DEFINITION OF INTERNATIONAL MARKETING
International Marketing can be defined as exchange of goods and services between different national markets involving buyers and sellers.
According to the American Marketing Association, “International Marketing is the multi-national process of planning and executing the conception, prices, promotion and distribution of ideal goods and services to create exchanges that satisfy the individual and organizational objectives.”
CONCEPTS OF INTERNATIONAL MARKETING
Domestic Marketing: Domestic Marketing is concerned with marketing practices within the marketer’s home country.
II. Foreign Marketing: It refers to domestic marketing within the foreign country.
III. Comparative Marketing: when two or more marketing systems are studied, the subject of study is known as comparative marketing. In such a study, both similarities and dis-similarities are identified. It involves an analytical comparison of marketing methods practiced in different countries.
IV. International Marketing: It is concerned with the micro aspects of a market and takes the company as a unit of analysis. The purpose is to find out as to why and how a product succeeds or fails in a foreign country and how marketing efforts influence the results of international marketing.
V. International Trade: International Trade is concerned with flow of goods and services between the countries. The purpose is to study how monetary and commercial conditions influence balance of payments and resource transfer of countries involved. It provides a macro view of the market, national and international.
VI. Global Marketing: Global Marketing consider the world as a whole as the theatre of operation. The purpose of global marketing is to learn to recognize the extent to which marketing plans and programmes can be extended world wide and the extent to which they must be adopted.
DIFFERENCE BETWEEN DOMESTIC MARKETING AND INTERNATIONAL MARKETING
Marketing is the process of focusing the resources and objectives of an organisation on environmental opportunities and needs. It is a universal discipline. However, markets and customers are different and hence the practice of marketing should be fine tuned and adjusted to the local conditions of a given country. The marketing man must understand that each person is different and so also each country which means that both experience and techniques obtained and successful in one country or countries. Every country has a different set of customers and even within a country there are different sub-sets of customers, distribution channels and media are different. If that is so, for each country there must be a unique marketing plan. For instance, nestle tried to transfer its successful four – flavour coffee from Europe to the united states lost a 1% market share in the us. It is important in international marketing to recognize the extent to which marketing plans and programmes can be extended to the world and the extent to which marketing plans must be adapted. Prof.Theodore Levitt thought that the global village or the world as a whole was a homogeneous entity from the marketing point of view. He advocated organisation to develop standardized high quality word products and market them around the world using standardized advertising, pricing and distribution. The companies who followed Prof. Levitt’s prescription had to fail and a notable failure amongst them was Parker pen. Carl Spiel Vogel, Chairman and CEO of the Backer Spiel Vogel Bates worldwide advertising agency expressed his view that Levitt’s idea of a homogeneous world is non – sensible and the global success of Coca Cola proved that Prof. Levitt was wrong. The success of Coca Cola was not based on total standardization of marketing mix. According to Kenichi Ohmae, Coke succeeded in Japan because the company spent a huge amount of time and money in Japan to become an insider. Coca Cola build a complete local infrastructure with its sales force and vending machine operations. According to Ohmae, Coke’s success in Japan was due to the ability of the company to achieve global localisation or ‘Glocalisation’ i.e. the ability to be an insider or a local company and still reap the benefits of global operations. Think global and act local is the meaning of Glocalisation and to be successful in international marketing, companies must have the ability to think global and act local. International marketing requires managers to behave both globally and locally simultaneously by responding to similarities and dissimilarities in international markets. Glocalisation can be a source of competitive advantage. By adapting sales promotion, distribution and customer service to local needs, Coke capture 78% of soft drink market share in Japan. Apart from the flagship brand Coca Cola, the company produces 200 other non- alcoholic beverages to suit local beverages. There are other companies who have created strong international brands through international marketing. For instance, Philip Morris has made Marlboro the number one cigarette brand in the world. In automobiles, Daimler Chrysler gained global recognition for its Mercedes brand like his competitor Bayerische. Mc Donald’s has designed a restaurant system that can be set up anywhere in the world. Mc Donald’s customizes its menu in accordance with local eating habits.
SCOPE OF INTERNATIONAL MARKETING
International Marketing constitutes the following areas of business:-
Exports and Imports: International trade can be a good beginning to venture into international marketing. By developing international markets for domestically produced goods and services a company can reduce the risk of operating internationally, gain adequate experience and then go on to set up manufacturing and marketing facilities abroad.
Contractual Agreements: Patent licensing, turn key operations, co – production, technical and managerial know – how and licensing agreements are all a part of international marketing. Licensing includes a number of contractual agreements whereby intangible assets such as patents, trade secrets, know – how, trade marks and brand names are made available to foreign firms in return for a fee.
