the image of India’s products abroad.
x To increase India’s exports by facilitating access to raw materials, intermediaries,
components, consumables and capital goods from the international market.
NOTES
x To promote efficient and internationally competitive import substitution and
self-reliance.
x To foster the country’s research and development and technological capabilities.
x To simplify and streamline the procedures governing exports and imports.
Liberalization
To note the change in policy, a very important feature of the new Exim Policy is
freedom. It substantially eliminates licensing, quantitative restrictions and other regulatory
and discretionary controls. All goods, except those coming under the negative list,
may be freely imported and exported.
Negative List
x Prohibited
x Restricted through licensing
x Canalized
Goods which are restricted through licensing may be exported or imported only in
accordance, with a license issued in this behalf. A license may include such terms and
conditions as may be specified by the licensing authority which may include:
x The quantity, description and value of goods
x Actual user condition
x Export obligation
x The value addition to be achieved
x The minimum export price
x The country of origin and destination of the goods
The policy of the government is to keep the negative list as small as possible
under given circumstances and these lists would be pruned from time to time. The
Exim Policy of 1992-97 acknowledges that trade can flourish only in a regime of
substantial freedom. It also recognizes the need for reasonable stability of the policy,
by making the duration of the policy five years. The new Exim Policy is quite in line
with the economic reforms introduced in India. To give due recognition and to give the
Indian trade a global orientation, is an important feature of the policy. The procedural
Check Your Progress simplification and minimization of quantitative, licensing and other discretionary controls
are addressed by the new measures, which were long overdue. It needs to be clarified
1. What is the
fundamental that liberalization of imports does not mean that there is an indiscriminate removal of
objective of the import restrictions. Imports, on the whole, are still highly restricted. A salient feature of
WTO? the liberalization is the elimination of the unnecessary procedural hurdles and
2. State two principle
simplification of procedures. Even though import duty on a number of items has been
objectives of India’s
1992 Exim policy. significantly reduced, the duty rates are still very high in comparison to many other
countries.
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5.3 INTERNATIONAL MARKETING INSTITUTIONS Export Procedure
It is important to identify and assess the contribution of the marketing institutions that
play a major role in supporting international trade and investment. Let us study in NOTES
detail some of these institutions.
1. Central Advisory Council
The Central Advisory council comes under the Industrial (Development and Regulations)
Act, 1951.
Establishment and constitution of Central Advisory Council and its functions
1. For the purpose of advising it on matters concerning the development and
regulation of scheduled industries, the Central Government may, by notified
order, establish a Council to be called the Central Advisory Council.
2. The Advisory Council shall consist of a Chairman and such other members not
exceeding thirty in number, all of whom shall be appointed by the Central
Government from among persons who are in its opinion capable of representing
the interests of:
x owners of industrial undertakings in scheduled industries
x persons employed in industrial undertakings in scheduled industries
x consumers of goods manufactured or produced by scheduled industries
x such other class of persons including primary producers, as in the opinion
of the Central Government, ought to be represented on the Advisory
Council.
3. The term of office of, the procedure to be followed in the discharge of their
functions by, and manner of filling casual vacancies among members of the
Advisory Council, shall be such as may be prescribed.
4. The Central Government shall consult the Advisory Council in regard to:
(a) the making of any rules, other than the first rules to be made under sub-
section (3);
(b) [Omitted by Act 26 of l973]
and may consult the Advisory Council in regard to any other matter connected
with the administration of this Act in respect of which the Central Government
may consider it necessary to obtain the advice of the Advisory Council.
2. Export Promotion/Development Councils
The basic objective of Export Promotion Councils is to promote and develop the
exports of the country. Each Council is responsible for the promotion of a particular
group of products, projects and services. The main role of the EPCs is to project
India’s image abroad as a reliable supplier of high quality goods and services. In
particular, the EPCs shall encourage and monitor the observance of international
standards and specifications by exporters. The EPCs shall keep abreast of the trends
and opportunities in international markets for goods and services and assist their
members in taking advantage of such opportunities in order to expand and diversify
exports.
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Trade Liberalization and The major functions of the EPCs are:
Export Procedure
x To provide commercially useful information and assistance to their members in
developing and increasing their exports
NOTES x To offer professional advice to their members in areas such as technology
upgradation, quality and design improvement, standards and specifications,
product development and innovation
x To organize visits of delegations of its members abroad to explore overseas
market opportunities
x To organize participation in trade fairs, exhibitions and buyer-seller meets in
India and abroad
x To promote interaction between the exporting community and the government
both at the central and state levels
x To build a statistical base and provide data on the exports and imports of the
country, exports and imports of their members, as well as other relevant
international trade data.
The EPCs are non-profit organizations registered under the Companies Act or
the Societies Registration Act, as the case may be.
The EPCs shall be autonomous and regulate their own affairs. However, if the
Central Government frames uniform bylaws for the constitution and/or for the
transaction of business for EPCs, they shall adopt the same with such modifications
as Central Government may approve having regard to the special nature or functioning
of such EPC. The EPCs shall be required to obtain the approval of the Central
Government for participation in trade fairs, exhibitions etc and for sending sales teams/
delegations abroad. The Ministry of Commerce and Industry/ Ministry of Textiles of
the Government of India, as the case may be, would interact with the Managing
Committee of the Council concerned, twice a year, once for approving their annual
plans and budget and again for a mid-year appraisal and review of their performance.
In order to give a boost and impetus to exports, it is imperative that the EPCs
function as professional bodies. For this purpose, executives with a professional
background in commerce, management and international marketing and having
experience in government and industry should be brought into the EPCs.
The EPCs may be provided financial assistance by the Central Government.
An exporter may, on application, register and become a member of an Export
Promotion Council. On being admitted to membership, the applicant shall be granted
forthwith registration-cum-membership certificate (RCMC) of the EPC concerned,
subject to such terms and conditions as may be specified in this behalf.
3. Commodity Boards
Commodity boards play a constructive and positive role in the export promotion of
primary and traditional commodities such as tea, coffee, rubber, handicrafts, handlooms
and coir. These boards offer varied services to government as well as exporters of
these commodities. Trade information and guidance is given to exporters. The boards
participate in trade fairs and exhibitions and also sponsor trade delegations. Market
surveys are conducted for the benefit of exporters and timely advice is given to
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government on export matters. These services of commodity boards indicate the Trade Liberalization and
Export Procedure
active interest which the boards take in export promotion and their positive role in
promoting exports of traditional commodities. Along with exporters, services are also
offered to growers, producers and cultivators of different commodities.
NOTES
The functional areas of commodity boards are extremely board based. The
