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International Marketing
Dr. A. Kaul
Syllabus
1. Financial TransactionsBetween exporter & importer, open account D/P,D/A, letter of credit ,etc. – exchange control regulations regarding export and foreign exchange expenditure on export promotion, pre-shipment and post-shipment finance from banks – policies of ECGC
Take NotesDr. A. Kaul
2. Decision and Need to Enter into International MarketInternational marketing organization problems – international marketing environment – institutions in world economy, GATT/UNCTAD – trade groups in different countries – legal environment of international marketing – political environment – cultural environment – economic environment – India’s trade relations with other countries – government assistance for export
SyllabusSyllabus
Take NotesDr. A. Kaul
3. International Marketing Intelligence and TaskAppraising opportunities and risks – product planning and development – managing channels of distribution, foreign market channels & global logistics – study of U.S.A., Canada, Latin America, Middle East, Africa, South East Asia, and Europe for export potential – marketing research and export promotion – international marketing operations and communications – export pricing and costing – case studies
SyllabusSyllabus
Take NotesDr. A. Kaul
4. Export Procedures and DocumentationRegistration with various agencies – compulsory quality control and pre-shipment with inspection – processing export orders – export production and packing – procedure for claim of central excise duty on export goods – customs and shipment procedure – duty drawback – procedures to claim REP license and cash assistance – export houses, etc.
SyllabusSyllabus
Take NotesDr. A. Kaul
Reference Texts
1. International Marketing – Onkvisit and Shaw2. International Marketing – Keegan3. International Marketing – Cotera4. International Marketing - Bhattacharya
Take NotesDr. A. Kaul
Financial Transactions
• The international market is generally very competitive and sensitive, and the credit facilities made available to the buyers are one of the important determinants of export business
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• The extent to which credit must be extended to the importer depends on the sale terms
• If the exporter gets cash in advance, there is no issue of financing;but this is not common
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• It, therefore, becomes necessary to make institutional credit available to the export sector tomeet pre-shipment and post-shipment financial requirements
• Such credit facilities will enable the exporter to extend reasonable credit facilities to foreign buyers
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Payment Terms
• Involves export financing methods and process
1. Cash in Advance2. Open Account3. Consignment Sale4. Document Against Payment – D/P5. Document on Acceptance – D/A6. Letter of Credit
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1. Cash in AdvanceMost Advantages for SellerWith Order or Before ShipmentDraft, Check, Electronic Transfer
Seldom Acceptable to BuyerInsisted when Customized
Manufacture, to order, and specifications of the buyers
Payment Terms
Payment Terms
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Dr. A. Kaul
Necessary when Buyer is Unknown to Seller
Buyer’s Creditworthiness is DoubtfulSeller’s Monopoly ExistsSellers Market Condition Exists
• Fortunately, the International Market is Inherently very Competitive
Payment Terms
Payment Terms
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Dr. A. Kaul
2. Open AccountExporter Ships Goods with no Financial
DocumentsOnly Commercial InvoiceSeller Carries Financial Risk
Restricted to Intra-Company TransactionsSeller and Buyer have Established
Relationship
Payment Terms
Payment Terms
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• Indian exporters are allowed to sell on the Open Account basis only with special permission from the Reserve Bank of India
• This permission is given only to foreign companies operating in India
Payment Terms
Payment Terms
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3. Consignment SaleExporter consigns to Agent or Rep in
the foreign marketAgent of Rep arranges Sale and Pays
the ExporterExporter retains the Title until the Sale
Payment Terms
Payment Terms
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Dr. A. Kaul
No Bill of Exchange is InvolvedSeller Exposed to Default RiskExchange Risk exists if Consignee is
Inefficient or Dishonest • An Indian exporter selling goods on
consignment basis must furnish a declaration regarding the full export value of the goods
Payment Terms
Payment Terms
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Dr. A. Kaul
4. Document Against Payment – D/PSame as Cash Against Documents –
C.A.D.Exporter Ships Goods to Foreign BuyerDocuments giving Title handed over
through Bank only on PaymentUntil Payment Ownership of Goods
remains with Seller
Dr. A. Kaul
Payment Terms
Payment Terms
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Dr. A. Kaul
Exporter can obtain Finance from the Bank against the D/P Bill
• If the bank is satisfied, it may finance the exporter by purchasing the D/P Bill, usually on a ‘with recourse’ basis
• In the event of non-payment by the buyer, the bank has recourse to the drawer
Payment Terms
Payment Terms
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Dr. A. Kaul
5. Documents on AcceptanceBuyer Accepts the Bill of Exchange by
Signing itDocuments and Title to the Goods are
handed over by the BankExporter extends 30, 60, 90 days credit
to the Importer
Payment Terms
Payment Terms
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Dr. A. Kaul
• Bank may extend finance to Exporter by purchasing the D/A Bill ‘with recourse’
• The exporter relies on the honesty and creditworthiness of the buyer, and the D/A is extended only to parties with integrity, financial stability, and reputation
Payment Terms
Payment Terms
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6. Letter of CreditLetter of Credit is used most often