Joint Ventures: A form of collaborative association for a considerable period is known as joint venture. A joint venture comes into existence when a foreign investor acquires interest in a local company and vice versa or when overseas and local firms jointly form a new firm. In countries where fully owned firms are not allowed to operate, joint venture is the alternative.
Wholly owned manufacturing: A company with long term interest in a foreign market may establish fully owned manufacturing facilities. Factors like trade barriers, cost differences, government policies etc. encourage the setting up of production facilities in foreign markets. Manufacturing abroad provides the firm with total control over quality and production.
Contract manufacturing: When a firm enters into a contract with other firm in foreign country to manufacture assembles the products and retains product marketing with itself, it is known as contract manufacturing. Contract manufacturing has important advantages such as low risk, low cost and easy exit.
Management contracting: Under a management contract the supplier brings a package of skills that will provide an integrated service to the client without incurring the risk and benefit of ownership.
Third country location: When there is no commercial transactions between two countries due to various reasons, firm which wants to enter into the market of another nation, will have to operate from a third country base. For instance, Taiwan’s entry into china through bases in Hong Kong.
Mergers and Acquisitions: Mergers and Acquisitions provide access to markets, distribution network, new technology and patent rights. It also reduces the level of competition for firms which either merge or acquires.
A firm is able to improve the long term competitive advantage by forming a strategic alliance with its competitors. The objective of a strategic alliance is to leverage critical capabilities, increase the flow of innovation and increase flexibility in responding to market and technological changes. Strategic alliance differs according to purpose and structure. On the basis of purpose, strategic alliance can be classified as follows:
i. Technology developed alliances like research consortia, simultaneous engineering agreements, licensing or joint development agreements.
ii. Marketing, sales and services alliances in which a company makes use of the marketing infrastructure of another company in the foreign market for its products.
iii. Multiple activity alliance involves the combining of two or more types of alliances. For instance technology development and operations alliances are generally multi- country alliances.
On the basis of structure, strategic alliance can be equity based or non equity based. Technology transfer agreements, licensing agreements, marketing agreements are non equity based strategic alliances.
Counter trade: Counter trade is a form of international trade in which export and import transactions are directly interlinked i.e. import of goods are paid by export of goods. It is therefore a form of barter between countries. Counter trade strategy is generally used by UDCs to increase their exports. However, it is also used by MNCs to enter foreign markets. For instance, PepsiCo’s entry in the former USSR. There are different forms of counter trade such as barter, buy back, compensation deal and counter purchase. In case of barter, goods of equal value are directly exchanged without the involvement of monetary exchange. Under a buy back agreement, the supplier of a plant, equipment or technology. Payments may be partly made in kind and partly in cash. In a compensation deal the seller receives a part of the payment in cash and the rest in kind. In case of a counter purchase agreement the seller receives the full payment in cash but agrees to spend an equal amount of money in that country in a given period.
Q.1.GLOBALISATION OF INDIAN BUSINESS:
Globalization, liberalization and privatization were the three cornerstones of India’s New Economic Policy of 1991. The year 1991 marks the beginning of a new era in the Indian economy. The new objective to be pursued by the policy makers, strategists and executives was to make India the largest free market economy of the 21st century. In pursuit of this objective, the Indian economy was to be integrated with the world economy through a programme of structural adjustment and stabilization. While the stabilization programme included inflation control, fiscal adjustment and BOP adjustment, the structural reforms included trade and capital flows reforms, industrial deregulation, disinvestment and public enterprise reforms and financial sector reforms. The programme of economic reforms has not been entirely successful and as a result, the globalization process of the Indian economy has not gathered momentum. Indian business continues to face a number of difficulties and obstacles in their effort to globalize their business. These obstacles are as follows:
GOVERNMENT POLICY AND PROCEDURES:
Government policy and procedures in India are extremely complex and confusing. Swift and efficient action is a pre-requisite for globalization- which sadly missing. The procedures and practice continue to be bureaucratic and hence a speed breaker in the globalization effort.
HIGH COST OF INPUTS AND INFRASRUCTURAL FACILITIES:
The cost of raw materials, intermediate goods, power, finance, infrastructural facilities etc. in India is high which reduces the global competitiveness of Indian business. The quality and adequacy of infrastructural facilities in India is far from satisfactory. Further the technology employed by Indian industries and the style of operation is generally out dated.
