Punjab Technical University
World over distance Education is fast growing mode of education because of the unique benefits it provides to the learners. Universities are now able to reach the community which has for so long been deprived or higher education due to various reasons including social, economic and geographical considerations. Distance Education provides them a second chance to upgrade their technical skills and qualifications.
Some of the important considerations in initiating distance education in a country like India, has been the concern of the government in increasing access and reach of higher education to a larger student community. As such, only 6-8% of students in India take up higher education and more than 92% drop out before reaching 10+2 level. Further, avenues for upgrading qualifications, while at work, is limited and also modular programs for gaining latest skills through continuing education programs is extremely poor. In such a system, distance education programs provide the much needed avenue for:
Increasing access and reach of higher education:
Equity and affordability of higher education to weaker and disadvantaged sections of the society;
Increased opportunity for upgrading, retraining and personal enrichment of latest knowledge and know-how;
Capacity building for national interests.
One of use important aspects of any distance education program is the learning resources. Learning material provided to the learner must be innovative, thought provoking, comprehensive and must be tailor-made for self-learning. It has been a continuous process for the University in improving the quality of the learning material through well designed course materials in the SIM format (self-instructional material). While designing the material, the university has researched the methods and process of some of the best institutions in the world imparting distance education.
About the University
Punjab Technical University (PTU) was set up by the Government of Punjab in 1997 through a state Legislative ACT. PTU started with a modest beginning in 1997, when University had only nine Engineering and thirteen Management colleges affiliated to it. PTU now has affiliated 43
Engineering colleges, 56 colleges imparting Management and Computer Application courses, 20 institutions imparting pharmacy education, 6 Architecture institutions, 2 Hotel Management and 12 Regional Centres for imparting M. Tech and Ph. D Programs in different branches of Engineering and Management. During a short span of nine years, the University has undertaken many innovative programs. The major development during this period is that University has restructured its degree program and upgraded syllabi of the course in such a way as to increase the employability of the student and also to make them self-reliant by imparting Higher Technical Education. We at Punjab Technical University are propelled by the vision and wisdom of our leaders and are striving hard to discharge our duties for the overall improvement of quality of education that we provide.
During a short span of nine years, the University has faced various challenges but has always kept the interest of students as the paramount concern. During the past couple of years, the University has undertaken many new initiatives to revitalize the educational programs imparted with the colleges and Regional centers.
Though knowledge and skills are the key factors in increasing the employability and competitive edge of students in the emerging global environment, an environment of economic growth and opportunity is necessary to promote the demand for such trained and professional manpower. The University is participating in the process of technological growth and development in shaping the human resource for economic development of the nation.
Keeping the above facts in mind Punjab Technical University, initiated the distance education program and started offering various job oriented technical courses in disciplines like information technology, management, Hotel Management, paramedical, Media Technologies and Fashion Technology since July 2001. The program was initiated with the aim of fulfilling the mandate of the ACT for providing continuing education to the disadvantaged economically backward sections of society as well as working professionals for skill up-gradation.
The University has over the years initiated various quality improvement initiatives in running its distance education program to deliver quality education with a flexible approach of education delivery. This program also takes care of the overall personality development of the students. Presently, PTU has more than 60 courses under distance education stream in more than 700 learning centers across the country.
About Distance Education Program of PTU
Over the past few years, the distance education program of PTU has gained wide publicity and acceptance due to certain quality features which were introduced to increase the effectiveness of learning methodologies. The last comprehensive syllabus review was carried out in the year 2004-05 and the new revised syllabus was implemented from September 202004-05. The syllabus once reviewed is frozen for a period of 3 years and changes, if any, shall be taken up in the year 2008. Various innovative initiatives have been taken, which has increased the popularity of the program. Some of these initiatives are enumerated below:1. Making a pyramid system for almost all courses, in which a student gets flexibility of continuing higher education in his own pace and per his convenience. Suitable credits are imparted for courses taken during re-entry into the pyramid as a lateral entry student. 2. Relaxed entry qualifications ensure that students get enough freedom to choose their
course and the basics necessary for completing the course is taught at the first semester level.
3. A comprehensive course on „Communications and Soft Skills‰ is compulsory for all students, which ensures that students learn some basic skills for increasing their employability and competing in the globalized environment.
4. Learning materials and books have been remodeled in the self-Instructional Material format, which ensures easy dissemination of skills and self-learning. These SIMs are given in addition to the class notes, work modules and weekly quizzes.
5. Students are allowed to take a minimum of 240 hours of instruction during the semester, which includes small group interaction with faculty and teaching practical skills in a personalized manner.
6. Minimum standards have been laid out for the learning centers, and a full time counselor and core faculty is available to help the student anytime.
7. There is a wide network of Regional Learning and Facilitation Centers (RLFC) catering to each zone, which is available for student queries, placement support, examination related queries and day-to-day logistic support. Students need not visit the University for any of their problems and they can approach the RLFC for taking care of their needs.
8. Various facilities like Free Waiver for physically challenged students, Scholarship scheme by the government for SC/ST candidates, free bus passes for PRTC buses are available to students of the University.
The university continuously aims for higher objectives to achieve and the success always gears us for achieving the improbable. The PTU distance education fraternity has grown more than 200% during the past two years and the students have now started moving all across the country and abroad after completing their skill training with us.
We wish you a marvelous learning experience in the next few years of association with us!
DR. R. P. SINGH
Dean Distance Education
Dr. S. K. Salwan
Vice Chancellor
Dr. S. K. Salwan is an eminent scientist, visionary and an experienced administrator. He is a doctorate in mechanical engineering from the IIT, Mumbai. Dr. Salwan brings with him 14 years of teaching and research experience. He is credited with establishing the Department of Design Engineering at the institute of Armament Technology, Pune. He was the founder-member of the integrated guided missile programme of defence research under His Excellency Honorable Dr. A.P.J. Abdul Kalam. He also established the high technology missile center, RCI at Hyderabad. He has been instrumental in implementing the Rs 1000-crore National Range for Testing Missiles and Weapon Systems at Chandipore, Balance in a record time of three years. He was director of the Armament Research and Development Establishment, Pune. Dr. Salwan has been part of many high level defence delegations to various countries. He was Advisor (Strategic project) and Emeritus Scientist at the DRDO. Dr. Salwan has won various awards, including the Scientist of the Year 1994; the Rajiv Ratan Award, 1995, and a Vashisht Sewa Medal 1996, the Technology Assimilation and Transfer Trophy, 1997 and the Punj Pani Award in Punjab for 2006.
Dr. R.P. Singh
Dean, Distance Education
Dr. R.P. Singh is a doctorate in physics from Canada and has been a gold medallist of Banaras Hindu University in M.Sc. Dr. Singh took over the Department of Distance Education in November 2004 and since then the University has embarked on various innovations in Distance Education.