functions/activities of commodity boards include market research, publicity,
introduction of new methods of cultivation, introduction of new varieties and products
for exports and so on……. They also act as connecting links between India
manufacturers/exporters and foreign importers. All these functions are directly and
indirectly useful for export promotion of agro-based production.
The activities of commodity boards are expanding in recent years. There is
diversification in functions/activities and services offered by commodity boards. These
boards have made substantial contribution in promoting exports of traditional Indian
commodities. Their role is certainly unique and praiseworthy as export promotion
organizations.
4. Trade Development Authority (TDA)
The TDA was set up by the Government of India in 1971 in pursuance of export
policy resolution adopted by the Parliament. The important objective of TDA was the
promotion of selective and intensive development of products with growth potential
by technically and commercially viable units, by providing a package of services in the
field of export production, marketing and elimination of procedural delays.
In its development, the TDA has laid greater emphasis on specific buyers and
import houses in USA, Canada, the UK and Western Europe who are brought into
contact with specific exporters.
The package servicing plan of the TDA helps mainly in the following fields:
x Selected raw-materials, import licences for inputs, machinery, etc., can be
routed through the TDA, which will obtain them expeditiously.
x Priority consideration for an application for machinery on hire-purchase
basis to the National small scale industries corporation will be accorded
when sponsored through the TDA.
x Quick release of foreign exchange for travel.
x The TDA helps exporters in the quick establishment of duty drawback
and realization thereof.
The TDA service is available only to its clients who, according to the TDA, are
technically and commercially viable units. The membership fee is ` 2,000 per annum
for units in medium and large scale industries and ` 500 per annum for small-scale
industries.
The TDA was created at a time when exporters used to spend a great deal of
time and energy in obtaining raw materials, licenses and foreign exchange for travel
abroad. Since then, however, regulations have been liberalized to enable them to avail
themselves of facilities with the least possible delays. Though more than fifteen years
have passed since the TDA came into being, the time has come for an independent and
objective assessment of its cost/benefit analysis. Government merged TDA with the
Trade Fair Authority of India in 1992.
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Trade Liberalization and 5. Trade Fair Authority
Export Procedure
India Trade Promotion Organization (ITPO) is the nodal agency of the Government of
India for promoting the country’s external trade. ITPO, during its existence of nearly
NOTES three decades, in the form of Trade Fair Authority of India and Trade Development
Authority, has played a proactive role in catalyzing trade, investment and technology
transfer processes. Its promotional tools include organizing of fairs and exhibitions in
India and abroad, buyer-seller meets, visit of foreign trade delegations and information
dissemination.
Functions of Trade Fair Authority
x Managing the extensive trade fair complexs, Pragati Maidan
x Organizing various trade fairs and exhibitions at its exhibition complex in Pragati
Maidan and other centers in India
x Participating in overseas trade fairs and exhibitions
x Facilitating the use of Pragati Maidan for holding of trade fairs and exhibitions
by other fair organizers both from India and abroad
x Establishing durable contacts between Indian suppliers and overseas buyers
x Encouraging micro, small and medium scale units in export promotion efforts
x Trade Information Services through electronic accessibility
x Organizing buyer-seller meets and other exclusive shows in India with a view to
bringing buyers and sellers together
6. Government Trading Corporations
For supplementing the efforts of the private sector in the field of foreign trade, the
Government of India has set-up a number of government trading corporations, namely,
x The State Trading Corporation (STC)
x The Minerals and Metals Trading Corporation (MMTC)
x Spices Trading Corporation Limited and
x Metal Scrap Trading Corporation (MSTC)
The State Trading Corporation itself has a number of subsidiaries, namely the
Handicrafts and Handlooms Export Corporation, the Projects and Equipment
Corporation, the Tea Trading Corporation of India and the Cashew Corporation of
India. The Mica Trading Corporation is a subsidiary of the Minerals and Metals Trading
Corporation.
These corporations have provided the essential base for developing and
strengthening the efforts relating to specific commodities and products and diversifying
the country’s foreign trade. Their main objectives are:
x To arrange for exports where bulk handling and long-term contracts are
advantageous.
x To facilitate exports of ‘difficult to sell’ items through various devices such as
linking essential imports with additional exports under barter, link and parallel
deals.
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x To organize production to meet export demands and to help production units Trade Liberalization and
Export Procedure
overcome difficulties of raw materials and other essential requirements to meet
export orders and develop lines of export by various methods
x To undertake import of such commodities where bulk purchase is advantageous.
NOTES
The corporations handle actual transactions. They also maintain offices abroad
and function like any commercial unit in the corporate sector. However, the government
is now reducing its direct participation in trade and therefore number of items, which
were earlier canalized through the government corporations have been removed from
the canalized list. The new policies of the government would result in competition to
the government corporations from private sector companies. As a result, the government
is moving towards privatization of these corporations.
7. State Trading Corporation of India Limited (STC)
STC was set up on 18 May 1956, primarily for undertaking trade with East European
Countries. The strong point of STC lies in handling exports/imports of bulk agro
commodities. Recently, STC has diversified into exports of steel raw materials, gold
jewellery and imports of bullion, hydrocarbons, minerals, metals, fertilizers, petro-
chemicals, etc. Achieving record breaking performances year after year, STC has
become successful in structuring and executing trade deals of any magnitude, as per
the specific requirement of its customers.
8. Spices Trading Corporation
It is a subsidiary of STC. It was initially established in 1982 as Cardamom Trading
Corporation Ltd., a Government of India undertaking under the Ministry of Commerce
and Industry. The company later got transformed to Spices Trading Corporation Ltd.
Spices Trading Corporation was renamed as STCL Ltd. In 1999, STCL Ltd. became
a wholly owned subsidiary of State Trading Corporation of India Ltd. (STC). STCL
Ltd. handles exports, imports and domestic trading of a variety of products including
agricultural and non-agricultural.
9. MMTC Limited
It was established in 1963 as an individual entity after getting separated from STC with
the primary function to deal with exports of minerals and ores and imports of non-
ferrous metals. MMTC took over imports of fertilizer raw materials and finished fertilizers
in 1970. Over the years, import and exports of various other items like steel, diamonds,
bullion, etc., got added to the portfolio of the company. Keeping pace with the national
economic development, MMTC has gradually grown to become the largest trading
organization in India.
10. PEC Limited
The PEC Ltd (Project and Equipment Corporation of India) was carved out of STC in
1971-72 to undertake the canalized business of STC’s railway equipment division, to
diversify into turn-key projects especially outside India and to aid and assist in promotion
of exports of Indian engineering equipment.
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Trade Liberalization and 11. Metal Scrap Trading Corporation (MSTC)
Export Procedure
MSTC was set up on 9 September 1964 to act as a regulating authority for export of
ferrous scrap with an initial investment of six lakh. The Government of India, Members
NOTES of Steel Arc Furnace Association and members of ISS AI had contributed to this
investment. MSTC became a subsidiary of SAIL in 1974. It was delinked from SAIL
in 1982 and became an independent company under the Ministry of Steel. It was a
canalizing agency for the import of ferrous scrap till 1992.
5.4 INDIA’S FOREIGN TRADE AND BALANCE OF

