CHAPTER 5

INTERNATIONAL PRODUCT DECISION

One of the fundamental decisions for successful international marketing relates to product policy and planning.
It can be argued that product. decisions are probably the most crucial as the product is the very epitome of
marketing planning. Errors in product decisions can include the imposition of a global standardised product
where it is inapplicable and the attempt to sell products into a country without cognisance of cultural adaptation
needs. An international marketer has the option of exporting ',he home market product to foreign markets,
adapting the home market product to meet the needs of the foreign customers more closely, or developing new
products to meet the specific needs of the customers in foreign markets. The selection process needs a careful
analysis of the foreign market needs, appraisal of the market opportunity and detailed product planning.
Decisions regarding the product, price, promotion and distribution channels are decisions on the elements of the
"marketing mix". Many product decisions lie between the two extremes i.e. whether to sell globally
standardised or adapted products. The core of a firm‟s international operations is a product or service. This can
be defined as the complex of tangible and intangible elements that distinguishes it from the other entities in the
marketplace. The firm‟s success depends on how good its product or service is and on how well the firm is able
to differentiate the product from the offerings of competitors. Products can be differentiated by their
composition by their country of origin, by their tangible features such as packaging or quality, or by their
augmented features such as warranty.
What is a product?
Put simply, a product is a bundle of utilities. To be more concise, a product can be defined as a collection of
physical, service and symbolic attributes which yield satisfaction or benefits to a user or buyer. A product is a
combination of physical attributes say, size and shape, and subjective attributes say image or quality. A customer
purchases on both dimensions. It is increasingly important that the product fulfills the image which the producer is
wishing to project. This may involve organisations producing symbolic say, size and shape, and subjective
attributes say image or quality. A customer purchases on both dimensions. It is increasingly important that the
product fulfills the image which the producer is wishing to project. This may involve organisations producing
symbolic offerings represented by meaning laden products that chase stimulation-loving consumers who seek
experience producing situations. So, for example, selling mineral water may not be enough. It may have to be
"Gangetic" in source, and fortified. This opens up a wealth of new marketing opportunities for producers.
A product's physical properties are characterised the same the world over. They can be convenience or shopping
goods or durables and non-durables; however; one can classify products according to their degree of potential for
global marketing:
Local products - seen as only suitable in one single market.
International products - seen as having extension potential into other markets.
Multinational products - products adapted to the perceived unique characteristics of national markets.
Global products - products designed to meet global segments.

As a prerequisite to export marketing, it is becoming increasingly important to maintain quality products based on
the ISO 9000 standard.
Consumer beliefs or perceptions also affect the "world brand" concept. World brands are based on the same
strategic principles, same positioning and same marketing mix but there may be changes in message or other
image. The world brand names are to be built up over the years with great investments in marketing and
production. Few world brands, however, have originated from developing countries like India. This is hardly
surprising given the lack of resources. A central issue in approaching global markets is whether products sold in
the home market should be adapted or standardized for international markets.