GloballyImporter arranges L/C with a BankDocument gives Bank GuaranteeDraft is Drawn on Importer’s BankBank will Honor the Draft when
submitted by Exporter
Payment Terms
Payment Terms
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L/C Eliminates Risk for ExporterExporter must fulfill obligation of
Shipment
• Immediately after shipment of the goods the exporter can present the Bill of Exchange and other documents specified in the L/C to obtain payment through exporters own Bank
Payment Terms
Payment Terms
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• There are different types of Letters of CreditClean L/C – no attached documentsDocumentary L/C – additional documentsAssignable Credit – transferable Non-Assignable Credit – non-transferableCash Credit – payment in cashAcceptance Credit – bank merely ‘accepts’,
exporter then sells draft to bank
Payment Terms
Payment Terms
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Dr. A. Kaul
Revocable Credit – can be cancelledIrrevocable Credit – cannot be revokedConfirmed Credit – a bank in exporter’s
country confirms the L/CBack-to-Back Credit – original L/C used for
secondary creditRevolving Credit – for similar transactionsRed Clause Credit – predetermined
advance
Payment Terms
Payment Terms
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Irrevocable Letter of Credit
• It is generally used in international transactions
• It cannot be revoked, amended, or modified by the issuing bank without express consent of all the parties
• Is a definite undertaking provided shipment terms and conditions are complied with
Payment Terms
Payment Terms
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Example – Irrevocable Letter of Credit
• US Buyer, Indian Seller• Indian Exporter requests US Importer to
arrange for an Irrevocable Letter of Credit• US Importer applies to own bank in the US to
issue an L/C• In the application the US Importer will indicate
the terms of the sale and the documents to accompany
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• If the US Bank is prepared to issue the L/C, the US Importer will sign the L/C Contract agreeing to reimburse the bank
• The US Bank will now notify the Indian Exporter’s bank in India, mentioned in the L/C, and to confirm the L/C to the Indian Exporter
Example -Irrevocable
Letter of Credit
Example -Irrevocable
Letter of Credit
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• The notifying Indian Bank will now confirm to the Indian Exporter that an irrecoverable L/C has been arranged, and will describe the terms under which the shipment must be made before the Indian Exporter’s payment draft will be honored
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Example -Irrevocable
Letter of Credit
Example -Irrevocable
Letter of Credit
Dr. A. Kaul
• This makes the contract binding on both the issuing US Bank and the confirming Indian Bank
• The Indian Exporter will now ship the goods to the US Buyer, and draw a time draft on the issuing US Bank with documents, and present it to the confirming Indian Bank
• The Indian Seller may sell the draft and documents to the confirming Indian Bank
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Example -Irrevocable
Letter of Credit
Example -Irrevocable
Letter of Credit
Dr. A. Kaul
• The confirming Indian Bank will send the draft and documents to its own corresponding bank in the US, which will present it to the issuing or drawer US Bank, of the US Buyer, for acceptance
• The accepting/issuing US Bank will deliver the draft and documents to the US Importer/Buyer, with a Trust Receipt, an instrument under which the bank retains title to the merchandize
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Example -Irrevocable
Letter of Credit
Example -Irrevocable
Letter of Credit
Dr. A. Kaul
• The US Importer/Buyer is expected to make full payment when the draft matures
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Example -Irrevocable
Letter of Credit
Example -Irrevocable
Letter of Credit
Dr. A. Kaul
Institutional Finance forExports
• Exporter’s Pre-Shipment Financing RequirementsPurchase of Raw Materials and
ComponentsProcessingPackagingPackingMarkingTransactionsWarehousing
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• Exporter’s Post-shipment Financing Requirements
To cover period between the shipment of the goods and the receipt of payment
Institutional Finance for
Exports
Institutional Finance for
Exports
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Pre-Shipment Credit
• Pre-shipment finance, also known as packing credit, refers to the credit extended to the exporter prior to the shipment of goods
• To met working-capital requirements• Is short-term finance• Also advanced against export incentives
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• ProvidersIndian and foreign commercial banks
which are members of the Foreign Exchange Dealers’ Association
Pre-Shipment
Credit
Pre-Shipment
Credit
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• Advances by Commercial Banks are governed by the Packing Credit Scheme of the Reserve Bank of India
• The Features are:The loan is advanced only on receipt of
an export orderThe exporter should deliver either a L/C
or a confirmed export order
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Pre-Shipment
Credit
Pre-Shipment
Credit
Advances must be repaid from theproceeds of the relative export bill
Packing credits are eligible for interest subsidyAvailable against incentivesConcessional rates of interestSub-supplier must submit documents from
Export House/Merchant Exporter
FeaturesFeatures
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Post-Shipment Finance
• Supplier’s CreditCredit extended to Overseas Buyer to
pay for goods imported from ExporterGenerally, advanced for capital goods
• Line of CreditExtended to a financial institution in the buyer’s country when a number of
buyers are involved
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• Short-term FinanceProvided by commercial banks under
L/C, by purchasing D/P and D/A bills, against export bills, export incentives, etc.