PAYMENTS
In India, balance of payments compilation, concepts and techniques are almost similar
to those followed by the International Monetary Fund (IMF). These are codified by
the fund in the balance of payments manual given to member countries for their reference
and guidance. Although the details of items and the mode of presentation may differ
from country to country, the broad framework does not differ as between the member
countries who submit periodically their balance of payments accounts to the funds for
their consolidation, assessment and/or publication.
The usual classification of the accounts into current and capital items – the
former of income nature and the latter of capital nature is followed by India as well.
The concept of surplus or deficit as followed by the Ministry of Finance is the sum
total of items namely, (1) external assistance utilized (2) borrowings from the IMF, if
any, (3) changes in country’s foreign exchange reserves. The rest of the items of
current and capital nature appear above the line. In the presentation of data by the RBI,
reserves and monetary gold appear as balancing items, leaving aside ‘errors and
omissions’.
In India, balance of payments had been showing consistent deficits which were
designed to finance the plan expenditure. Thus, our imbalance in balance of payments is
not really of a short–term disequilibrium nature but of a structural nature. Massive doses
of foreign aid (official loans, grants and commodity assistance) have been used for
financing a sizeable part of our import requirements for planned investment. So the
measurement of the deficit is being made in terms of drawl on induced foreign official
resources (loans and grants), borrowings from IMF and use of our foreign exchange
reserves.
India’s balance of payments data are presented in a way as to be amenable to
Check Your Progress
Sectoral analysis. The details of short-term and long-term nature under both government
and private sectors are presented separately. Thus, the contributions to the foreign
3. When was MMTC
established?
sector represented by the balance of payments from the government, business and
4. When and why was financial sectors are available from these data. In current account, imports and exports
STC established? are given with breakdowns of government and private sectors separately. Under the
5. What role does the category of invisibles, government receipts and expenditure and government remittances
commodity board – inflows and outflows – and other items to extent possible, are presented separately
play?
for the government and the private business sector. The transfer payments are presented
6. What is the main
role of the EPCs? separately for government and private sector.
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5.4.1 Trends in Balance of Payments Trade Liberalization and
Export Procedure
In the post-independent India, regular balance of payments data have been maintained.
During the First Plan period (1950s), the balance of payments position improved
considerably and the overall deficit was brought down to a total of ` 348 crores over NOTES
the period. It was only during the second plan period that the tempo of planned
investment gathered momentum and the effect of this was felt as pressures on the
balance of payments. Imports far surpassed exports and the deficit over the period
1955–56 to 1960–61 amounted to ` 2,135 crores.
In view of the continuous deficits in our balance of payments, it was often
misunderstood as a symptom of disequilibrium. But these deficits being planned, no
action was taken for corrective adjustment. During the third plan period, there was a
progressive rise in imports on account of food grains scarcity and rising investment
targets. The trade deficits amounted to ` 2,295 crores and the payment of deficit was
` 3,056 crores.
During the fourth plan period, 1969–74, the net positive balance in balance of
payments amounted to ` 396 crore. This was made possible by a sizable utilization of
foreign assistance (` 4,184 crore), a drawl on IMF by ` 62 crores and a positive
balance in invisible trade of ` 1,664 crore due to remittances from Gulf countries.
During the fourth and fifth plan periods there was a general improvement in the food
situation and a sizable buffer stock was built up. During the latter part of the seventies,
there was a continued inflow of remittances leading to a positive balance in current
account, with the result that the foreign exchange reserves stood at a record of ` 5,220
crores at end March 1979. It was only in the Sixth Plan and Seventh Plan periods
(1980–90) again that there were persistent current account deficits financed by large
doses of foreign assistance and drawl on IMF. Of the various items of current account,
the most significant are the merchandise transactions which account for about 70
percent of the total receipts and payments. Of the invisible items of current account,
travel, transportation and transfer receipts constitute not only a positive balance but
also account for a significant share in the total invisible account.
There have been significant improvements in the structure of India’s balance of
payments and the strength of the external sector since the economic crisis of June,
1991. The following are the observations:
x The export cover of imports rose sharply from an annual average of 62 per cent
during 1980–81 to 1991–91 to 74 percent during 1992–93 to 1999–2000.
x The reforms of the 1990s facilitated India to move away from a closed economy
framework towards a more open and liberal economy.
x The ratio of exports and imports to GDP rose from an annual average of 13.2
per cent during 1980–81 to 1991–92 to an average of 19.9 per cent during
1992–93 to 1999–2000.
x The current account deficit, as percentage of GDP, declined from an annual
average of 3.9 per cent during 1980–81 to 1991–92 a well manageable level of
1.2 per cent during 1992–93 to 1999–2000.
x The capital account of BOP has also undergone a major structural change in
favour of non-debt creating foreign investment flows.
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Trade Liberalization and x Foreign exchange reserves were built to a very comfortable level of about 8
Export Procedure
months of imports from a critical level of about two months of imports in June
1991.
x External debt and debt service indicators marked sustained improvements.
NOTES
External debt, as a per cent of GDP, declined gradually from 38.7 per cent at the
end of March 1992 to 21.9 per cent at the end of March 2000.
x Similarly, debt service payments on external debt, as a per cent of current receipts,
declined gradually from 35.3 per cent in 1999-91 to 16.0 per cent in 2000
x The strength of the external sector has enabled India to withstand fairly well the
Asian financial crisis contagion and the related adverse spill over.
There are, however, significant risks and uncertainties to the otherwise
encouraging outlook in the external environment. They include the uneven pattern of
growth of GDP and demand growth among the three major currency areas (US Europe
and Japan), and the associated imbalances in their external current accounts; the apparent
misalignment among major currencies particularly the EURO and the US dollar. The
possibility that these imbalances may unwind in a disorderly fashion remains a risk to
global expansion.
Overall India’s balance of payments in 1999–2001 remained comfortable. The
current account deficit in 1999–2000 was contained to 0.9 per cent of GDP, despite an
unfavourable international trade and financial backdrop including a near two – third
hike in India’s import bill. This was made possible because of a strong recovery of
exports, and a surge in net inflow of invisibles, reflecting sharp increases in software
service exports and private transfers.
Exports, on BOP basis, during 1989–99 had faltered with a negative growth rate
of 4.9 per cent in US dollar value, following sluggish growth rates witnessed in the
previous two years. During 1999–2000, exports made a welcome recovery of 11.6
percent with the recovery being moderate in the first half and strong in the second half
of the year. Total imports, on payment basis, expanded sharply by 16.5 per cent
during this period.
At the end of March 2007, with outstanding foreign exchange reserves at
US $ 199.2 billion, India held the fifth largest stock of reserves among the emerging
market economies and sixth largest in the world.
In more recent years trade in services has come into greater focus for many reasons.
Firstly, the comparative advantage for trade in goods has reached a limit in respect of
many developing countries while the need for imports and exchange earnings continued
to grow. It is in this context that these developing countries have to divert their attention
to the promotion of services sector in international trade. As regards the quantum of
world trade in services, the value of trade has grown enormously during the last two
decades. Here, the term ‘services’ is defined to include all current account items other
than merchandise trade and pure transfer payments. It is also interesting to note that
this trade in services is more concentrated in industrialized developed counties than
the trade in merchandise items, and it will take a long time before developing countries
can capture any important segment of the world trade in this respect.
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5.4.3 Non-Resident Inflows Trade Liberalization and
Export Procedure
Under invisibles, a substantial inflow took place in recent years in non-official flows
into India. Since 1982, the Government has been encouraging these inflows through
higher rates of interest on non- resident rupee accounts with banks than on domestic NOTES
deposits. The RBI has also kept the SLR (statutory liquidity ratio) requirements for
these deposits lower at 25 percent as against the normal requirement against domestic
deposits at
31–38 per cent. Such deposits are exempted for wealth tax purposes and interest
income exempted for income tax purposes. The rates of interest on foreign currency