International product life cycle

International product life cycle discusses the consumption pattern of the product in many countries. This concept
explains that the products pass through several stages of the product life cycle. The, product is innovated in
country, usually a developed country, to satisfy the needs of the consumers. The innovator country wants to
exploit the technological breakthrough and start marketing the products in foreign country. Gradually foreign
country also starts production and becomes efficient in producing those commodities. As a result, the innovator
country starts losing its export market and finds the import of that product advantageous. In this way, the
innovator country becomes the importer of the products. Terpstra and Sarathy have identified four phases in. the
international product life cycle.
Export strength is evident by innovator country: Products are normally innovated in the developed countries
because they possess the resources to do so. The firms have the technological know how and sufficient capital to
invest on the research and development activities. The need of adaptation and modification also forces the
production activities to be located near the market to respond quickly to the changes. The customers are affluent in
the developed countries who may prefer to buy the new products. Thus, the manufactures are attracted to produce
the goods in the developed country. The goods are marketed in the home country. After meeting the demand of the
home country, the manufacturers start exploring foreign markets and exporting goods to them. This phase exhibits
the introduction and growth stage of the product life cycle.
Foreign production starts: The importing firms in the middle income country realise the demand potential of the
product in the home market. The manufacturers also become familiar in producing the goods. The growing
demand of the products attracts the attention of many firms. They are tempted to start production in their country
and gradually start exporting to the low income countries. The large production in the middle income country
reduces the export from the innovating country. This shows the maturity stage of product life cycle where the
production activities' start shifting from innovating country to other countries.
Foreign production becomes competitive in export market: The firms in low income country also realise the demand
potential in the domestic market. They start producing the products in their home country by exploiting cheap labour. They
gain expertise in manufacturing the commodity. They become more efficient in producing the goods due to low cost of
production. Gradually they start exporting the goods to other countries. The export from this country replaces the export base
of innovating country, whose export has been already declining. This exhibits the ,declining stage of product life cycle for
the innovator country. In this stage, the product gets widely disseminated and other countries start imitating the product. This
is the third phase of product life cycle where the products start becoming standardized.
Import Competition begins: The producers in the low income importing country gain sufficient experience in producing
and marketing the products. They attain the economies of scale and gradually become more efficient than the innovator
country. At this stage, the innovator country finds the import from this country advantageous. Hence, the innovator
country finally becomes the importer of that product. In this fourth stage of product life cycle the product becomes
completely standardized. Exhibit 9.1 shows the international product life cycle.

Product Standardization Vs. Adaptation

This raises the question of whether a company can successfully design and market a global product. Other issues
have to do with standardizing or adopting product features, such as packaging, and labeling, brands and
trademarks, and warranty and service policies. The easiest course for a firm just beginning to go international is to
sell products designed for the home market as is in foreign markets. As the firm meets with success in foreign
markets, it begins to consider choosing between the two extremes of (1) adapting to the point of creating an
entirely new product and (2) keeping the product exactly the same.

5.1.1 Factors Encouraging Standardization

The attractions of standardization are obvious. It can result in lower costs and economies of scale in
manufacturing, product development, and marketing. Managerial complexity is reduced, and export marketing
is facilitated when the same product is exported to several countries.

1. High Costs of Adaptation

Low –volume markets and the specific nature of the adaptation contemplate can contribute to an increase in
overall manufacturing costs that make it difficult to sell the product at a reasonable price (that covers costs) and
yet be attractive enough to garner market share and ultimately render profits.
1. Industrial Products

Products in which technical specifications are critical tend to be uniform internationally. Differences significant
in international business are “people differences,” that is, cultural differences. In general, then, industrial goods
are more standardized than consumer goods. Even when industrial goods are modified, the changes are likely to
be minoran adaptation of the electric voltage or the use of metric measures. Of course, differences may be
forced on the company by distinct and different national standards in areas such as environmental protection.

2. Convergence and Similar Tastes in Diverse Country Markets

As countries obtain similar income levels and develop economically at the same pace, their
consumption patterns are likely to converge.

3. Marketing to Predominantly Similar Countries

Cluster analysis reveals groups of countries that are similar on a number of dimensions. Using the
results of such cluster analysis, firms can market standardized products within such groups of similar
countries. The dimensions to group countries will vary depending on the product, and could include
variables such as income, language, degree of urbanization, phone penetration, and so on.

4. Centralized Management and Operating via Exports

If a firm market overseas principally through exports, it is likely to sell standardized products. Given
the costs of adaptation, such firms might choose export markets that are more likely to accept
standardized products.

4. Economies of Scale in Production

Standardizing a product at a production site allows the firm to gain scale economies in manufacturing.
As the company multiplies production and the world, this advantage decreases.

5. Economies in Research and Development

If the firm offers the identical product around the world, it gets more mileage out of its R&D efforts.
Less research needs to be directed toward the individual desires of national markets, allowing effort to
be focused on developing the next-generation product. Standardized products thus yield an advantage
in product- development costs and may shorten the time to develop new products.
 6. Economies in Marketing

Even when marketing is done on a national basis, economies of scale are possible with
standardized products. Although sales literature, sales-force training, and advertising may vary
somewhat from country to country, they will be much more similar when the product is
uniform than when it must be adapted for each national market. Service requirements and
parts inventories are easier with a standardized product.