Medium and Long-Term FinanceBy commercial banksIndustrial Development Bank of India
(IDBI), but now Exim Bank
Post-Shipment
Credit
Post-Shipment
Credit
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Finance
• The export-import (EXIM) bank, commercial banks, and certain financial institutions like specified cooperative banks providepre-shipment andpost-shipment financeto exporters
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• Some of these institutions also provide suppliers’ credit, including line of credit to promote exports
• Export credits generally carry concessional interest rates
FinanceFinance
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Exim Bank
• The Export-Import Bank of India was set-up in 1982, for the purpose of financing, facilitating and promoting foreign trade in India, andis the principal financial institution in the country forcoordinating working of institutions engaged in financing exports and imports
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• It is fully owned by the Government of India• Managed by a Board of Directors – from
government, financial institutions, banks, and business community
• Finance Operations – cover projects, trade, and foreign investments
• It is supported by Planning and Co-ordination Groups
Exim BankExim Bank
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Objectives and Functions
1. Grants loans and advances in India – solely or jointly with commercial banks
2. Grants lines of credit in foreign countries – to governments, financial institutions, organizations
3. Handles transactions with mix – government credit and commercial credit
Exim BankExim Bank
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4. Purchases, discount, negotiate export bills5. Sells or discounts export bills in international
markets6. Provides refinance facilities7. Issues guarantees for imports8. Confirms/endorses L/Cs
Exim BankExim Bank
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9. Buys or sells foreign exchange10. Undertakes and finances research, surveys,
market studies11. Provides technical, administrative, and
financial assistance12. Provides funded and non-funded assistance
for promotion of foreign trade
Exim BankExim Bank
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Strategy
• Three AspectsProvides Funds for ExportsInformation and ConsultingResearch and Analysis – market, industry
Exim BankExim Bank
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Exchange Control Regulations
• The Export-Import Policy (Exim Policy) reflects the foreign trade policy of India
• Implemented under the framework of the Foreign Trade (Development and Regulation) Act (FTDR), 1992
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Other Regulations
• Indian Coffee Act, 1942• Tea Act, 1953• Antiques and Art Treasures Act, 1972• Foreign Exchange Regulation Act (FERA), 1973
Exchange Control
Regulations
Exchange Control
Regulations
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Export Development
• Government of India promotes exports
• Export development is important to the Firm and the Economy
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• BenefitsEconomies-of-ScaleSurplus Supply of CommoditiesExport-Led GrowthCounter Domestic RecessionEarn Foreign ExchangeReduce Trade DeficitsCompete in the Global Market
ExportDevelopment
ExportDevelopment
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Government’s Role
• Establish and Sponsor OrganizationsMinistry of CommerceAutonomous Bodies:
1. Commodity Boards2. Export Inspection Council3. Indian Institute of Foreign Trade4. Indian Institute of Packaging
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5. Export Promotion Councils6. Federation of Indian Export
Organizations7. Indian Council of Arbitration8. Marine Products Export Development
Authority9. Agricultural and Processed Food
Products Export Development Authority10. Indian Trade Promotion Organization
Government‘s Role
Government‘s Role
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India Trade PromotionOrganization (ITPO)
• Functions1.Develop and promote exports, imports, and
upgrade technology through fairs in India and abroad
2.Compile and disseminate trade related information
3.Publicity
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4. Organize visits of foreign buyers and traders5. Foreign delegations 6. Assist Indian companies in trade
development
India trade Promotion
Organization
India trade Promotion
Organization
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Incentives
• Export incentives are a widely employed strategy of export promotion
• The objective is to increase the profitability of export business by encouraging exports
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• Types:Duty Exemption/DrawbackIncome Tax ConcessionCash Compensatory SupportInternational Price Reimbursement
SchemeInterest SubsidiesFreight Subsidies
IncentivesIncentives
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Marketing Assistance
• Assisting with Marketing Surveys and Research
• Providing Marketing Information• Organizing International Trade Fairs and
Exhibitions• Credit and Insurance Facilities
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• Release of Foreign Exchange for Marketing Activities
• Assistance in Export Procedures• Quality Control and Pre-Shipment Inspection• Identifying Markets and Products with Export
Potential• Helping Buyer-Seller Interactions
Marketing AssistanceMarketing Assistance
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Foreign Exchange