non-resident account were, however, kept lower than on Indian deposits due to lower
interest rates in the markets abroad for foreign currencies.
The allocation or cancellation of SDRs by the IMF involves the creation or extinction
by the IMF of reserve assets which form part of a country’s holdings of official
reserve assets. The allocation of SDRs results in increase (debit) in SDR holdings
while cancellation results in decrease (credit). The SDR holdings are a component of
official reserve assets. In the balance of payments, the offsetting entry to increase in
SDR holdings is provided by the item allocation (credit) while cancellation (debit)
serves as an offsetting entry to decrease in SDR holdings.
Unrequited transfers
The unrequited transfers cover gifts, grants, migrants, transfers, taxes, etc where one
transistor provides something of an economic value to another without a quid pro
quo, i.e., anything in return. The country receiving the grant or gift neither transfers nor
promises to transfer anything in exchange. The lack of economic values on one side is
compensated for by an entry which is referred to unrequited transfers. In India’s
balance of payments, the term ‘transfers’ is used in the same sense as of unrequited
transfers.
The balance payment is built on double entry system of bookkeeping, similar to that
used in business accounting. This is an internationally accepted convention for balance
of payments compilation. Transactions in a double entry accounting system are recorded
in pairs of credit and debit entries of equal value. In an accounting sense, therefore, a
country’s balances of payments refer to transactions which have economic values, the
counterpart entries for credits or debits are automatically paired.
Under double entry system, credit entries are used to record unrequited transfers,
income receivable and financial transactions involving either a decrease in assets or
increase in liabilities.
The analytical framework that links the international flow of goods, services, and
capital to domestic economic behaviour consists of a set of basic macroeconomic
accounting identities. These basic identities linking national economic activity with
balance-of- payments account shows that a nation that produces more than it spends
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Trade Liberalization and will save more than it invests, export more than it imports, and wind up with a capital
Export Procedure
outflow. A nation that spends more than it produces will invest more than it saves,
import more than it exports, and wind up with a capital inflow.
NOTES
5.5 EXPORT PROCEDURE
Export procedure describes the documents required for exporting from India. Special
documents may be required depending on the type of product or destination. Certain
export products may require a quality control inspection certificate from the export
inspection agency. Some food and pharmaceutical product may require a health or
sanitary certificate for export.
Documentation plays a very crucial role in the execution of an export contract. In fact,
the process of documentation begins when the order is placed by the foreign buyer
with the exporter. The formalities as regards various documents relate to pre-shipment
inspection, origin of the goods, central excise, and exchange control and customs
clearance of the export shipment. The documentation in relation to negotiation of
documents for realization of export proceeds is referred to as post-shipment export
documentation.
An exporter is required to deal with various documents both at the pre-shipment
and post-shipment stages to complete the export transaction. These documents are
important as these are used
x as an evidence of shipment and title of goods, and
x for obtaining payment.
The shipment is represented by the set of documents once the goods have been
cleared by the customs for their transportation to the importer. These documents are
of vital interest to both the exporter and the importer. The importer needs them to
claim peaceful and legal possession and delivery of the goods in his country; the
exporter needs them to hand them over to him to claim payment for the shipment.
The documentary requirements are both regulatory and operational in nature,
and the necessary documents should be prepared to comply with the rules and
regulations of the exporting and the importing country. Moreover, these requirements
are different for different types of products.
1. Letter of Credit
A letter of credit is a document issued by the importer’s bank in the favour of the
exporter giving him the authority to draw bills unto to a particular amount (as per the
contract price) covering a specified shipment of goods and assuring him of payment
Check Your Progress against the delivery of shipping documents.
7. What are unrequited Consider again the example of the Indian exporter and the USA importer. The
transfers? USA importer applies to his/her local bank; let’s say the Bank of America, for the
8. What is a double issuance of a letter of credit.
entry system of
recording? The Bank of America then undertakes a credit check of the importer. If the bank
is satisfied with his/her creditworthiness, it will issue a letter of credit. However, the
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bank might require a cash deposit or some other form of collateral from him/her first. Trade Liberalization and
Export Procedure
In addition the Bank of America will charge the importer a fee for this service.
Typically, this amounts to between 0.5 percent and 2 percent of the value of the
letter of credit, depending on the importer’s creditworthiness and the size of the
NOTES
transaction. As a rule the larger the transaction, the lower the percentage.
If the bank is satisfied with the American importer’s creditworthiness, it will
issue a letter of credit to the importer. By the issue of this letter of credit, the Bank of
America owns the responsibility to pay the Indian exporter for the merchandise so
long as it is shipped in accordance with certain specified instructions and conditions.
At this point, the letter of credit becomes a financial contract between the Bank
of America and the Indian exporter. The Bank of America then sends the letter of
credit to the Indian exporter’s bank; let us say the State Bank of India. The State Bank
of India tells the exporter that it has received a letter of credit and he can ship the
merchandise.
Contents of letter of credit
A letter of credit generally contains the following information:
x Complete and correct name and address of the beneficiary i.e., the exporter
x Complete and correct name and address of the applicant i.e., the importer
x Type of the letter of credit/documentary credit
x Amount of letter of credit
x How the credit shall be available e.g., by payment, deferred payment, acceptance
or negotiation
x The name of the drawee of the draft and the tenor of the draft
x Description of goods, quantity of the items and the unit price
x List of document required to be submitted by the beneficiary
x Port of discharge and the place of final destination
x Terms of delivery i.e., FOB, CIF and CFR
x Status of transshipment i.e., whether allowed or not
x Status of partial shipment i.e., whether allowed or not
x The last date of sending shipment
x Time period for the presentation of documents for negotiation by the beneficiary
after the dispatch of the shipment
x The date and place of expiry of the Letter of Credit
x Transfer of the Letter of Credit allowed or not
x Mode of advice of the Letter of Credit –by mail or tele-transmission
2. Bill of Exchange and Procedure of Issuing
A bill of exchange is the instrument used in international transaction to give effect to
payment. Bill of exchange is known as ‘draft’. A draft is simply an order written by an
exporter instructing an importer, or an importer’s agent, to pay a specified amount of
money at a specified time.
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Trade Liberalization and The maker of a bill is called ‘drawer’; the person who is directed to pay is
Export Procedure
called the ‘drawee’ and the person who is entitled to receive payment is called the
‘payee’. Drafts fall into two categories, sight drafts and time drafts. A sight draft is
payable on presentation to the drawee. A time draft allows for a delay in payment,
NOTES normally 30, 60, 90 or 120 days. It is presented to the drawee, which signifies acceptance
of it by writing or stamping a notice of acceptance on its face.
Once accepted, the time draft becomes a promise to pay by the accepting
party. When a time draft is drawn on and accepted by a bank, it is called a banker’s
acceptance. When it is drawn on and accepted by a business firm, it is called a trade
acceptance.
Time drafts are negotiable instruments; that is, once the draft is stamped with an
acceptance, the marker can sell the draft to an investor at a discount from its face
value.
Going back to our example, imagine the agreement between the Indian exporter
and the USA importer calls for the exporter to present the Bank of America (through
the State Bank of India) with a time draft requiring payment 120 days after presentation.
The Bank of Paris stamps the time draft with an acceptance. Imagine further that the
drafts are for $100,000.
The exporter can either hold onto the accepted time draft and receive $100,000
in 120 days or he can sell it to an investor, let us say the State Bank of India, for a
discount from the face value. If the prevailing discount rate is 7 percent, the exporter
could receive $96,500 by selling it immediately (7 percent per annum discount rate for
120 days for $100,000 equals $3,500 and $100,000 – $3,500 = $96,500). The State
Bank of India would then collect the full $100,000 from the Bank of Paris in 120 days.
The exporter might choose to sell the accepted time draft immediately if he
needs the funds to finance merchandise in transit and/or to cover cash flow shortfalls.
3. Bill of Lading
When the carrier for transportation accepts the goods then he issues the transport
documents called Bill of Lading. Bill of Lading (B/L) indicates:
x The title of the goods shipped