RESISTANCE TO CHANGE:
The pre-reform era (1951- 1991) breeded lethargy, created rigid structures, systems, practices and procedures and generally instilled a laid back attitude. These factors are a hindrance to the processes of modernization, rationalization and efficiency improvement. Technological change is generally perceived to be employment reducing and hence resisted to the extent possible. For instance, information technology was introduced in India in the early eighties. However, computerization process of nationalized banks began only in the mid nineties. Excess labour is particularly employed in the public sectors in areas such as banking, insurance, and the railways and Indian industry in general. As a result, labour productivity is low and cheap labour in many a cases turns out to be dear.
SMALL SIZE AND POOR IMAGE:
Grant Indian firms are known to be global pygmies. A look at the fortune 500 list would reveal all to you. On a global scale, Indian firms are found to be small in size with low availability of resources. Indian firms there for cannot compete successfully in the international market. Indian products suffer from a poor image in the international market for both reasons valid and otherwise. Indian firms continue to miss consumer focus both domestically and internationally. The value-money equilibrium is missing in Indian products. Further, Indian firms are do not have the where- withal to keep up to the delivery schedule, accepts large orders and match up to international specifications.
GROWING COMPETITION AND POOR SPEND:
Indian firms are not only up and against competition from developed countries but also emerging Asian powerhouses such as South Korea and China. Continuous improvement in quality and usefulness and competitive costs with competitive pricing can only keep you afloat and in order to remain afloat, one has to spend quite a lot on R & D. both public and private sector outlays on research in India is deliberately low when compared to the developed countries.
NON – TARIFF BARRIERS (NTBs)
Member nations of the World Trade Organizations are bound to progressively reduce tariff rates across the board over a definite period of time so that level playing field is created in global trade. Tariff barriers are therefore not of much concern. What concerns developing nations in particular, are non- tariff barriers imposed by the developed countries. Issues such as child labor content in some of the products exported by India to the developed nations had cropped up and remain unresolved.
Q.2. ADVANTAGES OF GLOBALISATION:
For successful globalization, countries need to chalk out strategies and policies to open up the doors for the inflows of foreign direct investment (FDI). The FDI by the MNCs brings with it flow of foreign exchange/ foreign capital, inflow of technology, real capital goods, managerial and technical skills and know- how.
Globalization can easily promote exports of the country by exploiting its export potentials in a right way. Globalization can be the engine of growth by facilitating export- led growth strategy of developing country. ASEAN countries such as Indonesia, Malaysia and Thailand have demonstrated their success of export- led growth strategy supported by the FDI under globalization approach.
Globalization can provide sophisticated job opportunities to the qualified people and check ‘brain drain’ in a country. Globalization would provide varieties of products to consumers at a cheaper rate when they are domestically produced rather than imported. This would help in improving the economic welfare of the consumer class.
Under globalization, the rising inflow of capital would bring foreign exchange into the country. Consequently, the exchange reserve and balance of payments position of the country can improve. This also helps in stabilizing the external value of the country’s currency.
Under global finance, companies can meet their financial requirements easily. Global banking sector would facilitate e banking and e-business. This would integrate countries economy globally and its prosperity would be enhanced.
DISADVANTAGES OF GLOBALIZATION
Globalization is never accepted as unmixed blending. Critics have pessimistic views about its ill- consequences.
When a country is opened up and its market economy and financial sectors are well liberalized, its domestic economy may suffer owing to foreign economic invasion.
A developing economy hen lacks sufficient maturity; globalization may have adverse effect on its growth.
Globalization may kill domestic industries when they fail to improve and compete with foreign well-managed, well-established firms.
Globalization may result into economic imperialism.
Unguarded openness may become a playground for speculators. Currency speculation and speculators attacks, as happened in case of Indonesia, Malaysia, Philippines, Thailand, etc. recently, may lead to economic crisis. It may lead to unemployment, poverty and growing economic inequalities.
Q.3. STRATEGIES FOR GLOBALISATION:
Ans. When a company makes the commitment to go international, it must choose an entry strategy. This decision should reflect an analysis of market potential, company capabilities and the degree of marketing involvement and commitment management is prepared to make. The approach to foreign marketing can range from minimal investment with infrequent and indirect exporting with little thought given to market development, to large investments of capital and management in an effort to capture and maintain a permanent, specific share of world markets. Depending on the firm’s objectives and market characteristics, either approach can be profitable. In fact, a company in various country markets may employ a variety of entry modes since each country market poses a different set of conditions. Having more than one strategy allows the company to match its expertise with the specific needs of each country market.
