International Trade

EXPORT

PROMOTION

INTERNATIONAL TRADE

UNIT ONE:

Scope of International Marketing – International Marketing Vs Domestic

Marketing – Motivation to Export – Special difficulties in International

Marketing – International Marketing Environment – Features of Globalization –

Essential Conditions – Pros and Cons.

UNIT TWO:

Marketing Selection and Entry Decision – Overseas Marketing Research –

Competitive Intelligence – Standard Clauses of Sales Contract – International

Trade policies – Tariffs, Subsidies and Quotas.

UNIT THREE:

Counter Trade – World Commodity Markets – World Trade in Services- GATT

– WTO – Institutional Infrastructure for Export promotion in India – EXIM Bank

– ECGC.

UNIT FOUR:

Procedure for execution of Export order – Export of Goods – Export by Air and

Sea – Export Documents (Quality control and Preshipment Inspection) –

Marine Insurance.

UNIT FIVE;

Terms of Payments – Letter of Credit types – process – advantages –

overview of EXIM Policy. Foreign Exchange – Exchange Rate Determination –

Exchange Rate System – Fixed and Flexible Exchange – Advantages and Dis

advantages.

REFERENCE BOOKS:

INTERNATIONAL BUSINESS ENVIRONMENT – FRANCIS CHERUNILAM INTERNATIONAL BUSINESS – P. SUBBA RAO

EXPORT MARKETING – RATHORE

INTERNATIONAL MARKETING MANAGEMENT – RL. VARSHNEY AND MAHESWARI.

INTERNATIONAL TRADE

UNIT ONE

DEFINITION OF INTERNATIONAL MARKETING:

Kotler defines marketing as 'human activity directed at satisfying needs and wants through exchange process.' International marketing can be defined as "marketing carried on across national boundaries".

International marketing has also been defined as ' the performance of business activities that direct the flow of goods and services to consumers or users in more than in one nation'. It is different from domestic marketing in as much as the exchange takes place beyond the frontiers, thereby involving different markets and consumers who might have different needs, wants and behavioral attributes.

Scope of International Marketing:

Though international marketing is in essence export marketing, it has a broader connotation in marketing literature. It also means entry into international markets by:

 Opening a branch/ subsidiary abroad for processing, packaging, assembly or even complete manufacturing through direct investment.

 Negotiating licensing/ franching arrangements whereby foreign enterprises are granted the right to use the exporting company's know-how's, viz., patents, processes or trademarks with or without financial investment.

 Establishing joint ventures in foreign countries for manufacturing and or marketing and  Offering consultancy services and undertaking turnkey projects broad.

Depending upon the degree of firm’s involvement, there may be several variations of these arrangements.

International Marketing vs. Domestic Marketing:

There are a number of similarities and differences between international and domestic marketing.

1. Both in domestic marketing and international marketing success depend upon satisfying the basic requirements of consumers. This necessarily involves finding out what the buyers want and meeting their needs accordingly.

2. It is necessary to build goodwill both in the domestic market and international market. If a firm is able to develop goodwill of consumers or customers, its tasks will be simpler than the one, which has not been able to do so.

3. Research and development for product development and modification is necessary both for international marketing and domestic marketing.

However, there are some salient features of difference between international marketing and domestic marketing. They are as follows:

1. Sovereign Political Entities: Each country has is a sovereign political entity and goods and services

had to move across national boundaries. S a result, they may have to face a number of restrictions. This my fall in any of the following categories;

Tariffs and customs duties Quantitative restrictions Exchange controls

Local Taxes.

2. Different Legal Systems: Each country has its own legal system and it differs from country to country.

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. In the case of domestic marketing the buyers are aware of the legal systems in their country.

3. Cultural Differences: In domestic marketing there is only one nation, same language and culture

where as at international marketing many languages and different cultures.

4. Different Monetary Systems: Each country has its own monetary system and the exchange value of

each country's currency is different from that of the other. The exchange rates between currencies fluctuate every day. In case of domestic marketing there is only one currency prevailing in the country.

5. Differences in the Marketing infrastructure: The availability of the marketing facilities available in

different countries may vary widely. For example, an advertisement medium very effective in one market may not be available or may be under developed in another market.

6. Trade Restrictions: Trade restrictions, particularly import controls are a very important problem

7. Transport Cost: In International trade, transport cost is a major marketing expense where as in

domestic trade transport cost influences only to certain extent.

8. Procedures and Documentations: Each country has its own procedures and documentary requirements

and traders have to comply with these regulations if they want to export or import goods from foreign countries.

9. Degree of Risk: There is a greater degree of risk involved in international marketing than in domestic

marketing due to

 Large volume of transactions  Higher value of transaction  Longer time period

 More time of transit  Longer credit period

 Comparatively less knowledge  Exchange fluctuations.

10. Stability in Business Environment: In domestic marketing there is relatively stable business

environment. At international marketing multiple environments, many of which are likely instable.

TRANSITION FROM DOMESTIC TO INTERNATIONAL MARKET

The Decision to enter foreign markets must be based on strong economic factors. Temperamental decision to export is transient in character and totally unsuitable for export marketing. Success in exporting requires total involvement and determination, which can come only out of basic economic necessity as perceived by the corporate unit. They grouped as Pre-export behaviour and Motivation to Export.

1. Pre-Export Behaviour:

Every firm at some point of time starts as a non-exporter. The point to be studied is what made some of these firms get involved in export business. This must give a clue to the question as to whether a present non-exporter will become an exporter and if so why and when. The factors, which influence a non-exporting firm's decision to go in for export business, can be classified under the following categories:

(a) Firm characteristics: Firm characteristics include product characteristics; size and growth of the domestic market, optimum scale of production, and potential export markets. If the firm is manufacturing a product, which is internationally marketable, and the present and future market prospects in the domestic market are not much encouraging, the motivation of the firm to get involved in export business will be considerable.

(b) Perceived External Export Stimuli: This will include fortuitous order, market opportunity and government's stimulation in the form of incentives and assistance.

(c) Perceived Internal Export Stimuli: This refer to the management's expectations about the effects of exports on the firm's business. This covers the level of capacity utilization, the higher level of profits and the growth objectives of the firm.