5.1.2 Factors Encouraging Adaptation

The greatest argument for adapting products is that by doing so the firm can realize higher
profits. Modifying products for national or regional markets may raise revenues by more than
the costs of adaptation. Specific factors encouraging product adaptation include:

1. Differences in Technical Standards

Firms must meet technical standards in order to sell in different national markets. For example,
agricultural products sold into the U.S. must meet guidelines for maximum levels of chemical
additives and fertilizers used in growing such products. In Europe, there are restrictions on the
sale of beef from cows treated with growth hormones.

2. Consumer and Personal Use Products

Products sold to consumers and for personal use are likely to meet with market success when
adapted to local markets. Products such as food and clothing cater to highly individual tastes and
hence must adapt to the differing needs to local population.

3. Variation in Consumer Needs and Differing Use Conditions

Although a given product fulfills a similar functional need in various countries, the conditions under
which the product is used may vary greatly from country to country. Climate, for instance, has an
effect on products sensitive to temperature or humidity, making it necessary to modify these products
for tropical or arctic markets. Another factor is the difference in the skill level of users, especially
between consumers in industrialized nations and those in less developed countries.

4. Variation in Ability to BuyDiffering Income Levels

The income per capita of the world‟s nations ranges from over $40,000 to under $ 300. This
affects not only the demand for consumer durables but also for inexpensive consumer products.
Product features may have to be adapted to make the product affordable at lower income levels.
 5. The Impact of Cultural Differences

Cultural differences affect the tastes, the acceptance of products, and consumption habits. Food is an
area in which cultural differences dominate. Introducing food products into foreign markets when that
food itself is unknown to the population can be challenging.

6. Environmentally Induced Adaptation: The Influence of Governments

Nations may forbid certain goods to be imported to their country. Conversely, they may require that
the product be manufactured locally, not imported. Demands for local production or a high degree of
“local content” in the product often lead the international firm to modify it.

Product Attributes in International Markets

Product policy goes beyond the product itselfattributes such as brands and trademarks, country of
origin, packaging and labeling, and warranty and service polices represent key decision areas.

5.2.1 Brands and Trademarks

A major focus in international marketing is protecting the company‟s brands and trademarks. Another
is deciding whether there should be one international brand or different national brands for a given
product. Another question regards the role of private branding in international marketing. The main
question is whether to promote local countryspecific brands or to establish global and regional
brands with appeal across countries.

Branding

A brand once developed and recognized, can have a long life: Major brands such as Gillette and
Coca-Cola have been popular for many years. A big question then is how to build up brand
recognition in international markets. Brands can be built up through adverting, but advertising
merely builds on the brand’s foundation, which rests on (a) quality, (b) innovation, (c) superior
service, (d) customer satisfaction, and (e) value.

The return of good branding to the firm is brand loyalty and repeat purchases and a loyal customer;
since acquiring customers is costly, loyal customers who buy regularly are valuable to a firm.
Furthermore, brands provide customers with a guarantee of value and quality, making the customer‟s
choice easier; it frees them from the confusion and message fatigue endemic to consumption, allowing
the customer to make safe choices, secures that satisfaction and value will result if the brand is
purchased. Brands allow a firm to charge premium prices, and the profits from premium pricing,
coupled with steady market share and repeat purchases, result in measureable cash flow, which is at
the heart of brand equity calculations.
Brand extensions

Brand extension allows a firm with an existing presence in overseas markets to quickly establish its new
products. Using a well–known brand name with a reputation for quality can extend an aura of high quality
to the new product. Brand extension can allow the new product to be introduced with lower advertising
expenditures. The comfort level and familiarity associated with a well – known brand can motivate
customers to try the new product rather than a competitor‟s product.

Brand extensions can include launching the same product in a different form, adding the brand name to
related products often used together (“companion” products) and building on the company image and
expertise. However, there are dangers: The original brand and product can be damaged by extending the
brand image to undesirable products and settings. There must be a fit, some complementarity, between the
original product and the proposed product/ brand extension.