Due to combined efforts of the department, the RLFCÊs and Centers, and with active support of the Distance Education Council headed by Dr. O.P. Bajpai, Director University College of Engineering Kurukshetra University the distance education program of PTU is now a structured system which empowers the learner with requisite skills and knowledge which can enhance their employability in the global market. Dr. R. P. Singh is promoting distance education at the national level also and is a founder member of Education Promotion Society of India and is member of various committees which explores innovative ways of learning for the disadvantages sections of society. The basic aim of the distance education programs has been to assimilate all sections of society including women by increasing the access. Reach, equity and affordability of higher education in the country.
INTERNATIONAL
MARKETING
MBA-506
This SIM has been prepared exclusively under the guidance of Punjab Technical University (PTU) and reviewed by experts and approved by the concerned statutory Board of Studies (BOS). It conforms to the syllabi and contents as approved by the BOS of PTU.
Copyright © PK Vasudeva, 2008
No part of this publication which is material protected by this copyright notice may be reproduced or transmitted or utilized or stored in any form or by any means now known or hereinafter invented, electronic, digital or mechanical, including photocopying, scanning, recording or by any information storage or retrieval system, without prior written permission from the publisher.
Information contained in this book has been published by Excel Books Pvt. Ltd. and has been obtained by its authors from sources believed to be reliable and are correct to the best of their knowledge. However, the publisher and its author shall in no event be liable for any errors, omissions or damages arising out of use of this information and specifically disclaim any implied warranties or merchantability or fitness for any particular use.
Published by Anurag Jain for Excel Books Pvt. Ltd., A-45, Naraina, Phase-I, New Delhi-110 028 Tel: 25795793, 25795794 email: [email protected]
PTU DEP SYLLABI-BOOK MAPPING TABLE
MBA-506 INTERNATIONAL
MARKETING
Syllabi Mapping in Book
Section I
Meaning and scope of international marketing, difference between domestic and international marketing. Direction & composition of Indian exports.
International marketing tactics, reasons for entering export marketing and organisation of an export department.
Indian export and import policy export promotion organizations, export incentives.
Section II
International economic environment, world trade tariff and non-tariff restrictions, role of WTO and trading blocks, international monetary system.
The procedure and practices of processing of an export order, producing for exports, export quality control; export finance, shipment and procedures thereof.
Section III
Export documents, processing of an export order, organisation and structure of export and import houses.
The selection of export markets, planning of export marketing strategy-product, pricing, promotion, and distribution channel.
International marketing research.
Unit 1: Introduction to International Marketing (Page 3-10) Unit 2: International Marketing Process (Page 11-26)
Unit 6: Export Documentation
(Page 119-145)
Unit 7: Export Market and Export Marketing Process
(Page 147-178)
Unit 3: IndiaÊs Export Import Policy
(Page 27-56)
Unit 4: International Economic Environment
(Page 59-88)
Unit 5: Procedure and Practices of Export
(Page 89-115)
Unit 8: International Marketing Research
Contents
Section-I
UNIT 1 INTRODUCTION TO INTERNATIONAL MARKETING 3
Introduction
Meaning of International Marketing Scope of International Marketing
Difference Between Domestic & International Marketing Direction of Indian Exports
Composition of Indian Exports Summary
Keywords
Review Questions
Further Readings
UNIT 2 INTERNATIONAL MARKETING PROCESS 11
Introduction
International Marketing Tactics Reasons of Entering Export Marketing Organisation of an Export Department Summary
Keywords
Review Questions
Further Readings
UNIT 3 INDIAÊS EXPORT IMPORT POLICY 27
Introduction
A Brief Description of EXIM Policy of India Export Promotion Organization
Export Incentives Summary Keywords Review Questions Further Readings
Section-II
UNIT 4 INTERNATIONAL ECONOMIC ENVIRONMENT 59
Introduction Globalisation
Tariff and Non-tariff Barriers World Trade Organisation (WTO) Regional Trading Blocks
International Monetary System Summary
Keywords
Review Questions
Further Readings
UNIT 5 PROCEDURE AND PRACTICES OF EXPORT 89
Introduction Producing for Exports
Export Quality Control
Recognition to Inspection Agencies
Export Finance
Shipment and Procedure Thereof Summary
Keywords
Review Questions
Further Readings
Section-III
UNIT 6 EXPORT DOCUMENTATION 119
Introduction
Export Documentation Requirements in India
Bill of Lading/Airway Bill/Combined Transport Document Processing of an Export Order
Organisation & Structure of Export & Import Houses Summary
Keywords
Review Questions
Further Readings
UNIT 7 EXPORT MARKET & EXPORT MARKETING PROCESS 147
Introduction
The selection of Export Market
Planning and Strategy of Export Marketing
Product Planning
Export Pricing
Export Promotion
International Distribution Channel Summary
Keywords
Review Questions
Further Readings
UNIT 8 INTERNATIONAL MARKETING RESEARCH 179
Introduction
Research of Industry, Market Characteristics and Market Trends The International Marketing Research Process
Summary Keywords
Review Questions
Unit 1
Introduction to International Marketing
Unit 2
International Marketing Process
Unit 3
IndiaÊs Export Import Policy
Introduction to International Marketing Notes
Unit 1 Introduction to
International
Marketing
Unit
Structure
• Introduction• Meaning of International Marketing • Scope of International Marketing
• Difference Between Domestic & International Marketing • Direction of Indian Exports
• Composition of Indian Exports • Summary
• Keywords • Review Questions • Further Readings
Learning Objectives
At the conclusion of this unit you should be able to:
• Describe the meaning and scope of international marketing • Distinguish between domestic and international marketing
• Understand the trends of direction and composition of Indian exports
Introduction
Countries use trade to speed up their economic growth. The increasing importance of international marketing is the outcome of current changing structure of competition, and changing demand patterns in markets across the world. Whether business like it or not, protectionism of markets is disappearing from large number of countries. Domestic market, large or small, now has to be shared with variety of offerings and their marketers. Companies are unavoidably involved with foreign customers, competitors, and suppliers within their own domestic markets. For almost all players, large or small, it has become necessary to seek foreign markets for their products and services to survive and grow.
With the opening up of economies, increasing level of incomes, barrier-less communications and travel, and technological advances, people in a large number of countries throughout the world want the same things. They want modern appliances, fast-food restaurants, latest in fashions, ever increasing convenience in life, high quality services and so on. As a result of these powerful shifts in trends, organisations must be prepared to be competitive in an increasingly interdependent global environment. Whether a firm chooses to compete directly or not it gets affected by other foreign competitors who do. For a company producing refrigerators or traditional Rajasthani Namkeen, there seems to be no way out but to compete in the global market. Businesses are able to communicate throughout the world at the speed of sound using data, text, voice, or image.