(d) Level of Organizational commitment: The decision makers must agree on the level of commitment. This is crucial because it will determine whether adequate resources will be made available for embarking on international marketing. Resources will be required for hiring new staff specialized in international marketing, hiring of consultants for carrying out overseas market potential studies etc.,

2.Motivation to Export: (Economic reasons)

There are some basic economic reasons which might influence a firm decision regarding export business: These are under:

 Relative Profitability: The rate of profit to be earned from export business may be higher than the corresponding rate on the domestic sales.

 Insufficiency of Domestic Demand: The level of domestic demand may be insufficient for utilizing the installed capacity in full. Export business offers a suitable mechanism for utilizing the unused capacity. This will reduce costs and improve the overall profitability of the firm. Recession in the domestic market often serves as a stimulus to export ventures.  Reducing business risks: When a firm is selling in a number of markets, the downward

fluctuations in sales in one market, which may be the domestic market, may be fully or partly counter balanced by a rise in the sales in other markets. Secondly, geographic diversification also provides the momentum to growth in as much as a single or few markets will have only limited absortive capacity.

 Legal restrictions: Governments may impose certain restrictions on further growth and capacity expansion of some firms within the domestic market in order to achieve certain

social objectives. But there may not be any such restrictions, if the additional capacity is utilized for exports. Then the firm may be tempted to export its products abroad.

 Obtaining imported inputs: Nations have to pay for imports of materials, technology or processes not available within their national boundaries. Governments, therefore, may be compelled to impose export obligations on the firms, especially those in need of imported inputs. In other words, in order to import, the firms will have to export.

 Social responsibility: Sometimes businessmen themselves feel a sense of responsibility and contribute towards the national exchequer by increasing their exports. They also build up their image in domestic marketing by their export activities. They also look at exporting to attain status and prestige.

 Increased productivity: Increased productivity is necessary for ultimate survival of a firm. This will lead the firm to increase production and then move to export business. To meet the increased costs of Research and Development, larger markets become a necessity and exports become unavoidable.

 Technological improvement: Entry to export market may enable a firm to pick up new produce ideas and to add to product line, improve its product, reduce costs and discover new applications for its product.

SPECIAL DIFFICULTIES IN INTERNATIONAL MARKETING

There are a number of difficulties in undertaking international business. Some of them the special difficulties are as follows:

 Quantitative restrictions to protect local industries.

 Government regulations restricting imports by way of import licenses, etc.  Exchange controls.

 Local taxes like sales taxes on imported goods.

 Different monetary systems like Dollars in USA, Sterling in UK, YEN in Japan.  Different legal system regarding import and export of goods.

 Differences in procedures and documentation.  Differences in market characteristics.

 Lower mobility of factors of production.  Cultural dimensions of international marketing.  Economic Unions.

 Trade barriers - Tariff and non tariff barriers.  Lack of export incentives to exporters.

 Complications of Exporting.

 Paper work is more in export business.

 Competition from local exporters, competition from exporters from other countries and competition from producers of goods in the importing countries.

 Shipping and freight problems.

 Non-availability of latest information about the market conditions, etc.

INTERNATIONAL MARKETING ENVIRONMENT

It is necessary to know the concepts of "controllable" and "uncontrollable factors" in international marketing. There are some factors which can be controlled by the management may not be able to haves any control over them. Now let us discuss these factors as follows:

Controllable Factors:

Control will have to be defined with reference to a company's management. The company is in a position to control and design marketing mix elements i.e. product, price, export to any place by choosing any distribution channels and follow any promotional methods.

Uncontrollable Factors:

There are some factors on which the company can not have any control. Such uncontrollable factors in international marketing are described here.

SOCIAL FACTORS:

The social/cultural environment of a nation/market may profoundly influence business in different ways and dimensions. The attitude of workers, lab our-management relations, government-business relations, entrepreneurial nature and attitude, political philosophies and systems, legal environment, business ethics, governance, government policies etc. could have a social influence of them Management may undergo a social transformation, for example , a number of family owned business groups in India have ushered in professional management. The need for good corporate governance is getting more and more recognition.

In short, the type of products to be manufactured and marketed, the marketing strategies to be employed, the way the business should be organized and governed, the values and norms it should adhere to, are all influenced by social structure and the culture of a society. The tastes and preferences, purpose of consumption, method of consumption, occasion of consumption, quantity

of consumption, values associated with consumption, etc of a product may show wide variations between cultures.

Because of cultural differences, a promotion strategy that is very effective in one market may utterly fail in another, or may even result in social or legal reprisals. Etiquettes differ from culture to culture. The ways of meeting and greeting people, expression of appreciation or disapproval, methods of showing respect, ways of conducting meetings and functions, table manners etc. vary quite widely between cultures. So familiarity with cultural is necessary for success.

The other social factors which influences the international marketing inclusive of

 National legal regime

 Political and Financial system  Marketing infrastructure  Language, Religion and Climate

POLITICAL and GOVERNMENT FACTORS:

The following political and government factors must be taken into consideration by an international marketer while planning to entry any market abroad:

 Consistency of government policies.

 The nature of political relationship between the target country and exporter's country.  The presence or absence of controls on foreign exchange, imports, prices,etc., in the

target country.

 Legal restrictions on foreign investments and the patent ability of the product in the target market.

The company has no control over all the above factors mentioned and hence the exporter has to adjust him to these factors.

ECONOMIC FACTORS:

I. Commercial policy variables e.g. tariffs, quotas, licensing or any other non-tariff barriers.

II. Currency restrictions - depending on the policy of the central bank of the country. III. Internal demand management policies and instruments followed by the country. The exporters have to be thorough with the above policies and adjust them accordingly.

DEMOGRAPHIC FACTORS:

Demographic factors such as size of the population, population growth rates, age composition, ethic composition, family size, family life cycle, income levels, have very significant implications for business. The demographic environment differs from country to country and from place to place within the same country or region. Further, it may change significantly over time. Because of the diversity of the demographic environment companies are sometimes compelled to adopt different strategies within the same market

COMPETITON:

Competition will also influence the international marketing. As like domestic marketing the trader always aware of his competitors. But the quantum of competitors is more in international marketing than domestic marketing. Normally by the following ways the international merchant will face the competitors.