The various strategies available to Indian firms to enter the international environment are discussed as follows:
Exporting is perhaps the first step for a company to go global. It is the first of the attempts to understand the international environment develop markets abroad.
Exporting can be direct or indirect. With direct exporting the company sells to a customer in another country. This is the most common approach employed by companies taking their first international step because the risks of financial loss can be minimized. In contrast, indirect exporting usually means that the company sells to a buyer in the home country who in turn exports the product. Customers include large retailers like Wal-Mart or Sears, Wholesale supply houses, trading companies, and others that buy to supply customers abroad.
In a global environment, the sourcing of finance, materials, managerial inputs etc. will also be global. However, with 0.5 percent share in the world trade, India is an insignificant player. There are a number of products with large export potential but these have not been tapped properly. With a more pragmatic and realistic export policy, procedural reforms and institutional support, with technological development, modernization and expansion of production facilities, India can definitely improve its share in the world trade from its present poor status. There are three strategies to increase export revenue. These are:
1. increase the average unit value realization,
2. increase the quantity of exports and
3. Export new products.
Value added exports assume significance in the context of increasing the average unit value realization. The bulk of India’s manufactured exports constitute the low price segment of international markets. Quality improvement and aggressive marketing is required to enter the high price segments of the markets. This can be achieved by technology imports and or foreign collaborations.
The size of India’s export basket needs to be expanded by adding new products. In order to identify new products for exports, export opportunities needs to be explored and products with high foreign demand also need to be identified.
There are also market segments, and industries which are abandoned by the developed countries on account of factors such as environmental consideration, lack of competitiveness etc. For instance, developed countries are progressively vacating production of a range of chemicals due to higher expenditure on overheads and wages. Yet another strategy available to Indian Companies is Niche Marketing.
2. FOREIGN INVESTMENT
It refers to investment in foreign country. Foreign investment by Indian Companies have been negligible because of factors such as assured domestic market, want of global orientation, protective government regulation etc. However, this inward orientation has undergone substantial change after the adoption of the new economic policy 1991. With the economic liberalization and growing global orientation, many Indian firms are setting up manufacturing, assembling and trading bases overseas. These facilities are either wholly owned or foreign partnership firms.
Further, through acquisition route, Indian companies have made substantial investments abroad. The Aditya Birla Group has been pioneer in making foreign investments much before the adoption of the new economic credo. Indian companies are also setting up production bases in foreign countries to get an easy entry into the regional trade blocks. For instance, a production facility in Mexico opens the doors to the NAFTA area for Arvind Mills. Yet another example is that of Cheminoor Drugs by Dr. Reddy’s Labs in New Jersey which is set up as a subsidiary.
3. MERGERS AND ACQUISITIONS
In merger, two companies come together but only one survives and the other goes out of existence as it is merged in the other company. While in acquisition, one company (acquirer) gets control over the other company (acquired) at the willingness of each of the companies.
Mergers and acquisitions is an important entry strategy in international business. Mergers and acquisitions can be used to acquire new technology, reduce the level of competition and provides quick access to markets and distribution network. Many Indian firms have resorted to the acquisition route to gain a foothold in the foreign market. For instance, Indian companies had spent $ 711.4 million in acquisitions abroad in 2000 in industries such as InfoTech, drugs and pharmaceuticals, paints, tele-communication, petroleum and broadcasting. Some of the major acquisitions include investments by Zee Telefilms, Leading Edge System BPL Software and Tata Tea. Dataline Transcription, Teamasia semiconductors, Goa Carbons, Wockhordt and Acro lab are few other firms to name from a long list.
A very important acquisition has been the $ 271 billion leveraged buy out of Tetley by Tata Tea. With the acquisition of Tetley, Tata Tea, having been the largest integrated tea producer in the world, also got possession of the second largest global tea marketer.
Indian companies have also acquired foreign brands. Nicholas Piramal India has acquired the Indian rights for three anti-infective brands from the US firm Eli Lilly.
Ranbaxy interred the German pharma market by acquiring the generics business of Bager Ali.
The Indian Rayon acquired Madura Garments; a subsidiary of the UK based coats Viyella and also acquired global rights for Coats Viyella brands such as Louis Phillipe, Allen Solly and Peter England.
4. JOINT VENTURES
Joint Ventures as a means of foreign market entry have accelerated sharply since the 970s. Joint ventures refer to joining with foreign companies to produce or market the products or services. Besides serving as a means of lessening political and economical risks by the amount of the partner’s contribution to the venture, JVs provide a less risky way to enter markets that pose legal and cultural barriers than would be the case in an acquisition of an existing company.
