Mktg.26 Mr. Poblete

1. PASIG CATHOLIC COLLEGEPASIG CATHOLIC COLLEGE
MKTG 10 : International Marketing
Chapter 1 :Aspect of International Marketing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

16. Nondomestic Earnings, Sales, and Assets of SelectedNondomestic Earnings, Sales, and Assets of Selected
U.S. Firms(1993)U.S. Firms(1993)
Percent of net
Earnings
Percent of
Sales
Percent of
Assets
American Std 64 50 18
Avon 52 45 34
Coca-cola 56 46 34
Colgate-Palmolive 55 62 34
Gillette 68 68 70
Hewlett Packard 52 58 27
IBM 65 58 27
Johnson & Johnson 42 43 41
Xerox 35 39 27
ITT 48 47 48

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

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

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

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

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

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

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

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

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

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

27. SummarySummary
As foreign economies continue to grow and account for
a large portion of the total world market, and as foreign
competitors actively seek market share in the United
States, many U.S. Firms are being forced into some
degree of international marketing. This may extend to
foreign manufacturing, carrying out joint ventures with
local partners, licensing, importing and taking part in
countertrade transaction . The varied strengths of
foreign competitors and the ramifications of dealing with
different national governments and economic and
cultural differences in foreign markets contribute to the
complexity of international maketing.

28. SummarySummary
Companies compete globally because (1) strong market
potential exists overseas, (2) selling internationally allos
them to enhance their long-run profitability, (3) low-cost
production and quality are critical to successfully
competingin global markets, and (4) they can achieve
success by carefully choosing certain market segments, as
witnessed by Dickson Poon’s success in profitably
marketing luxury goods to the growing numbers of newly
rich in the Far East.
Last U.S. Multinationals are more likely to get more of their
foreign revenues from sales of their foreign subsidiaries
than through exports. This can be a key element of strategic
success in international marketing. More important, though,
is a global marketing perspective of the world as one
market, with individualcountries treated as submarkets and
the focus on exploring market opportunities wherever they
may occur.