 Competition vis-à-vis producers in the importing country.  Competition vis-à-vis exporter from the competing countries.  Competition vis-à-vis other exporters from one's own country.

The exporters have no control over these types of competition and hence they have to compete with all the three types of competitions.

LOGISTICS:

Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements. The concept of logistics play vital role in international marketing by the ways sense.

 The merchant has to seek the availability of required type of transport such as sea, air freezer space, etc.

 Cost of transportation.

Unless the exporters are in a position to meet the above requirements of transport facilities and costs they cannot export their products to the target markets.

RISKS:

There is a greater degree of risk involved in international marketing than in domestic marketing due to

 Large volume of transactions  Higher value of transaction  Longer time period

 More time of transit  Longer credit period

 Comparatively less knowledge  Exchange fluctuations.

 Political risks  Commercial risks  Act of nature  Act of enemies

The exporters have to face these risks in the international markets. These risks can be covered by taking insurance policies from the ECGC and General Insurance.

CONCEPT OF GLOBALIZATION

"Globalization means the production and distribution of products and services of a homogeneous type and quality on a world wide basis”. Globalization also means globalizing the marketing, production, investment, technology and other activities. How do these happen? Globalization does not take place in singly instance. It takes place gradually through and evolutionary approach.

FEATURES OF GLOBALIZATION

 Operating and planning to expand business throughout the world.  Erasing the differences between domestic market and foreign market.  Buying and selling goods and services from/to any country in the world.

 Establishing manufacturing and distribution facilities in any part of the world based on the feasibility and viability rather than national consideration.

 Product planning and development are based on market consideration of the entire world.  Sourcing of factors of production and inputs like raw materials, machinery, finance,

 Global orientation in strategies, organizational structure, organizational culture and managerial expertise.

 Setting the mind and attitude to view the entire globe as a single market.

ESSENTIAL CONDITIONS FOR GLOBLAIZATION BUSINESS FREEDOM:

There should not be unnecessary government restrictions which come in the way of globalization, like import restriction restrictions on sourcing finance or other factors fro broad foreign investments etc.

FACILITIES:

The extent to which an enterprise can develop globally from home country base depends on the facilities available like the infrastructural facilities.

GOVERNMENT SUPPORT:

Although unnecessary government interference is a hindrance to globalization, government support can encourage globalization. Government support may take the form of policy and procedural reforms, development of common facilities like infrastructural facilities, R and D support, financial market reforms and so on.

RESOURCES:

Resources is one of the important factors which often decides the ability of a firm to globalize. Resourceful companies may find it easier to thrust ahead in the global market.

COMPETITIVENESS:

The competitive advantage of the company is a very important determinant of success in global business. A firm may derive competitive advantage from any one or more of the factors such as low costs and price, product quality product, product differentiation, technological superiority, after sales service, marketing strength etc.

ORIENTATION:

A global orientation on the part of the business firms and suitable globalization strategies are essential for globalization.

PROS AND CONS OF GLOBALIZATION ADVANTAGES:

Free Flow of Capital: Globalization helps for free the flow of capital from one country to the other. It helps the investors to get a fair interest rate or dividend and the global companies to acquire finance at lower cost of capital. Further Globalization increases capital flows from surplus countries to the needy countries, which in turn increases the global investment.

Free flow of Technology: Globalization helps for the flow of technology from advanced countries to the developing countries. It helps the developing countries to implement new technology.

Increase in Industrialization: Free flow of capital along with the technology enables the developing countries to boost-up industrialization in their countries.

Spread up Production facilities throughout the Globe: Globalization of production, leads to spread up manufacturing facilities in all the global countries depending upon the locational various favorable production factors.

Balanced development of world economies: With the flow of capital, technology and locating manufacturing facilities in developing countries, the developing countries industrialize their economies. This in turn leads to the balanced development of all the countries.

Increase in Production and Consumption: Increased industrialization in the globe leads increase in production and thus results in balanced industrial development along with increase in income which enhances the levels of consumption.

Lower prices with high quality: Indian consumers have already been getting the products of high quality at lower prices. Increased industrialization spread up of technology, increased production and consumption level enable the companies to produce and sell the products of high quality t lower prices.

Cultural exchange and demand for variety of products: Globalization reduces the physical distance among the countries and enables people of different countries to acquire the culture of other countries. The cultural exchange, in turn makes the people to demand for a variety of products

which are being consumed in other countries. For example, demand for American Pizza in India and Masala dosa and Hyderabad Briyani and Indian styled garments in USA and Europe.

Increase in Employment and Income: Globalization results in shift of manufacturing facilities to the low wage developing countries. As such, it reduces job opportunities in advanced countries and alternatively creates job opportunities in developing countries.

Higher Standards of Living: Further, globalization reduces prices and thereby enhances consumption and living standards of people in all the countries of the world.

Balanced Human Development: Increase in industrialization on balanced lines in the globe, improves the skills of the people of developing countries. Further, the increased economic development of the country enables the government to provide welfare facilities like hospitals educational institutes etc. which in turn contributes for the balanced human development across the globe.

Increase in the Welfare and Prosperity: The balanced industrial, social and economic development of the world nations consequent upon the globalization along with the welfare measures provided by the governments lead to increase in the welfare of the people and prosperity of the world countries.

DISADVANTAGES:

Globalization kills Domestic Business: The MNCs from advanced countries utilize the opportunities created by globalization, establish manufacturing and marketing facilities in developing countries. The domestic business of the developing countries fails to compete with the MNCs on the technology and quality front.

Exploits Human Resources: The foreign companies which are located in developing countries invariably violate the labor and environmental laws in order to have the cost advantage. These companies employ child labor, pollute environment, and ignore workplace safety and health issues. However, it is viewed that, globalization enables the developing countries to become rich and enforce the labor and environmental regulations.

Leads to Unemployment and Underemployment:

MNCs produce the products in their home countries or in some other foreign countries and market in developing countries. Therefore, the domestic country’s operations are to be reduced. This in term leads to reduction in employment opportunities particularly in less developed countries.