There are two types of JVs, namely:
1. Contractual JVs and
2. Equity based JVs.
A contractual JV consists of a contractual arrangement between two or more companies in which certain assets and liabilities are shared for a specific purpose and time. Contractual JVs are common in the construction, extractive and consultancy services.
An equity JV is a capital sharing arrangement between an MNC and a local company or another MNC or even a foreign government. Each partner holds share in the subsidiary and shares the profits in proportion to its ownership share.
The advantage of a JV for MNC is that it can spread its investment across locations, and thereby minimize its risks.
The liberalization of policy towards the foreign investment by Indian firms along with the new economic environment seems to have given joint venture a boost. At the beginning of 1995 although there were 177 JVs in operation, there were 347 under implementation. Not only the number of JVs is increasing but also the number of countries and industries in the map of Indian JVs is expanding. Companies like Ranbaxy, Dr. Reddy’s Lab, Lupin etc. have taken the JV route to mark their presence in the overseas market.
5. STRATEGIC ALLIANCE:
A Strategic International Alliance (SIA) is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective.
It is an agreement between companies that is of strategic importance to one or both companies’ competitive viability. Strategy refers to the means to fulfill company’s objectives. In every day business, the term ‘strategic alliance’ is generally used to describe a wide variety of collaborations, irrespective of strategic importance. In a strategic alliance, a firm could establish relationships with organization that have the potential to add values. Bench marking, re-engineering, outsourcing, merger and acquisition are examples of strategic alliance.
On the basis of structure, strategic alliances can be classified into equity based and non- equity based.
Non-equity based alliances such as licensing agreements, marketing agreements, technology transfer agreements etc. are found to be more dynamic, constructive and strategic. The scope of strategic alliance ranges from Research and Development to distribution.
6. LICENSING AND FRANCHISING:
A means of establishing a foothold in foreign markets without large capital outlays is licensing. It is a favorite strategy for small and medium sized companies. International licensing helps a firm from one country (licensor) to permit another firm in a foreign country (licensee) to use its intellectual property such as patents, trademarks, copyrights, technology, technical know-how, marketing skill etc. in return for royal payments. Royal payments or license fee is regulated in most of the countries.
The advantages of licensing are most apparent when: capital is scarce, import restrictions forbid other means of entry, a country is sensitive to foreign ownership, or it is necessary to protect trademarks and patents against cancellation of nonuse.
An important risk of licensing is that the licensor may give birth to his own competitor i.e. the licensee can become a competitor after the expiry of the licensing agreement. The only anti-dote that is available to the licensor to pre-empt any potential or actual competition is continuous innovation. Only innovation will provide sustainable competitive advantage.
Franchising is a form of licensing in which a parent company (franchiser) grants another company (franchisee) the right to do business in a specific manner. Franchising can assume various forms such as selling the franchiser’s products, using the name of the franchiser, production and marketing techniques etc. Important forms of franchising are:
1. Manufacturer- retailer systems e.g. automobile dealership
2. Manufacturer- wholesaler system e.g. soft drink companies
3. Service firm- retailer systems e.g. lodging and fast food outlets.
Potentially, the franchise system provides an effective blending of skill centralization and operational decentralization, and has become increasingly important form of international marketing.
Political & Social Environment
A] Examine the various issues that needs to be considered by an international business organization while studying the political environment of a country.
Answer - The International Marketing activities take place within the political environment of national political institutions such as the government, political executive, legislative and the judiciary.
Any company doing business overseas should Carefully study the political environment of he country it intends to operate and analyze issues such as the attitude of the political party in power toward
(b) Political Risk,
(d) Threat of Equity dilution and
The sovereign political power of a country in a command economy may determine every aspect of economic life of the people. In contrast, in a market economy, the government may only play the role of a facilitator and a regulator. However, after the fall of the Soviet Union, the command economics around the world have progressed towards a market oriented system. Eastern European countries, countries in Central America, and most importantly, India and China have also adopted the free market system. With globalization and economic integration, political sovereignty of individual nation states is on the wane. However, erosion of political sovereignty is not without a quid pro quo. There are definite economic advantages in forging a regional economic union as exemplified in cases such as the European Union, NAFT A, ASEAN and others.
There is always a political risk involved in making investments both within and without the country. The element of risk and its severity is relatively high in foreign countries. More objectively, the extent of political risk depends upon the political stability of the host country. An unstable country is fraught with investment risks. A country needs to be stable both internally and externally. Frequent changes in the government and attendant changes in the economic policy of the government will increase the element of uncertainty and adversely effect upon a company's ability to operate effectively in a foreign country. Investments in highly destabilized countries like Afghanistan and Iraq may be very attractive economically speaking but the political risks involved are overwhelming. Political instability is therefore a great .deterrent to foreign investment. In order to justify investment in a foreign country, risk assessment should be undertaken on a regular basis and investments should be made only when opportunities to make profits are much greater than the risks involved.