x Receipt for the goods shipped and admission to their apparent condition and
quality at the time of shipment and
x An evidence of contract of affreightment
Bill of lading is a negotiable instrument and can be transferred by endorsement
and delivery. Its possession is equivalent to the possession of goods.
Contents of a bill of lading
The usual form of a Bill of Lading includes the following information:
x Name of the shipping company
x Name of the shipper
x Name and address of the importer (consignee)
x Name and address of the party to be notified on arrival of the shipment, usually
the importer. This applies only when the bill of lading has been made out
‘to order’
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x Name of the carrying vessel Trade Liberalization and
Export Procedure
x Names of the ports of loading and discharge
x Whether freight is payable and whether it has been paid
x Number of originals in the set of the bill of lading documents NOTES
x Marks and number of identifying the goods
x Brief description of the goods (possibly including weights and dimensions)
x Number of packages
x Signature of the exporter (or his agent) and his designation if applicable
In case the consignor wants to take the entire ship on hire for transportation of
the cargo then the transport document issued by the shipping company is known as
Charter Party. This is different from Bill of Lading which is issued when a particular
cargo occupies part of the space on the ship.
Types of bill of lading
There are various types of Bill of Lading (B/L). Some of them are as follows:
x Shipped ‘on board’Bill of Lading
x Received for Shipment Bill of Lading
x Through or Direct Bill of Lading
x Clean or Claused Bill of Lading
x Straight or ‘To order’ Bill of Lading
Shipped ‘On Board’ Bill of Lading is issued after the goods have been received
on board the ship. It is the most secure type of B/L order from the point of view of the
importer and the banks involved in the transactions.
‘Received for Shipment’ B/L merely confirms that carrier has received the goods
for shipment.
‘Though’ B/L is issued when the transportation of goods involves various modes
of transport namely ship and rail even a change of the ship. In case, there is no change
of the ship then the Bill of lading is called the direct B/L.
A Bill of Lading would be clean or claused depending upon the condition of the
cargo received. A B/L is clean if it states that the goods were received in apparent
good condition and order. If it states that the goods were received in damaged condition,
then the B/L would be claused B/L.
B/L could be straight or ‘to order’. It is straight if the consignee can take the
possession and delivery of goods from the shipping line. In case it is desired that the
possession and delivery of goods be given to a party ‘to the order’ of the consignee
then the B/L is marked ‘to order’ Bill of Lading.
Shipment documents: These documents are required for fulfilling the
compliance of formalities under following laws:
x Foreign Exchange Management Act
x Foreign Trade (Development and Regulation) Act
x Central Excise Rules
Self-Instructional
Material 161
Trade Liberalization and x Export (Quality Control & Inspection)
Export Procedure
x Custom Act and Major Port Trust Act
Kinds of shipment commercial documents: There are two major kinds of
NOTES shipping documents:
1. Principal documents primarily affect physical transfer of goods and title thereto
from exporter to importer, and realization of export sale proceeds. Some of the
principal commercial documents are:
x Packaging List
x Certificate of Inspection
x Certificate of Insurance/Insurance Policy
x Bill of Lading/Combined Transport Document/Air Way Bill/Multi Modal
Transport Document
x Certificate of Origin
x Bill of Exchange
x Shipment Advice
2. Auxiliary documents: They are supportive and are as well used as facilitator
of principal documents. These are various commercial invoices (as the invoice
prescribed by the importing country). The various auxiliary commercial
documents used in shipments are:
x Performa Invoice
x Shipping Instructions
x Insurance Declaration
x Intimation for Inspection
x Shipping Order
x Mate’s Receipt
x Application for Certificate of Origin
x Letter to Bank for Negotiation/Collection of Documents
3. Regulatory documents: They are used to fulfill the compliances of regulatory
bodies. Some of the regulatory documents are:
x Exchange Control Declaration Form (GR Form)
x Freight Payment Certificate
x Insurance Premium Payment Certificate
x Shipping Bill/Bill of Export
x Port Trust Copy of Shipping Bill/Export Application/Dock of Challan
x Receipts for payment of Port Charges
x Vehicle Ticket
Major Documents and Procedure in Exports
1. Performa invoice: This document indicates the details of the goods to be
exported. It is an offer to sell made by an exporter to the importer. Once the
offer is accepted by the importer, the performa invoice becomes an export
order.
2. Commercial invoice: It is a document showing the value of goods exported. It
may take the form of:
Self-Instructional
162 Material
x Custom Invoice Trade Liberalization and
Export Procedure
x Legalized Invoice
x Consular Invoice
3. Packaging list: This document describes the various boxes in which the goods NOTES
have been exported. It is a vital document as it informs the buyer regarding the
contents of various boxes.
4. Intimation for inspection: This is a prescribed form of notice by the export
inspection agency. The exporter has to give notice for inspection in this prescribed
form for of the export shipment.
5. Certificate of inspection: Export inspection agency issues the certificate called
Certificate of Inspection. In case goods are not subject to the inspection by
export inspection agency, or the buyer does not require inspection through the
agency, then the exporter has to get the inspection done through private inspection
agency or through any other arrangement for inspection agreed to between the
exporter and the importer.
6. Shipping instructions: This document provides a check list for various
instructions an exporter may like to give to the shipping agent.
7. Insurance declaration: This document is prescribed by the insurance
companies wherein the exporter seeking insurance of the goods makes the
declaration with regards to the insurance policy desired and the nature of goods.
8. Insurance policy/xertificate: This is a document indicating insurance of the
cargo. It is issued by the insurance company. Insurance policy states the terms
and conditions of insured goods.
9. Application for certificate of Origin/GSP Certificate of origin: This is an
application form submitted to the Chamber of Commerce/authorized agency
for the issue of certificate of origin/GSP Certificate of Origin.
10. Certificate of origin and G.S.P. Certificate of origin:
The G.S.P. certificate of origin is issued by the following agencies:
x Export Inspection Agency (for all products)
x Textile Committee (readymade garments and other textile products)
x Central Silk Board (Silk Items)
x Development Commissioner (Handicrafts)
x Coir Board
11. Shipping order: This is the reservation slip issued by shipping line at the time
of reservation of shipping space for a particular export shipment. In case shipment
is being sent by air then the reservation slip is known as carting order.
12. Mate’s receipts: It is the receipt issued by the mate (chief officer of the ship
acknowledging the loading of cargo on the ship. This receipt states the condition
in which goods are received on the ship. It is used when goods are sent by sea
only.
13. Shipment advice: This document is used to inform the exporter the details of
shipment in advance. The required sets of documents are sent separately to the
buyer through the bank.
Self-Instructional
Material 163
Trade Liberalization and 14. Letter to bank for negotiation/collection of documents: This is a standard
Export Procedure
letter which gives all details that can possibly be given to the bank at the time of
negotiation/collection of the shipping documents.
Regulatory documents
NOTES
15. Exchange control declaration form: Every exporter is required to declare to
the Reserve Bank of India the full export value of the shipment and submit an
undertaking that the full export proceeds shall be realized by him within a period
of six months or due date of payment, whichever is earlier. This declaration is
made in the prescribed exchange declaration forms.
16. Freight payment certificate: This is the certificate, which indicates that the
freight has been paid. It is like a receipt for the payment of the freight.
17. Insurance premium payment certificate: This is like a receipt for the payment
of the insurance premium.
18. Shipping bill/bill of export: This is the most important document required by
the custom authorities for allowing exports. It contains all the details of goods
shipped. The clearing and Forwarding Agent (also known as Custom House
Agent), or the exporter has to fill the shipping bill. Shipping bill is used when the
shipment is sent by the ship/air and the bill of export is used when the shipment
is sent by road.
There are different types of Shipping/Bill of Export used for particular shipments.
These are as follows
x Shipping bill for export of goods under claim for duty drawback
(green bill)
x Shipping bill for duty free goods (white bill)
x Shipping bill for exports of goods under duty-entitlement pass book
scheme (blue bill)
x Shipping bill for export of duty free-goods ex-bond (yellow bill)
x Shipping bill for export of dutiable goods (yellow bill)
x The shipping bill is prepared in quadruplicate
19. Port trust copy of shipping bill/export application/dock challan: An exporter
has to pay the dock charges when the shipment is sent by sea. The amount of
these charges is assessed on the basis of the nature of goods, volume and
weight of the goods.
20. Receipts for payment of port charges: This receipt is issued by the Port
Trust Authority when the shipper pays for the port and dock charges.
21. Vehicle ticket: This is an Entry Pass issued by the Port Trust Authority to the