International Marketing
Notes
4 Self-Instructional Material
Meaning of International Marketing
The study of international marketing will not be complete unless we have an understanding of what marketing is and how it operates in an international context. There have been large numbers of definitions of marketing which are currently in use. But most of these definitions are convergent because all of them define marketing in almost the same way. Hence, any definition of marketing should be acceptable as long as it captures the essential idea and as long as the strength and the weaknesses of the definition are acknowledged.
Marketing can be conceived as an integral part of two processes, viz. technical and social. So far as the technical process is concerned, domestic and international marketing are identical. The technical process includes non-human factors such as produce, price, cost, brand, etc. The basic principles regarding these variables are of universal applicability. But the social aspect of marketing is unique in any given stratum, because it involves human elements, namely, the behaviour pattern of consumers and the given characteristics of human society such as customs, attitudes, values, etc. It is obvious from this that marketing, as a social process, will be different in varying environments and international marketing, to the extent that it is visualised as a social process, will be different from domestic marketing.
According to Phillips Kotlar, marketing is „analysing, organising, planning and controlling of the firmÊs customers – impinging resources, policies, activities with a view to satisfying the needs and wants of a chosen customer group at a profit‰. Thus, it differs from trading which includes the activities of merchandising (buying and selling), physical distribution (transportation and warehousing) and facilitation (financing, risk bearing, standardisation, pricing, advertising and sales promotion and marketing research). In other words, marketing is an act or operation or service by which the original product and final consumer are linked together. In between these two points · producer and consumer · every activity facilitating the movement of goods and services, including market and market research, may be covered under this term.
We are more concerned here with international marketing, which means marketing activity carried on across national boundaries. Thus, international marketing includes activities that direct the flow of goods from one country to the users of another country. A definition adopted by the American Marketing Association (AMA) is more appropriate to define international marketing. According to AMA, Âinternational marketing is the multinational process of planning and executing the conception, pricing, promotion and distribution of ideal goods and services to create exchanges that satisfy individual and organisational objectivesÊ. In this definition, the word multinational has been added to the definition of marketing given by other experts. This word implies that marketing activities are undertaken in several countries and that such activities should somehow be coordinated across nations.
This definition is not completely free of limitations. By placing individual objectives at one end of the definition and organisational objectives at the other, the definition stresses a relationship between a consumer and an organisation. It excludes industrial marketing, which involves a transaction between two organisations. In the world of international marketing, governments, quasi-government agencies and profit seeking and non-profit entities are frequently buyers. Companies such as Boeing, BHEL and Hindustan Earth Movers, for example, have nothing to do with consumer products. The definition thus fails to do justice to the significance of industrial purchases. The definition of international marketing has various connotations. Firstly, it makes it clear that what is to be exchanged is not restricted to tangible products but can include concepts and services as well. When the United Nations promotes such concepts as birth control and breast-feeding, this should be viewed as international
Introduction to International Marketing
Notes marketing. Figure 1.1 shows an international effort to fight AIDS. Likewise services or
intangible products are just as relevant to the definition as airline flights, financial services, advertising services, management consulting services, marketing research and so on as they play a very significant role in affecting trade balance.
World AIDS Day, Birth Control, Breast-feeding,
No-smoking, etc.
Safe Sex
Concepts and Services
Figure 1.1: Safe Sex Concept and Services
Secondly, the definition removes the implication that international marketing applies only to market or business transactions. International non-profit marketing, which has received only scant attention, should not be overlooked. The marketing of governments and religions underscores this point. The governments are very active in marketing in order to attract foreign investments. The US is using a variety of local and international media (including CNN International and BBC World Television Network) to announce the arrival of newly designed $100 bills which would not involve any devaluation and that there would never be any recall of the old bills. Religion is also a big business, though most people prefer not to view it that way. Religion has been marketed internationally for centuries. Tercentenary of the birth of Khalsa (300 years of Sikh religion) was celebrated at Anandpur Sahib in 1999 where a large number of NRIs and foreigners contributed to its success. The religious messages were flashed on the Internet all over the world.
Thirdly, the definition recognises that it is improper for a firm to create a product first and then look for a place to sell it. Actually the needs and the wants of the consumers should first be ascertained through market research and then the new product should be produced accordingly. Suzuki-Maruti has understood the needs of the Indian consumers for a small car; hence it has become the leader in the car industry though other car manufacturers are also following a similar international marketing strategy. Fourthly, the definition acknowledges that „place‰ (distribution) is just part of the marketing mix and that the distance between the markets makes it neither more nor less important than the other parts of the mix. Thus, it is improper for any firm to regard their international function as simply as export available products from one country to another.
Finally, the „multinational process‰ implies that the international marketing process is not a mere repetition of using identical strategies abroad. The 4 Ps of marketing (product, place, promotion and price) must be integrated and coordinated across countries in order to bring about the most effective marketing mix. In some cases, the mix may have to be adjusted for a particular market for a better impact. For example, Coca Cola and Pepsi Cola Inc. have created new slogans for marketing in India and new chips that differ both in taste and texture from their American version. The Whirlpool Corporation has been able to use more standardised models of washing machines and refrigerators to break down national traditions.
International Marketing
Notes
6 Self-Instructional Material
Scope of International Marketing
The foundation for a successful international marketing programme is a sound understanding of the marketing discipline. Marketing is the process of focusing the resources and objectives of an organisation on environmental needs and opportunities. The first and the most fundamental fact about marketing is that it is a universal discipline. The marketing discipline is equally applicable from China to India, United States to Japan and Australia to Zanzibar. Marketing is a set of concepts, tools, theories, practices and procedures and experience.
Although the marketing discipline is universal markets and customers are quite differentiative. This means that marketing practices must vary from country to country. Each person is unique and each country is unique. This reality of differences means that we cannot always directly apply experience from one country to another. If the customers, competitors, channels of distribution and available media are different, it may be necessary to change our marketing plan.
The scope of international marketing is to have a borderless world like the multinational companies · Coca Cola, Pepsi, MacDonald, Gillette and so on. Their products and body marketing mix elements are both international and local in nature. A central issue in international marketing is how to tailor the international marketing concept to fit a particular product or business.