A company which is geographically diversified needs to take care of the tax laws of the countries in which it operates. Companies, generally minimizes their tax liability by shifting the location of their income. One method of reducing tax liability is called earnings stripping. Foreign companies reduce earnings by' making loans to their affiliates in a country rather than making direct foreign investment. The subsidiary company which takes the loan can deduct the interest it pays on such loans and reduce its tax burden. There is an absence of international laws to govern the levy of taxes on companies that are into international business. In order to provide fair treatment, governments in many countries have negotiated bilateral tax treaties to provide tax credits for taxes paid abroad. Generally foreign' companies are taxed by the host country up to the level imposed in the home country.
Equity Stripping and Dilution of Control:
In less developed countries, there is a general tendency to exert political pressure for governmental control of foreign companies. Host-nation governments may attempt to control ownership of foreign-owned companies operating in their Countries. For instance, foreign equity participation in industries such as insurance is limited to 74 percent in India and as a result, a foreign insurance company must team up with a local company to do insurance business in India. In industries where, the government wants to keep the ownership in the hands of Indian companies, foreign equity participation is less than fifty percent. The threat of equity dilution has forced companies to operate in host countries through joint ventures and strategic alliances.
Expropriation is the ultimate threat that a government can pose toward a foreign company. Expropriation refers to governmental action to dispossess a company investor. Generally, compensation is provided to foreign investors. However, quite often, the compensation is not prompt, adequate and effective. If there is no compensation then the act of expropriation would be termed as confiscation. When severe limitations are imposed the activities of a foreign company, it is termed as creeping expropriation. Such restriction may include limitations on repatriation of profits, dividends, royalties, local content etc, quotas for hiring local nationals, price controls etc. All these restrictions and limitations adversely affects the profitability of foreign investment. Discriminating tariffs and non-tariff barriers, discriminating laws on patents and trademarks may also limit market entry of certain consumer and industrial goods manufacturing foreign firms. When governments expropriate foreign property, there are limitations on actions to reclaim the property. For instance, according to the United States act of State doctrine, if the government of a foreign State is involved in a specific act, the US court will not get involved. In such a situation, expropriated companies representatives may seek redressal through arbitration at the World Bank Investment Dispute Settlement Center. It is safe to buy expropriation insurance than to seek redressal through World Bank mechanism. In 1970 and 1971; some foreign copper companies in Chile resisted government efforts to employ local nationals in the managerial cadre of the companies. Such companies were expropriated by the Chilean government and companies which obliged were allowed to operate under joint management.
B] Write Short Note On Monopoly and Restrictive Trade Practices
Monopoly and Restrictive Trade Practices:
MRTP laws are enacted to fight restrictive business practices and help foster competition. In the United States, anti-trust laws are designed to encourage free competition by limiting the concentration of economic power in the hands of few. The Sherman Act of 18~O prohibits certain restrictive business practices like fixing prices, limiting production, allocating markets and other anti-competitive practices.
The law applies to foreign companies conducting business in the US and extends to the activities of US companies operating overseas if the company conduct is considered to have an effect on US commerce contrary to law. The European commission prohibits agreements and practices that prevent, restrict and distort competition.
In India, the Monopolies and Restrictive Trade Practices Act was passed in the year 1970 under which the MRTP commission was set¬up to investigate the effects of restrictive trade practices on public interest and recommend suitable corrective action.
C] Short Note on Licensing and Trade Screts
Licensing and Trade Secrets: .
Licensing is a contractual agreement in which a licensor allows a licensee to use patents, trademarks, trade secrets, technology and other non-material assets in return for royalty payments or other forms of compensation. The duration of the licensing agreement and the amount of royalties a company can receive is commercially negotiated between the two parties i.e., the licensor and the licensee. There are no governmental restrictions on royalty remittances abroad. However, in many countries these elements of licensing are regulated by the government.
Important areas of concern in licensing are:
1] Analysis of assets offered by a firm for license,
2] Pricing of the assets,
3] Whether to grant only the right to make the product or to grant the right to use and sell the product, and
4] The right to sub-license.
Licensing is fraught with danger because it has the potential to create a competitor, if there is none or increase the number of competitors, if there is already one or more. Hence, licensors should be careful enough to protect their competitive advantage and to ensure a sustainable
competitive advantage, the only price the licensor should be willing to pay is in the form of continuous innovation. Else, the licensor may become history.