• Foreign exchange is released for undertaking approved market development activities such as:participation in trade fairs and exhibitions, foreign travel for export promotion, advertising abroad, market research, procurement of samples and technical information
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Export Risk Insurance
• International Business involves different types of risks for which insurance coverage can be obtained from
The Export Credit Guarantee Corporation (ECGC)
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Export Credit Guarantee Corporation (ECGC)
• The ECGC has policies objectives covering:Different political and commercial risks
associated with export marketingCertain types of risks associated with
foreign investmentsRisks due to exchange rate fluctuationsInsurance coverage to banks against export credit
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Extent of Cover
• ECGC normally pays 90% of the losses on account of political or commercial risk
• No coverage if Payment is in Advance or by Irrevocable Letter of Credit
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Dr. A. Kaul
Decision and Need to Enter International Market
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Decision and Need to Enter International Market
• International marketing is not the same thing as international trade
• Only a part of international trade flows represent international marketing
• There is an aspect of international marketing that is not captured by the international trade statistics
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Definition – International Marketing
• The marketing of goods and services across national frontiers, andthe marketing operations of an organization that sells and/or produces within a given country when:
1. the organization is part of, or associated with, an enterprise which also operates in other countries; and
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2. there is some degree of influence on or control of the organization’s marketing activities from outside the country in which it sells and/or produces
Definition –International
Marketing
Definition –International
Marketing
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Definition
• International marketing is simply an attitude of mind,the approach of a company with a truly global outlook,seeking its profit impartially around the world, ‘home’ market included,on a planned and systematic basis
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Definition –International
Marketing
Definition –International
Marketing
Definition
• International marketing is the marketing function of multinational companies
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Need to EnterInternational Markets
• The Decision and Need to Enter may be due to:
Pull Factor – attractiveness of the foreign market, profitability and growth
Push Factor – lack of growth in domestic markets, mature PLC of major products, international
competition
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Definition –International
Marketing
Definition –International
Marketing
Reasons for GoingInternational
• Profit• Growth Opportunities• Domestic Market Constraints• Competition• Government Policies and Regulations
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• Monopoly Power• Spin-Off Benefits• Strategic Vision• Globalization
Reasons for Going
International
Reasons for Going
International
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• ProfitIncrease SalesReduce Costs – cheap labor, free trade
agreementsIncrease Profit Margins
• Growth OpportunitiesShort-Term Growth – developed marketsBase in Foreign Market – US, SingaporeFuture Growth Potential – emerging markets
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Reasons for Going
International
Reasons for Going
International
• Domestic Market ConstraintsMatured PLC Portfolio – for major
productsInsufficient Economies of Scale – stable
market share in domestic marketRecession in Domestic Market – reduce
economic risk, HMT
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Reasons for Going
International
Reasons for Going
International
• CompetitionEconomic Liberalization – reduction in
domestic protection and trade barriers
Counter International Competition – change in business strategy, IBM against Fujitsu, Hitachi
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Reasons for Going
International
Reasons for Going
International
• Government Policies and RegulationsExport Promotion Policies - incentivesForeign Direct Investment Policies –
restrictions eliminatedEnvironmental Regulations – may be less
stringentTrade Agreements – EU, NAFTA, SAARC
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Reasons for Going
International
Reasons for Going
International
• Monopoly PowerPatents – pharmaceuticalsTechnology Advantage – VCR, PanasonicHigh Market Share – few competitorsProduct Differentiation – color TV, SonyRaw Material Resources - tea
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Reasons for Going
International
Reasons for Going
International
• Spin-Off BenefitsBranding – build identity and imageForeign Exchange – easier importsGovernment Incentives – export incentivesProduct Development – product
improvementsNew Products/Technologies – foreign R&D
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Reasons for Going
International
Reasons for Going
International
• Strategic VisionFuture Grow – long-range planRetain Competitive Edge – survivalTo Diversify – acquire new businessesReduce Economic Risk – build a business
portfolio
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Reasons for Going