Difference Between Domestic & International
Marketing
The striking difference between international and domestic marketing lies in the environment in which the two take place. The important points of difference between the two are:
1. Sovereign Political Entities. Each country is a sovereign political entity and, therefore, they impose several restrictions for import and export of goods and services in order to safeguard their national interests. The traders, in international marketing, have to observe such restrictions. These restrictions may fall in any of the following categories.
i. Tariffs and customs duties are imposed on import and export of goods and services in order to make them costly in the importing country and not to ban their entry into the country completely. In the post-war period, because of the efforts of General Agreement on Tariffs and Trade (GATT), there has been a significant reduction in tariffs globally and on a regional basis due to the emergence of regional economic groupings.
ii. Quantitative restrictions are also imposed with an intention to restrict trade in some specific commodities. The major objective behind the restriction is the protection of home industries from competition with foreign commodities.
iii. Exchange control is another restriction imposed by almost every sovereign state. The government, in some cases, does not ban the entry of goods in the country but the importer is not allowed the necessary foreign exchange to make payment for goods imported. But, in some cases, exchange control and quantitative controls are put together along with the grant of import licence.
Introduction to International Marketing
Notes iv. Imposition of more local taxes on imported goods with an object to
make the imported goods costly is one of the restrictions in international marketing.
2. Different Legal System. Different countries operate under different legal systems and they all differ from each other. Most countries follow the English Common Law as modified from time to time. Japan and Latin American countries are important exceptions to this rule. The existence of different legal systems makes the task of businessmen more difficult as they are not sure as to which particular system will apply to their transactions. This difficulty does not arise in domestic trade, as laws are the same for the whole country. 3. Different Monetary Systems. Each country has its own monetary system and
the exchange rates for each countryÊs currency are fixed under the rules framed by the International Monetary Fund (IMF) and, therefore, they are more or less fixed. However, in recent years, the exchange rates have been fluctuating and are being determined by demand and supply forces. Some countries operate multiple rates i.e. different rates are applicable to different transactions.
4. Lower Mobility of Factors of Production. Mobility of different factors of production is less between nations than in the country itself. However, with the advent of air transport, the mobility of labour has increased manifold. Similarly, the development of international banking has increased the mobility of capital and labour. In spite of these developments, the mobility of labour and capital is not as much as it is within the country itself.
5. Differences in Market Characteristics. Market characteristics in each segment are different, i.e. demand pattern, channels of distribution, methods of promotion, etc. are quite different from market to market. If we treat each country as a separate market, we can assume different market characteristics there. These differences are accentuated due to the existence of government controls and regulations. However, this is a difference of degree only. Even in one single country, for example India and America, these differences in market patterns may be found from state to state.
6. Differences in Procedure and Documentation. The laws of countries and customs of trade in each country demand different procedures and documentary requirements for the import and export of the goods and services. Traders residing in the territory have to comply with these regulations and customs if they want to import and export goods and services.
As there are differences in legal and monetary systems, in government regulations and controls, in market characteristics, in mobility of factors of production and in procedures, practices and documentation in foreign trade, the two marketing systems – international and domestic – are quite different. As each country has to protect its own interests – political, financial and social – it has to put certain restrictions on foreign trade. Restrictions are also there in domestic marketing, but the procedures, systems and the rules and regulations are applicable equally in all parts of the country and these are well known to the traders concerned.
Direction of Indian Exports
OECD has been a destination of a major portion of IndiaÊs exports. In 1960-61, OECDÊs share in IndiaÊs total exports was around 66 per cent but its share has declined to 44.2 per cent in 2005-06. The share OPEC has increased to 14.8 per cent in 1960-61. Presently, Asian countryÊs share in IndiaÊs exports is around 30 per cent
International Marketing
Notes
8 Self-Instructional Material
During the beginning of planning in the country, UK was the largest importer of Indian exports. Presently, US has become the largest trading partner of India.
Recent Trends
In terms of export destination, US continued to be the principal destination accounting for 16.8 per cent of IndiaÊs total exports in 2005-06 followed by UAE with 8.4 per cent share, China with 6.5 per cent share, Singapore (5.4 per cent) and UK 5 per cent . Regionwise, Asia and ASEAN countries have emerged as major export destinations. During recent years, IndiaÊs exports to Africa, Asia and ASEAN posted strong growth, while exports to Europe and America registered Moderate growth. The direction of IndiaÊs Foreign Trade with various countries over the world in the recent years are as follows:
Exports: (Rs. Crores) Region Export April-March 2004-05 2005-06 West Europe 19501.2 24563 East Europe 178.98 178.98
CIS and BALTIC States 1088.61 1232.42
Russia 631.26 729.89
Asia and Oceania 39994.39 48222.08
Africa 5572 7138.66
America 16812.43 21193.2
Latin American Countries 2160.63 2955.96
Composition of Indian Exports
The importance of agriculture and allied products in IndiaÊs exports has declined over the years and that of manufactured products has increased substantially. During the initial period of planning, jute and tea respectively were the most important export items. But their shares in IndiaÊs export have declined continuously. The export of engineering products rose substantially. In recent years engineering goods have occupied the second or third place in IndiaÊs export earnings. For last three years engineering goods occupied the first place in IndiaÊs exports followed by gems and jewellery.
The importance of export readymade garments has increased in recent years. It occupied second or third place in IndiaÊs total exports.
Recent Trends
With a share of 23 per cent of IndiaÊs merchandise exports, engineering sector is the largest contributor to such exports well ahead of gems & jewellery. There has also been a spurt in Engineering Process Outsourcing (EPO) from giant automotive and aerospace companies like Ford Motor Company, General Motors, Boeing and Airbus. Similarly, a number of semi-conductor manufacturing, and mobile handset vendors have been outsourcing some of their work to India. EPO as grown at a compound annual rate of 37 per cent between 2003 and 2006, and has the potential to reach a level of US$ 10-20 billion in the next five years from the present level of US$3.5 billion. Such EPOs have a beneficial impact on engineering goods exports in the medium
Introduction to International Marketing
Notes term. India, with its low cost labour and talented manpower, has the potential of
being the major hub of engineering goods both for direct exports and development of engineering process outsourcing services.
Gems & jewellery, contributing about 15 per cent of IndiaÊs total commodity exports, is an important item in IndiaÊs export basket. While India has emerged a s one of the key players in gems & jewellery exports on the basis of its traditional strength in craftsmanship and its share in the US$146 billion global business in 2005 was around 11 per cent. of late, there has been a deceleration in export growth in this sector.