Decline in demand for domestic products: Selling of high quality foreign products at low prices by MNCs reduces the demand for the domestic products.

Decline in Income: Unemployment and decline in demand for domestic products of both industrial agricultural goods leads to reduction in income of the people.

Widening gap between rich and poor: Globalization not only results in decline in income but widens the gap between rich and poor. This is because, competent people, people with innovative skills, efficiency etc., get abnormal income, while other average people have to strive for even a minimum wage. This results in widening the gap between have and the have-nots,

Transfer of natural resources: MNCs establish their manufacturing facilities in developing countries exploit their natural resources and sell the products in other countries. Through these means, the natural resources of developing countries are transferred to other countries.

UNIT TWO

INTERNATIONAL MARKETING DECISION

In developing a foreign operation, the marketer has to take four decisions. These are:  Marketing Decision

 Marketing selection decision  Market entry decision  Marketing Mix Decision Marketing Decision:

All the business involves risk. One of the risk element is sudden fall in demand. In such circumstances the firm which concentrating only domestic market will find thread about its survival. At the same time if the company is doing international trade they can concentrate for international market to balance the fall in demand in domestic market.

When a firm thinks of entering into an international market, it should develop a marketing strategy to be used for both domestic and foreign business. Before taking the marketing decision of entering into international market it should satisfy itself for the following questions.

1. Are there any opportunity open to firm and its product in abroad?.

2. Whether it can meet the demand in domestic as well as in international market? 3. Whether it can adapt the product according to the needs of the consumers?

4. Whether it can formulate and implement a policy and regulations pertaining to exports and imports?

Even if the opportunities appear favorable, the firm must have the resources in men, money and materials to capitalize them.

MARKET SELECTION DECISION

To be successful in initial exports, the first step is to choose the right place for the initial export venture, so that the returns may be quicker and certain, and the risks may be minimum. No firm has unlimited resources. A proper selection of markets would ensure that time and efforts are not wasted.

While selecting initial markets for exports, the trader should consider the following points carefully:

 Select one or two markets initially so that is the activity may be within manageable units:  Smaller less obvious markets should not be overlooked. It would be unwise to sell in the

more competitive European market, when a less competitive Arab or African market is available;

 It is advisable to spend some time and money on visiting the overseas market. This will enable the marketer to solve many practical problems.

 Enter the export business only when the marketer is sure of its profitability.  Do not enter those markets where there are a lot of import restrictions;  Take guidance from government and non-government institutions.

 Collect the latest data on export surveys and commercial intelligence from India's Commercial Representatives abroad;

 Collect the address of potential customers abroad and start correspondence with them; avoid any trade disputes; but if such disputes arise, settle them amicably.

 Make certain at the start that your export business is going to be profitable.  Find a need and fill it, this will ensure success.

SELECTION OF MARKET:

The company in this connection has to take the following steps so that it can ultimately choose one or two markets of its choice:-

1) The company should examine export statistics of the product from its country. The company can look into these statistics and find out where the products are exported. The concerned export promotion council also publishes such statistics.

2) It should examine import statistics of the product in the target markets.

3) The company can also visit some Government offices, libraries, trade associations to find out the policy, names of importers etc.

4) The company also has discussion with some successful exporters. 5) It can also have discussions with Commodity boards, ECGC, etc

6) It may also contact our Trade representative located in our Embassies and High commissions abroad.

7) It may also contact Foreign Embassies and High Commissions located in India.

8) The company can also send some officers to the target markets to find out the market conditions there.

9) It can take part in trade fairs and exhibitions conducted by ITPO and other agencies. 10) It must also find out economic, social and cultural factors in the target markets. 11) It must also decide whether it should choose one market or a few markets.

After examining various details as above the exporters have to avoid a market in the following cases:

1) If shipping costs will be far too high 2) If the investment required is more

3) Those markets where there are a lot of import restrictions;

CRITERIA FOR SELECTION OF MARKET:

The marketing firm should have a set of decision criteria for selecting the target markets. While the complete set will have to take into account the product and marketing characteristics of specific products, some of the common elements are:

The target territory should be one which is or has the potential to be a sizable market. It is easier to capture a 5 per cent of a big market than to capture a 25 per cent share of smaller market.

(ii)Growth:

It is enough that the market is existing but it should also be in the growth stage. Higher scales over time become easier when the overall demand is increasing. It is not enough if additional sales come at the cost of the competitions.

(iii) Logistics:

Dispatching the goods to the right place at the right time is the essence of all marketing, including international marketing. Inadequate logistic support can play havoc in the planning of export shipments, which will jeopardize any marketing efforts. Further , in the case f certain products, special types of logistic infrastructure is necessary.

(iv) Distance:

The transport cost and distance are intimately correlated. For low-valued items, the incidence of higher transport cost may reduce export competitiveness quite appreciably. The selection process of the target market will have to take this factor into account.

(v) Competition:

The nature and extent of competition is a very crucial factor to reckon with. A thorough study will have to be made to determine how the firm's product profile compares with that of the competitive product line. The firm will have to evaluate whether it is in a position to match such competition onslaught.

(vi) Distribution System:

The availability of a capable agent or distributor is a very important consideration, especially for products requiring pre-selling, such as demonstration and post-selling, such as after- sales services. A good distributor is essential. Even if a market is otherwise promising, if no good distributor or agent is available, the company should think twice before deciding to enter that market, unless it is in position to set up its own office there.

THE MARKET ENRTY DECISION:

Once the target market has been identified, the next step relates to the decisions regarding the alternative methods of entry. The various methods of market entry open to firm in a given country are:  Indirect exporting  Direct Exporting  Licensing  Franchising  Joint Venture  Foreign subsidiaries  Special Modes INDIRECT EXPORTING:

The indirect way of exporting is almost equivalent to domestic sales. The firm sells its products in its country to another party, who takes the responsibility of actual export. This can be done by:

a) Selling to Merchant Exporter House in India and b) Selling to visiting/resident buyers

Selling to Merchant Exporter or Export Houses in India:

There are many merchant exporters and or recognized export houses in India, which are willing to buy goods from the Indian manufacturers and sell them abroad. Merchant exporters or export houses sell and buy on their account and thus assume the risks involved in exporting. A merchant exporter is free to decided what he will buy, where he will buy and at what price. Merchant exporters are usually well financed and maintain their branches at port towns and in important centers abroad. They usually have a system of gathering market information and keep a close watch on market trends. This method of exportation is useful when the company is small and, therefore, not in position to start an export department to like after exports sales.