International
Reasons for Going
International
• GlobalizationGlobal Corporation – become oneResource Globally – materials,
components, manufacturing, advertising, financing,
managementChanging Business Environment – stay
ahead
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Reasons for Going
International
Reasons for Going
International
International MarketingDecisions
• International Business Decision• Market Selection Decision• Entry and Operating Decisions• Marketing-Mix Decisions• International Organization Decision
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• International Business DecisionCurrent and Future OpportunitiesCurrent Domestic OpportunitiesFirm Resources
Skill Base, Experience,Production, Marketing,Finances
International Marketing Decisions
International Marketing Decisions
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• Market Selection DecisionAnalysis of International MarketsAnalysis of Marketing Environments
• Entry and Operating DecisionsExport, Licensing, Franchising,Distribution, Contract, Manufacturing,Joint Venture, Acquisition, Merger
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International Marketing Decisions
International Marketing Decisions
• Marketing-Mix DecisionsUncontrollable FactorsControllable Factors
Product, Price, Promotion, Place• International Organization Decision
Export Department, Foreign Marketing Division, Manufacturing Subsidiary,International Division, Global
Organization
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International Marketing Decisions
International Marketing Decisions
International MarketingDecisions
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International MarketingDecision
International MarketingDecision
Market SelectionDecision
Market SelectionDecision
Entry and OperatingDecisions
Entry and OperatingDecisions
Marketing-MixDecisions
Marketing-MixDecisions
International OrganizationDecision
International OrganizationDecision
Company ObjectivesCompany Objectives
Market PotentialMarket Potential Environmental FactorsEnvironmental Factors
Company ResourcesCompany Resources
PromotionPromotion
ProductProduct
PlacePlace
PricePrice
Problems in InternationalMarketing
• Special Problems due to Differences1.Political and Legal – complex, regional within2.Cultural – significant compared to domestic3.Economic – free or freer market economy4.Currency – exchange rate fluctuations,
monetary policy5.Language – can be managed easily
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6. Infrastructure – developed, developing7. Marketing – advertising media 8. Trade Policies – restrictions, import controls9. Logistics – transportation, insurance10.Trade Practices – customs clearance, duty
Problems in International
marketing
Problems in International
marketing
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Changed Company Orientation
• Reflect company goals and philosophy• Lead to different management strategies and
planning procedures for international operations• Orientation
Ethnocentric – domesticPolycentric – foreignRegiocentric – regionalGeocentric - world
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Internationalization Stages22
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Domestic CompanyExporting, Licensing, FranchisingDomestic CompanyExporting, Licensing, Franchising
International CompanyExtending marketing-mix to foreign marketsCreating international division
International CompanyExtending marketing-mix to foreign marketsCreating international division
Multinational CompanyUnique strategy in each countryCreating regional subsidiaries
Multinational CompanyUnique strategy in each countryCreating regional subsidiaries
Global/TransnationalCompany
Global sourcing, development, production, marketing
Global/TransnationalCompany
Global sourcing, development, production, marketing
EthnocentricEthnocentric
PolycentricPolycentric
RegiocentricRegiocentric
GeocentricGeocentric
Driving Forces
• Liberalization and PrivatizationUnder National PolicyUnder WTO AgreementsGlobal Mergers and AcquisitionsForeign Direct Investments (FDIs)
• Multinational Corporations (MNCs)Growing Number and Networks
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• TechnologyAdvances – new productsEconomies of Scale –betterBreak-Even – lower
• TransportationFasterLower CostsSafer
Driving ForcesDriving Forces
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• CommunicationsWirelessSatelliteInternet
• ITApplications – commercial packagesControl and Display – processes Processing – seed, accuracy,
DrivingForcesDrivingForces
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• Product Development CostsQuick Payback
• Product and Process QualityDriving Demand and Supply
• Consumer AspirationsImproved Standard of Living
• CompetitionIncreasing Rapidly
DrivingForcesDrivingForces
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• Economic TrendsFree marketsEmerging Markets – China, India, Brazil
• Regional IntegrationEuropean Union (EU)North Atlantic Free Trade Agreement
(NAFTA)South Asian Association for regional
Cooperation (SAARC)
Driving ForcesDriving Forces
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International MarketingEnvironment
• Economic – stage of development• Socio-Cultural – customs, tastes, preferences• Demographic – size, age, households, income• Political – parties, platforms, control• Government – nature, policies• Technological – breakthroughs, diffusion
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Dr. A. Kaul
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