Table 1.1: Commodity composition of Exports Commodity Group Percentage share Growth Reate
April-October April-October 2004-05 2005-06 2005-06 2006-07 2004-05 2005-06 2005-06 2006-07
i. Primary Product Agriculture & allied Ores & minerals ii. Manufactured goods
Textile incl. RMG Gems & jewellery Engineering goods chemical & related pdcts. Leather & manufactures Handicrafts (incl. Carpet handmade) iii. Petroleum, crude & products (Incl. Coal)
16.0 10.5 5.5 74.2 14.9 16.5 20.7 12.2 2.9 1.2 8.5 15.4 10.2 5.2 72.0 14.5 15.1 20.7 11.6 2.6 1.2 11.5 14.9 9.9 5.0 73.5 11.0 16.8 20.6 11.3 2.1 1.3 11.0 13.9 9.9 4.0 69.0 9.8 12.9 22.5 10.4 1.8 1.0 16.3 36.2 11.7 136.5 24.9 5.3 30.2 40.2 33.9 12.0 -7.0 91.2 18.9 19.8 17.4 19.6 20.4 12.8 23.4 17.3 11.1 30.2 66.2 38.6 28.9 63.2 30.1 20.2 29.6 36.8 27.9 21.9 37.4 67.7 17.3 25.4 1.1 17.6 11.7 -4.4 37.0 14.8 5.7 -7.3 85.3 Total exports 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 . In US $ terms
Source: DGCI&S, Kolkata
Student Activity
„International marketing has become indispensable in the economic development of a developing country‰. Comment with respect to the Indian situation.
Summary
International Marketing includes activities that direct the flow of goods from one country to the users of another country. According to American Marketing Association, „International marketing is the multinational process of planning and executing the conception, pricing, promotion and distribution of ideal goods and services to create exchanges that satisfy individual and organizational objectives. The Scope of international marketing is to have a borderless world. A central issue in international marketing is how to tailor the international marketing concept to fit a particular product or business.
In terms of export destination, US continued to be the principal destination followed by UAE and China. Regionwise, Asia and ASEAN Countries have emerged as major export destinations in recent years.
International Marketing
Notes
10 Self-Instructional Material
For last few years engineering goods occupied the first place in IndiaÊs exports followed by gems and jewellery. Readymade garments have also emerged as one of the leading export items.
Keywords
International Marketing: Activities that direct the flow of goods and services from
one county to the other.
Competitive Advantage: A total offer, vis-à-vis relevant competition that is more
attractive to customers.
Export Marketing: It is the activity of exporting goods and services to the foreign
countries and related matters.
Review Questions
1. How does international marketing differ from domestic marketing?
2. What are the various points that you would consider before entering the foreign market?
3. Describe the change that have taken place in IndiaÊs composition and direction of trade.
Further Readings
P.K . Vasudeva, International Marketing, Excel Books, New Delhi, 2006 Cateora and Graham, International Marketing, McGraw Hill, 2007
International Marketing Process Notes
Unit 2 International
Marketing
Process
Unit
Structure
• Introduction• International Marketing Tactics • Reasons of Entering Export Marketing • Organisation of an Export Department • Summary
• Keywords • Review Questions • Further Readings
Learning Objectives
At the conclusion of this unit you should be able to:
• Describe the ways, firms enter into international market • Know why firms enter into export market
• Explain the organizational structure of an export department
Introduction
Certain firms start their business as international firms because their mission is to be involved in international business activities. A number of other firms, however, may have begun as domestic firms concentrating on their own domestic market before shifting focus to international markets.
The importance of international marketing is neither understood nor appreciated by consumers though they are carrying out international marketing daily. Government officials, especially bureaucrats, seem to always point a negative aspect of international business. Many of their charges on international marketing are imaginary than real. Hence, it is essential that the benefits of international marketing be explicitly discussed.
International Marketing Tactics
Marketing can be conceived as an integral part of two processes, technical and social. So far as the technical aspect is concerned, international and domestic marketing are identical. Technical aspect includes non-human factors in marketing such as product, price, brand, packaging, warehousing costs, etc. and the basic principles regarding these variables have universal applicability. The social aspect, on the other hand, is unique in any given stratum as it involves human elements, namely, the behavioural pattern of the consumers and the characteristics of the society such as customs, attitudes, values, etc. Thus, international marketing is identical to domestic marketing
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as far as technical aspect is concerned but when it is visualised as a social process, if differs from domestic marketing.
International Market Segmentation
Market segmentation is the process of subdividing a market into distinct subsets of customers that behave in the same way or have similar needs. Each subset may conceivable be chosen as a market target to be reached with a distinctive marketing strategy. The process begins with a basis of segmentation - 'a product specific factor that reflects differences in customers' requirements or responsiveness to marketing variables (possibilities are purchase behaviour, usage, benefits sought, intentions, preference, or loyalty).
International market segmentation is the process of dividing the world market into distinct subsets of customers that behave in the same way or have similar needs, or, as one author put it, it is "the process of identifying specific segments- whether they be country group who are likely to exhibit similar buying behaviour." Interest in international market segmentation dates back several decades. In the late 1960s, one observer suggested that the European market could be divided into three broad categories - international sophisticate, semi sophisticate, and provincial-solely on the basis of consumers' presumed receptivity to a common advertising approach. Another writer suggested that some themes (e.g. the desire to be beautiful, the desire to be healthy and free of pain, the love of mother and child) were universal and could be used in advertising around the globe.
In the 1980s, Professor Theodore Levitt advanced the thesis that consumers in different countries increasingly seek variety and that the same new segments are likely to show up in multiple national markets. Thus, ethnic or regional foods such as Sushi, Greek salad, or Hamburgers might be in demand anywhere in the world. Levitt described this trend as the "pluralisation of consumption" and "segment simultaneity" that provides an opportunity for marketers to pursue a segment on an international scale.
Today, international companies (and the advertising agencies that serve them) are likely to segment world markets according to one or more key criteria: Geography, demographics (including national income and size of population), psychographics (values attitudes, and lifestyles), behavioral characteristics, and benefits sought. It is also possible to cluster different national markets in terms of their environments (e.g. the presence or absence of government regulation in a particular industry) to establish groupings. Another powerful tool for international segmentation is horizontal segmentation by user category.
Geographic Segmentation
Geographic segmentation is dividing the world into geographic subsets. The advantage of geography is proximity: Markets in geographic segments are closer to each other and easier to visit on the same trip or to call on during the same time window. Geographic segmentation also has major limitations: The mere fact that markets are in the same world geographic region does not meant that they are similar. Japan and Vietnam are both in East Asia, but one is a high-income, postindustrial society and the other is an emerging, less developed, preindustrial society. The differences in the markets in these two countries overwhelm their similarities. Simon found in his sample of "hidden champions" that geography was ranked lowest as a basis for market segmentation (see Figure 2.1).
International Marketing Process Notes 0 0.5 1 1.5 2 2.5 3 3.5 4 Region Quality Price Level Product/Technology Custom er Group Application
Source: Hermann Simon, Hidden Champions: Lessons from 500 of the World's Best Unknown Companies
(Boston, MA: Harvard Business School Press, 1996), p.45. Copyright © 1996 by Harvard Business School Publishing Corporation. Reprinted by permission of Harvard Business School Press.