Selling to Visiting/Resident Buyers:

Many big foreign companies have their resident buying representatives in India and other countries who are entrusted with the job of procurement. Some other companies regularly send buying teams for the same purpose. The amount of business that is conducted by such buying

operations is substantial. The advantage of selling in this way is similar to what had been mentioned for exporting through export houses.

Advantages of Indirect Exporting:

 It involves little time or effort because the merchant exporter takes care of all the difficulties involved and assumes all the sales and credit risks;

 It requires less investment and the firm's capital is not tied up;

 It carries less risk, and the firm does not have to spend money on market research or on setting up branches abroad;

 It makes possible the utilization of the know-how and experience of middlemen;  The manufacturing firm is free to concentrate on production.

Disadvantages of Indirect Exporting:

 For practical purposes, the manufacturer cannot be called an exporter, and he cannot claim or avail of export incentives given on a fairly liberal scale;

 Indirect exporting provides little control over the operations of middlemen. Export merchants may concentrate on the products, which offer them the greatest profit. The small manufacturer's products may be ignored.

 The middleman, particularly the agent on commission basis, may not be aggressive, with the result that sales may suffer;

 Export merchants middlemen may not be available for all the markets.

DIRECT EXPORTING:

In case the firm decides not to operate through any of the intermediaries described in the earlier paragraphs, and opts for direct exporting, it will have to choose most carefully between one and or the other kind of export sales organization to be created. If its export plans are ambitious and the prospects of selling in a number of markets are promising, it may make a modest start- appoint an export manager plus a clerk. Depending upon the firm's export sales turnover, existing and potential, it may create/set up a separate export department or even a separate export company. Direct Exporting may also be undertaken by:

 Setting up a sales branch or a subsidiary sales organization in a foreign country, which may be a substitute for, or a supplement to the home organization;

 Selecting suitable distributors in a foreign country who would buy his product and sell it there, or suitable agents in that country who would sell it on commission basis without taking any title to it.

Advantages of Direct Exporting:

 The manufacturer will have better knowledge of customers' requirements and market conditions.

 He will have direct control over the marketing operations.

 He can enjoy the full returns on exports. His profits will be more than selling the goods through middlemen.

 Direct exporting is the only choice for certain products and not alternative to get success, especially in the following cases:

- If the product is technically unique - If middlemen decline

- If importers wants only direct export - If costs increase because of tariffs - If after sales service is a must Disadvantages of Direct Exporting:

 Large financial resources needed

 Managerial ability is essential and more staff is required  Increased distribution cost

 More risk

 Greater initial outlay before profit begins to flow in. LICENSING:

Under this method, the manufacturer enters into an agreement with a licensee in the foreign country and this gives him the right to use the manufacturing process, a patent design or a trademark, technical information or some facility in return for some fee or royalty. It is often the quickest way of entering overseas markets - sometimes the only possible way as in centrally planned economies. It is clearly a method that involves little expense, and avoids all distribution costs.

Advantages and Disadvantages of Licensing

Advantages Disadvantages

part of the licensor. opportunities for both licensor and licensee.

Licensing mode carries low financial risk to the licensor.

Both the parties have the responsibilities to maintain the product quality and promoting the product. Therefore one party can affect the other through their improper acts.

Licensor can investigate the foreign market without much effort on his part.

Costly and tedious litigation may crop up and hurt both the parties and the market.

Licensing gets the benefits with less investment on research and development.

There is scope for misunderstanding between the parties despite the effectiveness of the agreement.

License escapes himself from the risk of product failure.

There is a problem of leakage of the trade secrets of the licensor.

The licensee may sell the product outside the agreed territory and after the expiry of the contract.

FRANCHISING:

Franchising is also a form of licensing. The franchisor can exercise more control over the franchise compared to that in licensing. Under franchising, an independent organization called the franchise operates the business under the name of another company called franchisor. The franchisor provides the following services to the franchisee:

 Trade marks  Operating system  Product reputations

Continuous support systems like advertising, employee training, reservation service, and quality assurance programme etc.

Advantages and Disadvantages of Franchising

Franchisor can enter global markets with low investment and low risks.

International franchising may be more complicated than domestic marketing.

Franchisor can get the information regarding the markets, culture, customers and environment of the host country.

It is difficult to control the international franchisee.

Franchisor learns more lessons from the experiences of the franchisees, which he could not experience from the home country’s market.

Franchising agents reduce the market opportunities for both the franchisor and franchisee.

Franchisee can early start a business with low risk as he selects an established and proven product and operating system.

Both the parties have the responsibilities to maintain product quality and product promotion.

Franchise gets the benefit of R & D with low cost.

There is a problem of leakage of trade secrets.

Franchise escapes from the risk of product failure.

JOINT VENTURE:

A joint venture involves a capital partnership and may be arranged for manufacturing activities, marketing activities, or both. This takes place when:

 The domestic investor buys an interest in a manufacturing unit situated in a foreign country;

 Any investor of a foreign country buys an interest in a manufacturing unit of the domestic investor already existing in that country; or

 A domestic investor and an investor in a foreign country together start a new venture in that foreign country.

The marketer establishes a subsidiary manufacturing unit in a foreign country. He is its exclusive owner and controller, the monarch of all that it contains. This is the culmination of international marketing. It is international production-cum marketing. When a company engages in such production in a number of countries, it is called multinational company.

SPECIAL MODES OF ENTRY: A. Contract Manufacturing:

Some companies outsource their part of or entire production and concentrate on marketing operations. This practice is called the contract of manufacturing or outsourcing.