Trade secrets are confidential information that has commercial value and for which steps have been taken to keep it secret. Trade secrets include: manufacturing processes, formulas, designs and list of customers. In order to prevent disclosure, the licensing of unpatented trade secrets should be linked to confidentiality contracts with" each employer who has access to the protected information. The agreement on TRIPs concluded during the Uruguay round of GAIT negotiations requires all the signatory countries to protect against acquisition, disclosure or use of trade secrets in a manner contrary to honest commercial practices. Notwithstanding the legal developments, companies transferring trade secrets to foreign countries should apprise themselves of the existence of legal protection and the risks associated with lax enforcement.
D] Distinguish between common law and code law
COMMON LAW CODE LAW
1. Australia, new Zealand, India, Hongkong, colonial English speaking African countries, united states and Canada have systems based on common law. In Asia, India, Pakistan, Malaysia, Singapore and Hongkong are the common law countries. 1.Japan, Thailand, korea, indo-china, Indonesia, Taiwan and china are all civil law countries.
2. In common law countries trademarks are established by prior use 2. In code law countries, intellectual property rights must be registered.
3. Not as many as civil law countries, have legal systems based on common law. 3. Most countries have legal systems based on civil law
4. This is divided into Statutory, Administrative and Case law. Statutory is codifies at national or state level. Administrative law originates in regulatory bodies and local communities and case law is product of the court system. 4. Code law is divided into judicial system which is further divided into civil, commercial and criminal law.
E] What do you understand by the term “International Law” and trace the Genesis of the International Law?
The Term International Law refers to rules, regulations and principles that national governments consider binding upon themselves.
There are two types of international law :
1] The Law of Nations or Public law and
2] International Commercial law.
International law is concerned with trade related issues and other areas that have been ordinarily under the jurisdiction of nation states. The Genesis of international law can be traced back to the early middle ages in Europe and later in the 17th Century peace of Westphalia. Early International law was concerned with war, peace, diplomatic recognition of new nation states etc. Detailed international law gradually evolved with time. To being with, International law was an amalgam of treaties, covenants, Codes and agreements. With the growth of international trade, order in commercial affairs grew in Importance. In the 20th century, the new international judicial organizations contributed to the creation of an established Justice (1920-45), The International court of Justice, established under article seven of the United nations are issues of Public states 1947. Disputes between nations are issues of public international law and they may be referred to the International Court of justice located in the Hague. The sources of International law as defined under article 38 of ICI statute are as follows:
The Court whose function is to decide in accordance with international law such disputes as are submitted to it shall apply:
(a) International Convention, whether general or particular, establishing rules expressly recognized by contesting states.
(b) International custom as evidence of a general practice accepted as law.
(c) The General principles of Law recognized by civilized nations.
(d) Subject to the provision of Article 59, judicial decisions are the teachings of the most highly qualified publicists of various nations as subsidiary means for the determination of the rules of law.
If a nation allows a case to be brought before the ICI and then refuses to accept a judgment against it, the plaintiff nation can seek redresses through the United Nation’s highest political are i.e., the Security Council, which can use its power to enforce the judgment.
International Social & Cultural Environment
Q.1 Illustrate the impact of social and cultural environment on the marketing of industrial products.
Ans. The social and cultural environment encompassing the religious aspects; language; customs; traditions and beliefs; tastes and preferences; social stratification; social institutions; buying and consumption habits etc are all very important factors for business. What is liked by people of one culture may not be liked by those of some other culture. One of the most important reasons for the failure of a number of companies in foreign markets is their failure to understand the cultural environment of these markets and to suitably formulate their business strategies.
Many companies modify their products and/or promotion strategies to suit the tastes and preferences or other characteristics of the population of the different countries. Significant differences in the tastes and preferences may exist even within the same country, particularly when the country is very vast, populous and multi-cultural like India.
For a business to be successful, its strategy should be the one that is appropriate in the socio-cultural environment. The marketing mix will have to be so designed as best to suit the environmental characteristics of the market. In Thailand, Helene Curtis switched to black shampoo because Thai women felt that it made their hair look glossier.
Even when people of different cultures use the same basic product, the mode of consumption, conditions of use, purpose of use or the perceptions of the product attributes may vary so much so that the product attributes, method of presentation, positioning, or method of promoting the product may have to be varied to suit the characteristics of different markets.