Figure 2.1: Importance of Market Definition Criteria
Demographic Segmentation
Demographic segmentation is based on measurable characteristics of population such as age, gender, income, education, and occupation. A number of demographic trends-aging population, fewer children, more women working outside the home, and higher incomes and living standards - suggest the emergence of international segments.
For most consumer and industrial products, national income is the single most important segmentation variable and indicator of market potential. Annual per capita income varies widely in world markets, from a low of $81 in the Congo to a high of $38.587 in Luxemburg. The World Bank segments countries into high income, upper middle income, lower middle income, and low income.
The U.S. market, with per capita income of $29,953 more than $8.3 trillion in 2000 national income, and a population of more than 275 million people, is enormous. Little wonder, then, that Americans are a favorite target market! Despite having comparable per capita incomes, other industrialized countries are nevertheless quite small in terms of total annual income. In Sweden, for example, per capita gross national product (GNP) is $24,487; however, Sweden's smaller population of 9 million means that annual national income is only about $220 billion. About 73 percent of world GNP is located in the Triad. Thus, by segmenting in terms of a single demographic variable - income - a company could reach the most affluent markets by targeting three regions; the European Union, North America, and Japan.
Many international companies also realize that for products with a low enough price - for example, cigarettes, soft drinks, and some packaged goods - population is a more important segmentation variable than income. Thus, China and India, with respective populations of 1.3 billion and 1.0 billion, might represent attractive target markets. In a country such as China, where per capita GNP is only $930, the marketing challenge is to successfully serve the existing mass market for inexpensive consumer products. Procter & Gamble, Unilever, Kao, Johnson & Johnson, and other packaged goods companies are targeting and developing the China market, lured in part by the possibility that as many as 100 million Chinese customers are affluent enough to spend say, 14 cents for a single use pouch of shampoo.
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Segments decisions can be complicated by the fact that the national income figures such as those cited previously for China and India are averages. There are also large fast-growing, high-income segments in both of these countries. In India, for example, 100 million people can be classified as "upper middle class", with average incomes of more than $1,400. Pinning down a demographic segment may require additional information; India's middle class has been estimated to be as low as a few million and as high as 250 million to 300 million people. If middle class is defined as "persons who own a refrigerator," the figure would be 30 million people. If television ownership were used as a benchmark, the middle class would be 100 million to 125 million people. The important lesson for international marketers is to beware of the misleading effect of averages, which distort the true market conditions in emerging markets.
Note also that the average income figures quoted here do not reflect the standard of living in these countries. In order to really understand the standard of living in a country, it is necessary to determine the purchasing power of the local currency. In low income countries, the actual purchasing power of the local currency is much higher than that implied by exchange values. In India, for example, the author's colleague recently returned from a trip during which he received a slight cut on his forehead from a taxi trunk lid. He decided to visit a doctor to get a tetanus shot and, because he knew that malaria was a hazard in India, he requested a prescription and a one-month supply of malaria pills. He did this, and the bill from the doctor for the shot, the pills, and the prescription was 30 rupees or US $1.00.
Age is another useful demographic variable. One international segment based on demographics is international teenagers - young people between the age of 12 and 19. Teens, by virtue of their interest in fashion, music, and a youthful lifestyle, exhibit consumption behaviour that is remarkably consistent across borders. Young consumers may not yet have conformed to cultural norms - indeed, they may be rebelling against them. This fact, combined with shared universal needs, desires, and fantasies (for name brands, novelty, entertainment, and trendy and image-oriented products), make it possible to reach the international teen segment with a unified marketing program. This segment is attractive both in terms of its size (about 1.3 billion) and its multibillion-dollar purchasing power, Coco-Cola, Benetton, Swatch, and Sony are some of the companies pursuing the international teenage segment. The international telecommunications revolution is a critical driving force behind the emergence of this segment. International media such as MTV are perfect vehicles for reaching this segment. Satellites such as AsiaSatI are beaming Western programming and commercials to millions of viewers in China, India, and other countries.
Another international segment is the so-called elite: older, more affluent consumers who are well traveled and have the money to spend on prestigious products with an image of exclusivity. This segment's needs and wants are spread over various product categories: durable goods (luxury automobiles); nondurables (upscale beverages such as rare wines and champagne); and financial services (American Express gold and platinum cards). Technological change in telecommunications makes it easier to reach the international elite segment. International telemarketing is a viable option today as AT&T International 800 services are available in more than 40 countries. Increased reliance on catalog marketing by upscale retailers such as Harrods, Laura Ashley, and Ferragamo has also yielded impressive results.
Psychographic Segmentation
Psychographic segmentation involves grouping people in terms of their attitudes, values, and lifestyles. Data are obtained from questionnaires that require respondents to indicate the extent to which they agree or disagree with a series of statements. In the United States, psychographics is primarily associated with SRI International, a
International Marketing Process
Notes market research organisation whose original VALS and updated VALS 2 analyses of
U.S. consumers are widely known.
Porsche AG, the German sports-car maker, turned to psychographics after watching worldwide sales decline from 50,000 units in 1986 to about 14,000 in 1993. Its U.S. subsidiary, Porsche Cars North America, already had a clear demographic profile of its customers: 40+-year-old male college graduates whose annual income exceeded $200,000. A psychographic study showed that, demographics aside, Porsche buyers could be divided into five distinct categories (see Table 2.1). Top Guns, for example, buy Porsches and expect to be noticed; for Proud Patrons and Fantasists, on the other hand, such conspicuous consumption is irrelevant. Porsche will use the profiles to develop advertising tailored to each type. Notes Richard Ford, Porsche vice president of sales and marketing, "We were selling to people whose profiles were diametrically opposed. You wouldn't want to tell an elitist how good he looks in the car or how fast be cold go." Results have been promising; Porsche's U.S. sales improved nearly 50 percent in 1994."
One early application of psychographics outside the United States focused on value orientations of consumers in the United Kingdom, France, and Germany. Although the study was limited in scope, the researcher concluded that "the underlying values structures in each country appeared to bear sufficient similarity to warrant a common overall communications strategy." SRI International has recently conducted psychographic analyses of the Japanese market; Broader-scope studies have been undertaken by several international advertising agencies, including Backer, Spielvogel & Bat Worldwide (BSB), Darcy Massius Benton & Bowles (DMBB), and Young & Rubican (Y & R). These analyses offer a detailed understanding of various segments, including the international teenager and international elite discussed earlier.
Table 2.1: Psychographic Profiles of Porsche's American Customers
Category All Owners Description
Top Guns 27% Driven and ambitious: Care about power and control; expect
to be noticed.
Elitists 24% Old money; a car-even an expensive one - is just a car, not An extension of one's personality.
Proud Patrons 23% Ownership is what counts; a car is a trophy, a reward for working hard; being noticed doesn't matter.