B. Management Contracts:

The companies with low level technology and managerial expertise may seek the assistance of a foreign company. Then the foreign company may agree to provide technical assistance and managerial expertise. This agreement between these two companies is called the management contract.

C. Turnkey projects:

A turnkey project is a contract under which firms agrees to fully design, construct and equity a manufacturing/business/service facility and turn the project over to the purchaser when it is ready for operations for a remuneration. International turnkey projects include nuclear power plants, air ports, oil refinery, national highways, railway lines etc.

INTERNATIONAL MARKETING RESEARCH

MARKET RESEARCH & MARKETING RESEARCH

Market research is a complete analysis of the market. Information regarding the nature, size, organization, profitability of different markets, changes in markets and various factors, such as economic, social and political, affecting those changes are studies vigorously. The main purpose of market research is to know about the consumers and markets of the exporter's products and services. The research is mainly concerned with details regarding consumers. The research is mainly concerned with details regarding consumers.

Marketing research covers all aspects of the marketing activities such s markets, products, consumers, advertisements, sales promotion techniques, channels of distribution, warehousing, transport, pacing problems etc relating to firm's product while on the other hand market research emphasis research on the market and market segments and consumers and their behaviour. Thus the market research is only a part of marketing.

NEED FOR OVERSEAS MARKET RESEARCH :( Uses)

 Market research is required to identify which markets should be selected as the target, based on the market size, growth, accessibility and competitive factors.

 Identification of suitable products is also dependent upon research. Detailed field research investigations are required to determine the extent of product adaptation required to make the product acceptable in a given market.

 Research can help prevent the use of inappropriate market entry method.

 Research can help to determine the positioning of the product, taking into account the socio-cultural factors.

 Promotional campaigns should be decided only when proper research has been carried out regarding their acceptability in a given environment.

 Research also helps in taking appropriate packaging decisions.

 Considerable amount of data collection and analysis are required to arrive at pricing decisions. Pricing is crucial for success in international marketing and a blunder can mar all prospects.

 It is useful in converting uncertainty into certainty. Marketing research by providing information on market information on market environment, reduces uncertainty in it and makes the environment known. The uncertainty is mitigated.

 The research becomes inevitable when the income, fashion, habits and preferences are changing very fast.

 The needs for research also arise when the sale of the product is showing a downward trend and the reason for the fall could not be established.

METHODOLOGY FOR MARKET RESEARCH:

Market research in almost all cases is carried out into two phases: viz., Desk research and field research. Stepwise formulation of a research plan comprising both desk and field research will be as follows:

 Identify the problem.

 Identify the information requirements to find out a solution to the problem.

 Identify the sources (primary and secondary) from where such information can be obtained.

 Collect and analyse the secondary source materials.  Identify the gaps in information still remaining.

 Prepare a research brief for field research to collect information on the gaps.  Design a questionnaire.

 Prepare the sample of respondents.  Interview the respondents.

 Analyse and evaluate the results. DESK RESEARCH:

Desk research is the first phase of the marketing research. It involves collection of all relevant information from known published and unpublished documentations available within and outside the organization.

Inside or Internal source of information:

This information can be gathered from the following:

- past sales record

- enquires received from abroad

- reports from its branches and agents abroad and its officers dealing in export trade.

- Complaints received from foreign customers etc. External Source of Information:

This information can be had from any published documents which may provide data on the problems to be analysed. However before relying on any published documents the researcher should consider the following points:

o Who originally collected the data for what purpose, and whether thee might any motive for misrepresentation;

o From whom the data were collected, and how reliable the methodology might have been and

o How consistent the data are with other local or international statistics.

The following table shows the agencies which can furnish the required information for desk research.

INFORMATIONS EXAMPLES OF SOURCES

Import statistics UN,OECD, national trade statistics

Production statistics UN, Official statistical sources Tariffs and quotas Embassies, Chamber of Commerce

Currency restrictions Banks and Embassies

Health restrictions Embassies and chamber of commerce

Political situation Bank reports, press reports and IMF year book

Domestic consumption Official statistics of chamber of commerce and commodity boards.

Identification of agents Directories, Reports of embassies and Journals Credit and payment terms Banks

Transport cost Freight forwarders and clearing agencies

Prices Previous market survey reports, company

catalogues, daily economic newspapers on commodity prices.

FIELD RESEARCH:

An analysis of data collected from desk research would reveal the gaps in information that still remain. Generally speaking product specific marketing in formations are not available from secondary (desk) sources. Going directly to the market may cover the gaps in information. There are

two specific important steps before field research can be undertaken viz., design and testing of a questionnaire and preparation of a sample of respondents. In order to secure the best possible return on the limited time that can be spent on export market research.

Field research can be conducted through personal interviews, telephone interviews and stores checks. Of the three methods, personal interview is the most dependable if reliable data are to be required. Unfortunately, however, in many developing countries, the personal interview presents special problems for two main reasons. First the recruitment of interview is difficult and ins some cultures it is impossible to recruit female interviewers at all.

Techniques of Field Research: Interview methods, Questionnaire and Observation method (Refer Research methodology book for further details for the above said techniques)

COMPETITIVE INTELLIGENCE:

Modern marketing is very competitive. Modern business is a many sided game in which rivals and opponents continuously try to formulate strategies to gain advantage over one another. Predicting the behaviour of one's competitors and outguessing of the competitor will need the services of marketing intelligence. A marketer cannot survive under keen competitions without up to date market information particularly regarding the nature, character and size of competition to be met. It is therefore, necessary for the exporter to obtain competitive intelligence and make a study about competitions for his products. Regarding that the trader should have answer for the following questions about his competitors:

Basic Factors:

What are the competitive products are sold in that particular country? Who are the competitors?

What facilities do they have and where are they located? Who are their local officers, and how good are they?

What problems do the face, and how are they trying to solve them? Are they involved in litigation? What kind?

Do they enjoy incentives or favours?

Finance:

What is the current financial position of the competitors? What are their investment programmes?

What fees and royalties do they use?

What are their financial resources and how do they finance expansion?

What dividend policies do they pursue?

Are they sacrificing long-term advantage for short term gains? Production:

What plans do the competitors have? What production technologies are used? How efficient are the plants?