Brand protection

Protecting a brand in international markets can begin with registering them in the countries of interest
with the appropriate authorities. Blanket registration in all countries might be wise if the costs of
registration, which may amount to a significant sum, are within the budgetary capabilities of the firm.
Smaller firms may wish to be more selective.
A problem in brand protection is imitation brands: local brands are introduced that are reasonably
close facsimiles of the international brand such as a “Coalgate” brand competing with the better
known international brand Colgate.

Product piracy and counterfeiting

As more trade becomes technology intensive, intellectual property protection is essential to

maintaining competitive advantage. Firms spend large amounts of money creating technology through
R&D. Pharmaceutical companies can easily spend $100 million over 10 years to develop a new
pharmaceutical drug. Patent copyright law protects such investments.

Private Branding

In private branding, which is common in consumer goods marketing, the manufacturer cedes control
over marketing to the retailer or distributor. That is, the manufacturer supplies goods but the retailer
sells these goods under its own brand names.

Private branding provides a quick and relatively lowcost approach to penetrating foreign markets, though
the seller fails to establish any relationship with the ultimate buyer and hence has little control over the
marketing relationship. The manufacture has no say on the prices charged and receives little direct
feedback from the market. Nor can service and after–sales support be used as a means of forging long-
term ties with the ultimate buyer. However; private branding is a useful means of test- marketing products
in markets whose potential is likely to grow in the future.

5.2.3. Country – Of – Origin Effect

Country –of–origin effect can be defined as any influence that the country of manufacture has on a
consumer‟s positive or negative perception of a product.

Numerous studies have shown that consumers evaluate a product not only by its appearance and
physical characteristics but also by the country in which it was produced. This is the country–of–
origin effect. Certain countries have a good image for certain kinds of products- Germany for cars,
France for women's fashion, and Japan for electronic products and cameras. If a firm is producing a
product in a country that does not have a favorable image for that product, it may have a hard task
marketing it.

Packaging and Labeling

5.3.1 Packaging

Packaging is very much part of a product‟s attributes and companies expend considerable effort in
developing packaging that is recognizable and distinctive as well as functional. Examples of factors
that require packaging adaptation:

1. Changes in climate across countries, requiring more protective packaging against

extremes of cold and heat.

2. Lengthy and difficult transportation and logistics networks, requiring that packaging
protect goods against breakage and damage.

3. Lengthy periods on shelves at retailers before final sale, again requiring that packaging be
protective and maintain freshness.

4. Varying sizes of packaging, with smaller- sized packages required in lower-income countries
because they may be more affordable; smaller size may also be more common in countries where
more frequent shopping trips are made and shoppers may carry their purchases on foot back to
their dwellings.

5. Differences in packaging forms because of consumer preferences: for example, whether

toothpaste is sold in squeeze tubes or up right cans, and whether glass containers or cardboard
boxes are used for dispensing fruit juices and drinks.

6. Growing environmental consciousness on the part of consumers attempting to persuade

firms to ensure that their packaging material are biodegradable and /or recyclable and
cause the least harm to the environment.
Packaging adds bulk to a product and takes up more space during shipment. It might be more
economical to ship the products in bulk and package them inside the destination markets. Whether
this is feasible will depend on the capabilities of the domestic packaging industry, particularly in
terms of quality, use of advanced technology packaging and printing processes, cost and timely
delivery, and availability of quality materials.

Labeling

Primary considerations in labeling are providing information to the consumers and the use of multiple
languages. Regulations in many countries require that detailed product compositions and nutritional
information be provided as well as warning messages in the case of products that may be harmful or
hazardous.

Firms may also want to provide instructions for proper product use in which case readability and the
quality of communication matter. Merely translating text from the home country‟s language may not
be sufficient. Country regulations may also require that information be presented in all of
a country‟s or region‟s official languages. Language complexities motivate manufacturers to use
diagrams and cartoons to instruct consumers in the use of their products. Such pictorial descriptions
transcend language and make it easier to introduce products into new markets.

Summary on Product Policy Decisions

A. Physical or Mandatory Requirements and Adaptation

A product may have to change in a number of ways to meet physical or mandatory requirements of a
new market, ranging from simple package changes to total redesign of the physical core product. A
recent study reaffirmed the often-reported finding that mandatory adaptations were more frequently
the reason for product adaptation than adapting for cultural reasons.