Bon Vivants 17% Cosmopolitan jet setters and thrill seekers; car heightens
Excitement.
Fantasists 9% Car represents a form of escape; don't care about Impressing others; may even feel guilty about owning car.
Behavioural Segmentation
Behavioural segmentation focuses on whether people buy and use a product, as well as how often and how much they use it. Consumers can be categorized in terms of usage rates - for example, heavy, medium, light, and nonuser. Consumers can also be segmented according to user status: potential users, nonusers, ex-users, regulars, first-timers, and users of competitors' products. Although bottled water may be considered a luxury product in some high-income markets, Nestle is marketing bottled water in Pakistan where there is a huge market of nonusers who, despite their low income, are willing to pay 18 rupees a bottle for clean water because of the widespread presence
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of arsenic poisoning in well water and the pollution of surface water. Tobacco companies are targeting China because the Chinese are heavy smokers.
Financial institutions have to consider many different pieces of information regarding consumer behaviour toward saving and spending money. Japan has the highest number of cash dispensers, 1,115 per 1 million population, followed by Switzerland, Canada, and the United States where the average is slightly higher than 600. The average dollar amount withdrawn also varies considerably. In Japan, the average withdrawal is $289. This is followed by Switzerland at $187 and Italy at $185. The United States is far down the list with $68 as the average withdrawal. Japanese people tend to carry around a lot more cash than people in other countries.
Benefit Segmentation
International benefit segmentation focuses on the numerator of the value equation - the B in V=B/P. This approach can achieve excellent results by virtue of marketer's superior understanding of the problem a product solves or the benefit it offers, regardless of geography. For example, Nestle discovered that cat owners' attitudes toward feeding their pets are the same everywhere. In response, a Pan-European campaign was created for Friskies dry cat food. The appeal was that dry cat food better suits a cat's universally recognised independent nature.
Vertical Versus Horizontal Segmentation
Vertical segmentation is based on product category or modality and price points. For example, in medical imaging there is X-ray, computed axial tomography (CAT) scan, magnetic resonance imaging (MRI), and so on. Each modality has its own price points. These price points were the traditional way of segmenting the medical imaging market. One company decided to take a different approach and segment the same market by the health care delivery system: National research and teaching hospitals, government hospitals, and so on. It then rolled out a campaign that was regional, national, and finally International, which was tailored for each different types of health care delivery. This horizontal segmentation approach worked as well in markets outside the home-country launch market as it did in the home country.
Marketing Process
International marketing should be considered a special case of domestic marketing. It has earlier been explained that there is very little difference between domestic and international marketing. Only thing is that the word multinational has been added in the international marketing process. Otherwise, the marketing mix is the same for both. With improvements in information technology, the international markets have become easily accessible and the whole world has become a small global village. Transnational Corporations (TNCs) are incorporated or unincorporated enterprises comprising parent enterprises and their foreign affiliates. A parent enterprise is defined as an enterprise that controls assets of other entities in countries other than its home country, usually by owing a certain equity capital stake. An equity capital stake of 10% or more of the ordinary shares or voting power for an incorporated enterprise, or its equivalent for an unincorporated enterprise, is normally considered as the threshold for the control of assets. A foreign affiliate is an incorporated or unincorporated enterprise in which an investor, who is a resident in another economy, owns a stake that permits a lasting interest in the management of that enterprise (an equity stake of 10% for an incorporated enterprise, or its equivalent for an unincorporated enterprise). In WIR, subsidiary enterprises, associate enterprises and branches - defined below - are all referred to as foreign affiliate or affiliates.
International Marketing Process
Notes A subsidiary is an incorporated enterprise in the host country in which
another entity directly owns more than a half of the shareholder's voting power, and has the right to appoint or remove a majority of the members of the administrative, management or supervisory body.
An associate is an incorporated enterprise in the host country in which an investor owns a total of at least 10%, but not more than half, of the shareholders' voting power.
A branch is a wholly or jointly owned unincorporated enterprise in the host country which is one of the following: (i) a permanent establishment or office of the foreign investor; (ii) an unincorporated partnership or joint venture between the foreign direct investor and one or more third parties; (iii) land, structures (except structures owned by government entities), and/or immovable equipment and objects directly owned by a foreign resident; or (iv) mobile equipment (such as ships, aircraft, gas or oil-drilling rigs) operating within a country, other than that of the foreign investor, for at least one year.
Global Marketing
Companies sometimes assume that what works in their home country will work in another country. They take the same product, same advertising campaign, even the same brand names and packaging, and with virtually no chance to try to market it the same way in another country.
The result in many cases is failure. Why? Well, the assumption that one approach works everywhere fails to consider differences that exist between countries and cultures. While many companies who sell internationally are successful following a standardized marketing strategy it is a mistake to assume this approach will work without sufficient research that addresses this question.
Possibly the most challenging concept in marketing deals with understanding why buyers do what they do (or don't do). But such knowledge is critical for marketers since having a strong understanding of buyer behaviour will help shed light on what is important to the customer and also suggest the important influences on customer decision-making. Using this information, marketers can create marketing programs that they believe will be of interest to customers.
The Global Segment
The global segment includes relevant new global markets and existing ones that are changing, important international political events, and critical cultural and institutional characteristics of relevant global markets. Although the previous segments should be analyzed in terms of their domestic and global implications, some additional specific global factors should be analyzed as well.
Firms must also attempt to identify critical new global markets and/or those that are changing. It is clear that many global markets are fast becoming border-less and integrated. For example, firms may examine emerging markets such as those in South American countries or markets in newly industrialized countries such as in Asia (e.g., South Korea, Taiwan) for new opportunities. They should also be cognizant of the potential threats from these countries.
Newly industrialized countries, such as South Korea, have significant buying power but also have globally competitive firms. Based on significance support and economic planning from the government, the predominant goal of major South Korean firms is growth.
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Thus, many South Korean firms place less emphasis on earning net profits and more on attaining major growth goals through their strategic actions. An example of this is shown by Samsung's new venture into passenger-car production, partially because of executives' concerns at being ranked number two in size to Hyundai.
Although Samsung is predicted to invest approximately up to $150 million in the development of a 100 seat jetliner, $3 billion to build semiconductor manufacturing plants in North America, Europe, and Southeast Asia, and $2 to $3 billion to establish a hypermedia city of offices, shops, entertainment centers, and housing in downtown Seoul by 2000. Recently, Samsung invested approximately $9.92 billion in expansion opportunities.
Firms must also have a reasonable understanding of the different cultural and institutional attributes of global markets in which they operate or hope to operate. For example, a firms operating in South Korea must understand the value placed on hierarchical order, formality, self-control, and on duty rather than rights.