What capacity of existing plant is being used? Do they have any labour problems?

What's their source of manpower? What is their manufacturing cost? How's their product quality?

Marketing:

What marketing channels they have?

Their pricing strategy. Their promotional strategies. What's their market share?

How was it changed over the period of time?

What are their advertising media? How much cost is incurred regarding that? Supplying the market:

How do the competitive products get to the market? Who are the importers and how do they operate?

What credit, pricing, and other terms are extended by foreign suppliers?

STANDARD CLAUSES OF INTRNATIONAL SALES CONTACT

One of the distinctive features of international marketing is that exporters have to deal with different legal systems. An Indian exporter selling his product to an importer, say in the USA, must contend with the fact that US laws may well have some influence either on the contractual terms to be agreed upon between him and the importer, or on the settlement of disputes, if any arising out of the contract. The function of a sales contract is to set forth in writing what one party agrees to do for the other and what each may expect of the other.

The elements or the clauses of an export contract vary depending upon the nature of product being exported. There are, however, some elements that are almost universal in their application. These elements are as follows:

 Names and addresses of the parties - exporters and importers  The description of the product.

 Quality of the product.  Price per unit.

 Total value.  Currency  Tax and charges  Packing specifications  Mode of transport

 Delivery: Place and schedule  Marking and labeling.  Insurance.

 Documentations.  Mode of payment.  Credit period, if any

 Warranties - assuring repairs over a period.  Passing of risk.

 Passing of property.

 Availability/ non-availability of export and import licenses.  Settlement of disputes.

 Proper law of contract.  Jurisdiction.

INTERNATIONAL TRADE POLICIES TRADE BARRIERS (METHODS OF PROTECTION)

Managing any business strategically needs an understanding of the business policies. But in case of global companies, an understanding of trade policies is more essential. International trade policies deal with the policies of the national governments relating to exports of various goods and services to various countries either on equal terms and conditions or on discriminatory terms and conditions.

Government announces their trade policies with regard to the following from time to time. They are also called the instruments of trade policy. They are: Tariffs, Subsidies and Import quotas.

TARIFFS

Tariff refers to the tax imposed on imports. It is a duty or tax imposed on internationally traded commodities when they cross the national borders. The objectives of Tariffs are

 To protect domestic industries from foreign competition  To guard against dumping

 To promote indigenous research and development  To conserve foreign exchange resources of the country

 To make the balance of payments position more favorable and  To discriminate against certain countries.

IMPACT OF TARIFFS

Tariff affect on economy in different ways. An import duty generally has the following effects:

Protective effect:

An import duty is likely to increase the price of imported goods. This increase in the price of imports is likely to reduce imports and increase the demand for domestic goods. Import duties may also enable domestic industries to absorb higher production costs. Thus, as a result of the protection by tariffs, domestic industries are able to expand their output.

Consumption Effect:

The increase in prices resulting from the levy of import duty usually reduces the consumption capacity of the people.

Redistribution Effect;

If the import duty causes an increase in the price of domestically produced goods, it amounts to redistribution of income between the consumers and producers in favor of the producers. Further a part of the consumer income is transferred to the exchequer by means of the tariff.

Revenue Effect:

As mentioned above, a tariff means increased revenue for the government.

Income and Employment Effect;

The tariff may cause a switch over from spending on foreign goods to spending on domestic goods. This higher spending within the country ay cause an expansion in domestic income and employment.

Competitive Effect:

The competitive effect on the tariff is, in fact, an anti-competitive effect in the sense that the protection of domestic industries against foreign competition may enable the domestic industries to obtain monopoly power with all its associated evils.

In a bid to maintain the precious level of imports to the tariff imposing country, if the exporter reduces his prices, the tariff importing country is able to get imports to a lower price.

QUOTAS

Quota is direct restriction on the quantity of goods which are imported into a country. These restrictions are imposed by issuing import licenses to certain firms and individuals to import certain quantity of the goods. India had quotas of imports of various goods like cars, motor cycles, milk etc. up to 31st march 2001. Import quotas provide the protection to the domestic firms from the foreign countries.

IMPACT OF QUOTAS Balance of Payment Effect:

As quotas enable a country to restrict the aggregate imports within specified limits, quotas are helpful in improving its balance of payments position.

Price Effect:

As quotas limit the total supply, they may cause an increase in domestic prices.

Consumption Effect:

If quotas lead to an increase in prices, people may be constrained to reduce their consumption of the commodity subject to quotas or some other commodities.

Protective Effect:

By guarding domestic industries against foreign competition to some extent, quotas encourage the expansion of domestic industries.

Redistributive Effect:

Quotas also have a redistributive effect if the fall in supply due to important restrictions enables the domestic producers to raise prices. The rise in prices will result in the redistribution of income between the producers and consumers in favour of the producers.

Quotas may also have a revenue effect. As quotas are administered by means of licences, the government may obtain some revenue by charging a licence fee.

Terms of Trade Effect;

Quotas may affect the terms of trade of the country imposing them. The effect of quotas on the terms of trade depends upon the elasticity of the foreign offer curves.

TARIFFS Vs QUOTAS

The differences between tariffs and quotas will be clear by the following way of comparison:

Let us first examine the superiority of quotas to tariffs:

 As a protective measure, a quota is more effective than the tariff. A tariff seeks to discourage imports by raising the price of imported articles. It however fails to restrict imports when the demand for imports is price inelastic.

 When compared to tariffs, quotas are much precise and their effects much more certain. The reactions or responses to tariffs are not clear and accurately predictable; but the effect of quotas on imports is certain.

 It has been argued that quotas tend to be more flexible; more easily imposed and more easily removed instruments of commercial policy than tariffs. Tariffs are often regarded as relatively permanent measures and rapidly build powerful vested interests, which make them all the more difficult to remove. Quotas have many characteristics of a more temporary measure, are designed to deal only with a current problem, and removable as soon as circumstances warrant.

 The effects of quotas are more rigorous and arbitrary and they tend to distort international trade much more than the tariffs. That is why GATT condemns quotas and prefers tariffs to quotas for controlling imports.