Some changes are obvious with relatively little analysis; a cursory examination of a country will
uncover the need to rewire electrical goods for a different voltage system, simplify a product when the
local level of technology is not high, or print multilingual labels where, required by law. Electrolux,
for example, offers a cold-wash-only washing machine in Asian
countries where electric power is expensive or scarce. But other necessary changes may surface
only after careful study of an, intended market.

Legal, economic, political, technological, and climatic requirements of the local marketplace often
dictate product adaptation. During a period in India when the government was very anti- foreign
investment, Pepsi-Cola changed its product name to Lehar Pepsi (in Hindi lehar means wave) to gain
as much local support as possible. The name returned to Pepsi-Cola when the political climate
turned favorable. Laws that vary among countries usually set specific package sizes and safety, and
quality standards. To make a purchase more affordable in low-income countries, the number of units
per package may have to be reduced from the typical quantities offered in high income countries.
Razor blades, cigarettes, chewing gum, and other multiple pack items are often sold singly or two to
a pack instead of the more customary 10 or 20. If the concept of preventive maintenance is
unfamiliar to an intended market, product simplification arid maintenance-free features may be
mandatory for, successful product performance.

Changes may also have to be made to accommodate climatic differences. General Motors of Canada,
for example, experienced major problems with several thousand Chevrolet automobiles shipped to a
Middle east country; it was quickly discovered they were unfit for the hot, dusty climate.
Supplementary air filters and different clutches had to be added to adjust for the problem. Even
crackers have to be packaged in tins for humid areas.

B. Product Alternatives

When a company plans to enter a market in another country, careful consideration must be given to
whether or not the present product lines will prove adequate in the new culture. Will they sell in
quantities large enough and at prices high enough to be profitable? If not, what other alternatives are
available? The marketer has at least four viable alternatives when entering a new market: (1) sell the
same product presently sold in the home market (domestic market extension strategy); (2) adapt
existing products to the tastes and specific needs in each new country market (multi-domestic market
strategy); (3) develop a standardized product for all markets (global market strategy); or (4) acquire
local brands and reintroduce.

An important issue in choosing which alternative to use is whether or not a company is starting from
scratch (i.e., no existing products to market abroad), whether it has products already established in
various country markets, or whether there are local products that can be more efficiently developed
for the local market than other alternatives.

For a company starting fresh, the prudent alternative is to develop a global product. If the company
has several products that have evolved over time in various foreign markets, then the task is one of
repositioning the existing products into global products. In some cases, a company encounters a
market where local brands are established and the introduction of a company brand would take too
long and be more costly than acquiring the local brand. Nestle and Unilever have used this approach
effectively in Eastern Europe and Russia.
The success of these alternatives depends on the product and the fundamental need it Mills, its
characteristics, its perception within the culture, and the associated costs of each program. To know
that foreign markets are different and that different product strategies may be needed is one thing; to
know when adaptation of your product line and marketing program is necessary is another, more
complicated problem.

C. Screening Products for Adaptation

Evaluating a product for marketing in a country market requires a systematic method of screening
products to determine if there are cultural resistances to overcome and/or physical or mandatory
changes necessary for product acceptance. Only when the psychological (or cultural) and physical
dimensions of the product, as determined by the country market, are known can the decision for
adaptation be made. Products can be screened by using the “Analysis of Product Component”
discussed below to determine if there are mandatory or physical reasons why a product must be
adapted.

Before entering a market, the international marketer can analyze the components of a product to
determine what features need to be adapted to ensure that the product meets both the market
perceived quality and performance quality. .

Analysis of Product Components

A product is multidimensional, and the sum of all its features determines the bundle of satisfactions
(utilities) received by the consumer. To identify all the possible ways a product may be adapted to a
new market it helps to separate its many dimensions into three distinct, components as illustrated in
Figure 6-1, the Product Component Model. By using this model, the impact of the cultural, physical,
and mandatory factors that affect a market's acceptance of a product can be focused on the core
component, packaging component, and support services component. These components include all the
product's tangible and intangible elements and provide the bundle of utilities the market receives from
use of the product.