shipper to allow the latter to bring the export cargo to the port for their dispatch
to the importer.
Other certificates/documents
x Antiquity certificate
x Bank certificate of export and realization: This certificate is required to comply
with the requirements for the discharge of export obligations and issued by the
bank.
Self-Instructional
164 Material
x Bank realization certificate Trade Liberalization and
Export Procedure
x Black list certificate: This certificate would be required in those cases where
the relations between the countries involved in the export-import have strained
political relations.
NOTES
x Language certificate: In the case of export of handloom products under the
NIMEX Code 55.09 to the European Union countries, the importers require a
certificate called the language certificate. This certificate is issued to an exporter
by the Textile Committee.
x Certificate of chemical analysis
x Health/veterinary/sanitary certificates
x Phyto-sanitary certificate
x Certificate of measurement
x Mandatory certification of goods and services: Requirement of Russian
Federation
x Kimberly process (KP) certificate: In order to check the entry of conflict
diamonds, the scheme of certification of the export/import shipments of rough
diamonds has been introduced as a result of negotiations among the nations
participating in the trade.
Export subsidies are one of the most debated and controversial discussion in trade
talks among nations in globalized setup and are basically payments made by the
government in order to promote the export of specified products from the country.
Like taxes, subsidies can be levied on a specific or ad-valorem basis. Export subsidies
are given to a variety of product groups in developing countries but the most common
product groups among developed countries are agricultural and dairy products. Export
subsidies are basically the attempts made by the nations to encourage the exporters
from their countries to export for reasons such as generating employments or bringing
foreign exchanges and are interferences in the free flow of exports from the country.
Export subsidies are payments to a firm or individual for making exports so that a
country can earn foreign exchanges for servicing its imports, debts and using these
foreign exchanges for speeding up the process of economic development of the nation.
There are two ways through which the government can give subsidies to exporters
which are as follows:
1. By way of facilitating the exporters by providing them services which may help
them export more – free of cost trade information, subsidized participation in
trade shows, funding feasibility studies in areas of potential exports and arranging
buyers, sellers meet at government funds, etc.
2. Government can offer ‘cash subsidy’ to exporters by means of rebating the
imported raw materials to be used in exports – duty-free import of manufacturing
equipment (called Export Promoting Capital Goods Scheme in India).
Alternatively, it can also offer export subsidies by way of giving the ‘duty
drawback’ as a percentage of the value of exports to exporters on FOB value
of exports.
Self-Instructional
Material 165
Trade Liberalization and World trade Organization in spite of recognizing that export subsidies are not
Export Procedure
fair trade practice and distort the free flow of goods and services in international
system has not been able to define precisely what kind of assistance constitutes a
subsidy.
NOTES
Many developed nations like North American countries, Europe and Australia
have income support programs for their nation’s farmers. As a result, export subsidies
are often used by government for national security or self-sufficiency considerations.
Farmer’s incomes in these countries are presumed by placing a restricted domestic
supply, increased domestic demand, or a combination of the two. This is done by
imposing price floors on particular commodities and whenever there is an exceeding
supply at the floor price the government stand willing to purchase the excess.
Governments in these countries often purchase such extra production and store it for
future distribution if there is a scarcity of that item in the market at the floor price.
Governments sometimes also face a problem of ‘must purchases above floor prices’
exceeding the available storage and warehousing capacity of the country. Under such
circumstances; the government should either build more storage and warehousing
facilities or alternatively devise some strategy to dispose off such surplus inventory
with it. Thus, under such compulsive circumstances; governments in these countries
offer export subsidies to farmers to encourage exports of these products from the
country. By giving such export subsidies, governments in developed countries gain
the ability to decrease the local supply of products and simultaneously abolish the
requirement for the government to purchase this excess produce.
The quantum and size of export subsidies given to developed countries is
enormous and one of such export subsidy programme in the US is known as the
export enhancement programme (EEP). The US government offers billions of dollars
as export subsidy to their agricultural farmers to withstand the competition against
European competitors in foreign markets. The stated objectives of such United States
of America export subsidy (EEPs) is to challenge the unfair trade practices; to expand
US agricultural exports in foreign markets, and to encourage/compel other countries
exporting agricultural commodities to undertake serious negotiations on agricultural
trade problems at WTO. US offers one of the largest amount of export subsidy
followed by the European Union. Some of the commodities which are eligible under
EEP of United States of America are wheat, wheat flour, semolina, rice, frozen poultry,
frozen pork, barley, barley malt, table eggs and vegetable oil.
On the other hand, developing countries offer subsidies on a variety of products
and the stated objectives of such export subsidies are to encourage exports from the
Check Your Progress
country, earn foreign exchange which is direly needed in order to service the country’s
imports and debts. Subsidies in India are also given to agri-farmers through Apeda,
9. What are export
subsidies? but usually to compensate the Indian farmers for high transactional and transport cost.
10. What is the export One of such schemes is known as Transport Assistance to Horticultural Farmers from
subsidy programme North East which is offered to neutralize the impact of high transport cost which the
of the US known farmers from North Eastern states of India have to incur in order to ship their goods
as?
either from Kolkata port or from Delhi. Duty credit scrip is given to Indian farmers for
11. State any two
auxiliary documents. exporting agricultural commodities under Vishesh Krishi and Gram Udyog Yojana
which is more of an incentive than a direct subsidy to a farmer.
Self-Instructional
166 Material
5.6 SUMMING UP Export Procedure
x WTO is the only international body dealing with the rules of trade between
nations. Its purpose is to help trade flow smoothly through a system based on NOTES
rules and to settle trade disputes.
x The fundamental objective of WTO, as explained in its preamble, is to provide
the maximum opportunity to the contracting parties for ‘expanding the production
and trade in goods and services, while allowing for optimal use of the world’s
resources in accordance with the objective of sustainable development.’
x The results of excessively inward-looking trade strategy on one hand and the
need for modernization and technology up-gradation of the Indian industry on
the other, certain policy measures in the direction of trade liberalization were
initiated.
x The trade policy cannot be viewed in isolation; it should be seen in the context
of the overall economic policy.
x It is important to identify and assess the contribution of the marketing institutions
that play a major role in supporting international trade and investment. Some of
these institutions are: Central Advisory Council, Export Development Council,
Trade Fair Authority, STC, MMTC and the like.
x In India, balance of payments compilation, concepts and techniques are almost
similar to those followed by the International Monetary Fund (IMF). These are
codified by the fund in the balance of payments manual given to member countries
for their reference and guidance.
x In India, balance of payments had been showing consistent deficits which were
designed to finance the plan expenditure. Thus, our imbalance in balance of
payments is not really of a short-term disequilibrium nature but of a structural
nature.
x Export procedure describes the documents required for exporting from India.
Special documents may be required depending on the type of product or
destination.
x Certain export products may require a quality control inspection certificate from
the export inspection agency. Some food and pharmaceutical product may require
a health or sanitary certificate for export.
x Export subsidies are given to a variety of product groups in developing countries
but the most common product groups among developed countries are agricultural
and dairy products.
x Export subsidies are basically the attempts made by the nations to encourage
the exporters from their countries to export for reasons such as generating
employments or bringing foreign exchanges and are interferences in the free
flow of exports from the country.
x Subsidies in India are also given to agri-farmers through Apeda, but usually to
compensate the Indian farmers for high transactional and transport cost.
Self-Instructional
Material 167
Export Procedure 5.7 KEY TERMS
x Balance of Payment (BoP): BOP of a country is defined as, systematic record
NOTES of all economic transactions between the residents of a foreign country.
x International Monitory Fund (IMF): It is an international organization that
was initiated in 1944 at the Bretton Woods Conference and formally created in
1945 by 29 member countries. The IMF’s stated goal was to assist in the
reconstruction of the world’s international payment system post-World War II