 Quotas tend to restrict competition much more than tariffs by helping importers and exporters to acquire monopoly power. If import quotas are allocated only to a few importers, they may enable them to amass fortunes by exploiting the market. Similarly, quotas tend to promote the concentration of economic power among foreign exporters.  Quotas may support inflationary pressures within the country by restricting supply. Tariffs

also suffer from the same defect.

 Quotas offer greater scope for corruption than tariffs.

SUBSIDIES

In order to encourage domestic production or to protect the domestic producer from the foreign competitors, government pays to a domestic producers reducing operations cost. Such payments are called subsidies. Subsidies are in different forms. They are: Cash grants, loans and advances at low rate of interest, tax holidays, government procurement of out put at a higher rate, equity participation and supply of inputs at lower prices.

COUNTER TRADE

Counter Trade refers to any one of several different arrangements by which goods and services re traded for each other, on either bilateral or multilateral basis. There are a variety of forms of counter trade. Basically it is a barter (exchange of one type of goods for another type of goods) or quasi-barter agreement, where cash may not involve but there is always a link between the imports and exports transactions. In other words imports are paid out of exports in counter trade. For example India exports iron and steel against import of heavy machinery under a contract it is called a counter trade transaction.

FORMS OF COUNTER TRADE:

There are a number of forms of counter trade. We may examine them in detail in detail as in the following paragraphs.

Barter: In the barter agreement, the exporter sells specified goods to the importer in exchange for

specified goods. In other words barter involves trading goods for goods. In this case no cash in involved. Pure barter of this type is rare in now a days.

Compensation counter trade: Under compensation arrangement the exporter agrees to accept a

part of consideration in cash and the balance in kinds, but the exporter transfers the purchasing commitment to a third party who may be an end user of products or a trading house. This type of counter trade is not very common as it takes considerable time to find a suitable third party to whom the exporter can transfers the purchasing agreement.

Buy back arrangement: This type of arrangement sis the most popular arrangement involving a

relatively large volume of trade. Under this arrangement, the exporter, usually an industrial firm, provide plant, equipment or technology to an importer and agrees to accept, in full or part considerations, the goods to be produced by the importer with the exporter s' equipment or technology. The contract period of buy back arrangements is, by necessity, considerably longer than that of counter purchase arrangements.

Counter purchase arrangement: This type of counter trade arrangement is also common but it is

complicated. Under this arrangement, the exporter sells the goods, services or technology to a foreign importer against the purchase of a specified total value of goods selected from a list that excludes those goods produced by the technology being exported, within a specified period. The goods purchased will not be used by the exporter himself and he will have to arrange for their sale with a third party who may market them.

Swap: In a swap contract two countries agree to trade, products from different locations with a view

to save transportation cost. This is ideally suited for commodities such as sugar, chemicals and oils. In swap transactions differences in quality of the goods being substituted are worked out in swap contract.

Switch: This method of counter trade is useful when international currency flow is sluggish or

uneven. One country that is a party to a bilateral trade agreement will transfer its imbalance to a third party or nation. One example of switch is western firm that sold a plastic manufacturing plant to the then USSR which had no cash to pay. However, Russia had a clearing agreement with Australia which was buying natural gas to Russia, it paid to the western firm direct the amount equal to the price of the plant sold to Russia. Thus in a switch agreement, the amount is paid or accepted through a third country or party. This method of counter trade is useful when international currency flow is sluggish or uneven.

Evidence Accounts: Under evidence accounts, the company sells its products or services to a local

foreign trade organization and purchases goods and services of its requirements form another local foreign trade organization of the equal amount. These kinds of transactions are set to occur over a specified period, generally one year. Such accounts are monitored by the country's bank of foreign trade that deals in foreign exchange and where the company maintains its accounts.

REASONS FOR THE GROWTH OF COUNTER TRADE

The reasons to engage in counter trade include those basic to business; t o enter new markets, sell products and gain an edge over competition. Counter trade is considered a way of overcoming of uncertainty of domestic production plans and, at the same time, of achieving bilateral balancing of trade-an important objective of foreign trade policy in the centrally planned East European countries. shortage of foreign exchange and the desire to stimulate foreign technology inflows motivated East European countries to enter into counter trade arrangements. The developing countries, particularly those maintaining overvalued exchange rates, have resorted to counter trade for the reasons such as balance of payments difficulties, creation of overcapacity etc. Some other reasons for the growth of counter trade are as follows:

- The desire to conceal from the domestic public the fact that the sale is being made below its costs. This motive for counter trade is important for many developing countries and also for a number of communist countries.

- A counter trade transaction may provide some slight additional certainty in an uncertain world.

- A counter trade transaction permits concealed discounting in a period of weak markets. In other worlds counter trade permits price discrimination among customers.

-Developing countries will have confident to export their products to other countries.

DRAWBACKS OF THE COUNTER TRADE

Counter trade transactions are often extremely complex and difficult as compared with straightforward trade. This requires planning and commitment.

 It becomes costly as the manufacturing firms will have to set up subsidiaries to handle counter trade arrangements or employ the services of trading companies specializing in such activities.

 It is full of risks and uncertainties. Risks increase as counter trade arrangements extend over several years.

 It is time consuming to conclude the arrangements. For every 10 to 20 deals that are talked about, perhaps one gets done.

COUNTER TRADE IN INDIA: The State Trading Corporation of India was involved since 1961 in one

for or other of counter trade mechanism by way of trade promotion agreements, barter deals, special trading arrangements, etc. India had long a longer history in the use of buy-back arrangements. This technique is being increasingly applied for importing technology, especially for export-oriented projects.

GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)

The General Agreement on Tariff and Trade is a multilateral treaty that lays down agreed rules for conducting international trade. It came into force in January 1948. 119 governments which together account for 90 per cent of the world merchandise trade subscribe it to. Its basic aim is to liberalize trade and for the last 45 years it has been concerned with negotiating the reduction of trade barriers and with international trade relations. The rapid and uninterrupted growth in the volume of international trade till 1992 provides a good testimony for the success of the GATT.

Basic Principles of GATT:

1. Trade without discrimination: Trade must be conducted on the basis of non-discrimination.