The differences in language sometime pose a serious problem, even necessitating a change in the brand name. For instance, Chevrolet’s brand name Nova in Spanish means “it doesn’t go”. In some languages, Pepsi-Cola’s slogan “come alive” translates as “come out of the grave”.
The values and beliefs associated with colour vary significantly between different cultures. White indicates death and mourning in China and Korea; but in some countries, it expresses happiness and is the colour of the bridal dress. Boeing an United States based aero-space manufacturer has felt the impact of an unwritten “buy national policy” in Europe. As a result, the market share of Airbus for commercial planes which is a consortium of European countries grew to 50 percent. The market share of Boeing in Europe declined resulting in a loss. Boeing attempted joint venture with Russian, Ukrainian and Norwegian partners and hired a designer to decorate a facility to watch the launch of the Sea Launch rocket. The designer decorated the facility in black which is considered as bad luck colour in Russia. The Russians were furious to see black colour. Boeing repainted the facility with a shade of blue to avoid a cultural blunder.
While dealing with the social environment, we must also consider the social environment of the business which encompasses its social responsibility and the alertness or vigilance of the consumers and of society at large. Marketing people are at interface between company and society. In this position, they have the responsibility not merely for designing a competitive marketing strategy, but for sensitizing business to the social as well as the product, demand of the society.
Q.2 Write short notes on:
a) Self-reference criterion: - A person’s understanding or perception of market needs is determined by his or her own cultural experience. James Lee – developed a systematic framework to reduce perceptual blockage and distortion. This framework is known as the self-reference criterion (SRC) – which addresses the problem of unconscious reference to one’s own cultural values. In order to reduce cultural myopia or short sightedness, James Lee proposed a four-step framework which is as below:
(1) Define the problem or goal in terms of home-country cultural traits, habit and norms.
(2) Define the problem or goal in terms of host culture, traits, habits and norms. Make no value judgments.
(3) Isolate the self-references criterion influence and examine it carefully to see how it complicates the problems and
(4) Redefine the problem without the self-references criterion influence and solve for the host-country market situation.
An important skill that an international marketer needs to possess is that of unbiased perception. The framework of self-references criterion brings out this important skill to be learnt by international marketers. The use of SRC and the tendency towards ethnocentrism is widespread and it can become a strong negative form in international business. The international marketer must check this tendency to avoid misunderstanding and failure. In order to avoid SRC, a person needs to forget assumptions based on earlier experience and success and be prepared to acquire new understanding and knowledge about human behaviour and motivation.
b) Communication and Negotiation: -Language is the medium through which any given culture is expressed and the subtleties of a culture can best be expressed only through a language that is home to a given culture. Cultural transliterations are only approximations and hence a compromise on the meaning and essence of a certain context. The international marketer with a hold over multiple languages has an edge over those who do not. Whenever, languages and cultures change, communication challenges comes to the fore. For instance, ‘yes’ and ‘no’ are used differently in Japanese than in western languages. In English, the answer ‘yes’ or ‘no’ to a question is based on whether the answer is affirmative or negative. In Japanese, the answer ‘yes’ or ‘no’ may indicate whether or not the answer affirms or negates the question. For instance, in Japanese the question, “Don’t you like meat!” would be answered “yes”. If the answer is negative, as in, “Yes, I don’t like meat.” The word “Wakarimashita” means both “I understand” and “I agree”. In order to avoid misunderstandings, foreigners must learn to distinguish which interpretation is correct in terms of the entire context of conversation. The challenges of non-verbal communication are more formidable.
c) Environmental Sensitivity: -Environmental sensitivity is the extent to which products must be adapted to the culture-specific needs of different needs of different national markets. Environmental sensitivity can be measured by viewing product on an environmental sensitivity continuum. At one end of the continuum are environmentally insensitive products that do not require significant adaptation to the environments of local markets in the world. At the other end of the continuum are products that are highly sensitive to different environmental factors. A firm with environmental insensitive products will spend less time determining the specific conditions of local markets as the product in question is universal in nature. In case of environmentally sensitive products, managers need to address country-specific economic, regulations, technological, social and cultural environmental conditions.
The sensitivity of products can be represented on a two dimensional scare wherein the horizontal axis shows environmental sensitivity and the vertical axis shows the extent of need for product adaptation. Products showing low levels of environmental sensitivity such as technical products belong to the lower left of the figure. As we move to the right or the horizontal axis, the environmental sensitivity increases along with the need for adaptation. Computers have low levels of environmental sensitivity but variations in country voltage requirements require some adaptation. At the top right of the figures we have products with high environmental sensitivity. For example, food is highly sensitive to climate and culture.