1. The fundamental objective of WTO, as explained in its preamble, is to provide
the maximum opportunity to the contracting parties for ‘expanding the production
and trade in goods and services, while allowing for optimal use of the world’s
resources in accordance with the objective of sustainable development.’
2. The two principle objectives of the Exim policy are:
x To establish the framework for globalization of India’s foreign trade.
x To promote the productivity, modernization and competitiveness of the
Indian industry and thereby, to enhance its export capability.
3. MMTC was established in 1963 as an individual entity after getting separated
from STC with the primary function to deal with exports of minerals and ores
and imports of non-ferrous metals.
4. STC was set up on 18 May 1956, primarily for undertaking trade with East
European Countries.
5. Commodity boards play a constructive and positive role in the export promotion
of primary and traditional commodities such as tea, coffee, rubber, handicrafts,
handlooms and coir.
6. The main role of the EPCs is to project India’s image abroad as a reliable
supplier of high quality goods and services.
7. Unrequited transfers cover gifts, grants, migrants, transfers, taxes, etc where
one transistor provides something of an economic value to another without
anything in return.
8. Transactions in a double entry accounting system are recorded in pairs of credit
and debit entries of equal value.
9. Export subsidies are basically the attempts made by the nations to encourage
the exporters from their countries to export for reasons such as generating
employments or bringing foreign exchanges and are interferences in the free
flow of exports from the country.
10. Export subsidy programme in the US is known as the export enhancement
programme (EEP).
11. Two auxiliary documents are:
x Shipping Instructions
x Insurance Declaration
Self-Instructional
168 Material
5.9 QUESTIONS AND EXERCISES Export Procedure
NOTES
1. State the objectives of the WTO.
2. How does the package servicing plan of the TDA help?
3. What is the role of services in balance of payments?
4. What are the contents of the letter of credit?
5. How can the government give subsidies to the exporters?
1. Discuss the role of WTO in trade liberalization.
2. Discuss how international marketing institutions help in the promotion of exports?
3. Describe in detail the documents required for a successful trade procedure.
4. In India, balance of payments compilation, concepts and techniques are almost
similar to those followed by the International Monetary Fund (IMF). Discuss.
5.10 REFERENCES AND FURTHER READINGS