Furthermore, Korean ideology places emphasis on communitarians, a characteristic if many Asian country, Korea approach differs from that of Japan and China with its focus on Inhwa or harmony.
Inhwa is based on a respect of hierarchical relationships and obedience to authority. Alternatively, the approach in China is focused on Guanxi or personal relationships and in Japan on Wa or group harmony and social cohesion. The institutional context of Korea suggests a major emphasis on centralized planning by the government. The emphasis placed on growth by many South Korean firms is the result of a government policy to promote economic growth in South Korea.
The cultural and institutional contexts in which firms must operate in global markets can be critical. For example, in India there is a current nationalist campaign led to the recent closing of a statement was the KFC outlet was closed for health reasons after an inspection, executives of several U.S. food companies blamed political posturing related to an upcoming election.
Also, those who oppose KFC's opening are often those who lobby against meat eating. KFC was one of the first major fast food giants to open a facility in India. Furthermore, it has been quite successful in Asia with more than 2,200 restaurants operating in that region of the world. Still, even a firm that has been as successful as KFC must carefully and thoroughly analyze the institutional and cultural environments of its global markets.
The takeover of Hong Kong, China offers potential opportunities but also threats to a number of firms with domestic headquarters outside its borders. Even more so with Hong Kong now a part of China, its growing economic prowess makes its firms potentially significant competitors, particularly in labour-intensive industries. As a result, firms operating in such industries worldwide must view the development of Chinese entrepreneurial operations as an environmental threat.
P&G owes its success to being an early mover in China, and its aggressiveness has paid dividends. It has been successful even though its prices are sometimes 300 percent greater than local brands. The development of the Chinese economy is one that must be analyzed carefully by firms operating in many industries regardless of their home country.
A key objective of analyzing the general environment is identification of anticipated significant changes and trends among external elements. With a focus on the future, the analysis of the general environment allows firms to identify opportunities and threats. Also critical to a firm's future operations in an understanding of its industry environment and its competitors, which are considered next.
International Marketing Process
Notes
Management Orientations
The form and substance of a companyÊs response to global market opportunities depend greatly on the managementÊs assumptions or beliefs – both conscious and unconscious – about the nature of the world. The worldview of a companyÊs personnel can be described as ethnocentric, polycentric, regiocentric and geocentric. Management of a company with a prevailing ethnocentric orientation may consciously make a decision to move in the direction of geocentricism. The orientations · collectively known as the EPRG framework – are summarised in Figure 2.2.
Table 2.2: The Largest Corporations by Market Value (US $ Millions) Rank
1997 1996 Company (Country) Market Value
1 1 General Electric (US) $214,454
2 2 Royal Dutch/Shell
( / )
177,537
3 3 Coca-Cola (US) 167,334
4 4 Nippon Telegraph & Telephone
( ) 152,784 5 5 Exxon (US) 152,706 6 12 Microsoft (US) 151,438 7 10 Merck (US) 124,936 8 14 Intel (US) 116,144 9 7 Toyota Motor ( ) 111,924
10 8 Philip Morris (US) 107,778
11 34/52 Novartis (Switzerland) 99,031
12 15 Procter & Gamble (US) 95,677
13 6 Bank of Tokyo-Mitsubishi
( )
93,712 14 16 International Business Machines
( S)
89,570
15 13 Johnson & Johnson (US) 85,740
16 11 Roche-Holding
(S )
85,403
17 31 Bristol-Myers Squibb (US) 80,989
18 29 Pfizer (US) 77,152
19 19 Wal-Mart Stores (US) 76,603
20 25 Glaxo Wellcome (UK) 73,574
21 26 DuPont (US) 70,983
22 22 British Petroleum (UK) 70,710
23 30 American International Group ( S)
70,139
24 - Deutsche Telekom (Germany) 66,041
25 59 Eli Lilly (US) 60,710
Source: „The WorldÊs 100 Largest Public Companies,‰ The Wall Street Journal, 18 September 1997, p. R25.
Data reflects market value on December 31,1996.
Ethnocentric
A person who assumes that his or her home country is superior compared to the rest of the world is said to have an ethnocentric orientation. The personnel of such a company see only similarities in markets and assume that the products and practices that succeed in the home country will, due to their demonstrated superiority, be successful anywhere. At some companies, the ethnocentric orientation means that opportunities outside the home country are ignored. Such companies are sometimes called domestic companies. Ethnocentric companies that do conduct business outside the home country can be described as international companies; they adhere to the notion that the products that succeed in the home country are superior and, therefore, can be sold everywhere without adaptation.
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In the ethnocentric international company, foreign operations are viewed as being secondary or subordinate to domestic ones. An ethnocentric company operates under the assumption that „tried and true‰ headquarters knowledge and organisational capabilities can be applied in other parts of the world. This can sometimes work to a companyÊs advantage. For a manufacturing firm, ethnocentrism means that foreign markets are viewed as a means of disposing off surplus domestic production. Plans for overseas markets are developed utilising policies and procedures identical to those employed at home. No systematic marketing research is conducted outside the home country, and no major modifications are made to products. Even if consumer needs or wants, in international markets, differ from those in the home country, those differences are ignored at headquarters.
Ethnocentricity Home country is superior; sees similarities in foreign countries Polycentric
Each host country is unique; sees differences in foreign countries
Regiocentric
Sees similarities and differences in a world region; is ethnocentric or polycentric in its view of the rest of the world.
Geocentric
World view; sees similarities and differences in home and host countries
Figure 2.2: Orientations of Management and Companies
NissanÊs ethnocentric orientation was quite apparent during its first few years of exporting cars and trucks to the United States. Designed for mild Japanese winters, the vehicles were difficult to start in many parts of the United States during the cold winter months. In northern Japan, many car owners would put blankets over the hoods of their cars. TokyoÊs assumption was that Americans would do the same thing. Until the 1980s, Eli Lilly and Company operated as an ethnocentric company in which activity outside the United States was tightly controlled by headquarters and focused on selling products originally developed for the US market.
Fifty years ago, most business enterprises · and especially those located in a large country like the United States · could operate quite successfully with an ethnocentric orientation. Today, however, ethnocentrism is one of the biggest internal threats a company faces.
Polycentric
The polycentric orientation is the opposite of ethnocentrism. The term polycentric describes managementÊs often unconscious belief or assumption that each country in which a company does business is unique. This assumption lays the groundwork for each subsidiary to develop its own unique business and marketing strategies in order to succeed; the term multinational company is often used to describe such a structure. Until recently, CiticorpÊs executives offered this description of the company: „We were like a medieval state. There was the king and his court and they were in charge, right? No. It was the land barons who were in charge. The king and his court might declare this or that, but the land barons went and did their thing.‰ Realising that the financial services industry is globalising, CEO John Reed is attempting to achieve a