Joshi, Rakesh Mohan. 2005. International Marketing. New Delhi: Oxford University
Press.
Jain, Subhash.2001. International Marketing. Asian Book Pvt. Ltd. New Delhi.
Self-Instructional
Material 169

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INTERNATIONAL MARKETING

SHRI VENKATESHWARA UNIVERSITY

Dr. Rajesh Singh

Vikas® is the registered trademark of Vikas® Publishing House Pvt. Ltd.

UNIT 1: FRAMEWORK OF INTERNATIONAL MARKETING 3–21

UNIT 2: MARKET STRATEGIES AND EXPORT FINANCE 23–61

UNIT 3: INTERNATIONAL MARKETING DECISIONS 63–121

UNIT 4: ORGANIZATION AND PLANNING 123–143

UNIT 5: TRADE LIBERALIZATION AND EXPORT PROCEDURE 145–169

UNIT 1 FRAMEWORK OF International Marketing

1.2 INTERNATIONAL MARKETING:

1.2.1 Importance of Marketing

A key challenge for international marketers is to develop a good understanding of the

NOTES (v) Consumer’s expectations

1.6 KEY TERMS

1.7 ANSWERS TO ‘CHECK YOUR PROGRESS’

1.8 QUESTIONS AND EXERCISES

1.9 REFERENCES AND SUGGESTED READINGS

UNIT 2 MARKET STRATEGIES AND Export Finance

Fig. 2.1 Profile of Customer-Centric Organizations

x Shared values and beliefs are necessary prerequisites for successful

Type of industry Technology Purchase policy Immediate need Risk factor

Constituents Attributes of Market Segmentation

A conceptual scheme for analyzing economic environment may be drafted and

Indirect Exporting Direct Exporting

2.5 EXPORT FINANCE

Fig. 2.2 Functions of EXIM Bank

Fig. 2.3 Advisory Services of EXIM Bank

2.7 SERVICES OF EXPORT CREDIT GUARANTEE

2.9 KEY TERMS

2.10 ANSWERS TO ‘CHECK YOUR PROGRESS’

2.11 QUESTIONS AND EXERCISES

UNIT 3 INTERNATIONAL MARKETING Marketing Decisions

3.2 INTERNATIONAL PRODUCT PLANNING

Fig. 3.1 Product Planning Strategy

3.3 PRODUCT DESIGN STRATEGY

New products have to be developed by companies with utmost care. It is necessary to

Fig. 3.2 New Product Development Process

Case Study: Godrej Pillsbury

Fig. 3.3 Process of Branding Decision-Making

Fig. 3.4 Brand Positioning

Conversely, repositioning of the brand at E would not be favourable due to high

Fig. 3.5 Branding Strategy

3.5.1 Packaging and Labelling

3.6 INTERNATIONAL PRICING STRATEGY

3. Pricing with Demand Curve

NOTES 4. Penetration Pricing

Fig. 3.6 Methods of Pricing

HIGH Rapid skimming Slow skimming

Fig. 3.7 New Product launch Strategies

(iii) It is important to understand the characteristics of market segments that can

Direct Exporting is Independent

3.8 MARKETING ENVIRONMENT AND

Fig. 3.8 Channel Management Strategy

Advantages of distribution strategy

3.9 INTERNATIONAL LOGISTICS

Supply Operations Distribution

In an increasingly competitive market, most companies are looking to streamline

Fig. 3.9 Logistics Networking for Pipeline

Fig. 3.10 Role of Information Flow