Introduction to International Marketingjnujprdistance.com/assets/lms/LMS JNU/BBA/Sem V... ·...

Introduction to International Marketing

Board of Studies

Prof. H. N. Verma Prof. M. K. GhadoliyaVice- Chancellor Director, Jaipur National University, Jaipur School of Distance Education and Learning Jaipur National University, JaipurDr. Rajendra Takale Prof. and Head AcademicsSBPIM, Pune

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Subject Expert Panel

Dr. Chetan Choudhary Kartik BijapurkarDirector, SBS, Sinhgad Subject Matter ExpertPune

___________________________________________________________________________________________

Content Review Panel

Vijayalakshmi R.HSubject Matter Expert

___________________________________________________________________________________________Copyright ©

This book contains the course content for Introduction to International Marketing.

First Edition 2013

Printed byUniversal Training Solutions Private Limited

Address05th Floor, I-Space, Bavdhan, Pune 411021.

All rights reserved. This book or any portion thereof may not, in any form or by any means including electronic or mechanical or photocopying or recording, be reproduced or distributed or transmitted or stored in a retrieval system or be broadcasted or transmitted.

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I

Index

ContentI. ...................................................................... II

List of FiguresII. ........................................................... V

List of TablesIII. ...........................................................VI

AbbreviationsIV. ....................................................... VII

Case StudyV. ................................................................ 92

BibliographyVI. ........................................................... 95

Self Assessment AnswersVII. ..................................... 96

Book at a Glance

II

Contents

Chapter I ...................................................................................................................................................... 1Introduction to International Marketing ................................................................................................... 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction ............................................................................................................................................. 21.2 Definition of Marketing .......................................................................................................................... 21.3 Understanding Strategic Marketing ........................................................................................................ 21.4 Post Modern Era of Marketing ................................................................................................................ 31.5 Global Marketing ..................................................................................................................................... 31.6 Marketing Evolutionary Stages ................................................................................................................ 41.7 Factors Leading to Internationalization ................................................................................................... 51.8 The International Product Trade Cycle .................................................................................................... 51.9 Orientation of Management ..................................................................................................................... 6Summary ...................................................................................................................................................... 7References ..................................................................................................................................................... 7Recommended Reading ............................................................................................................................... 7Self Assessment ............................................................................................................................................ 8

Chapter II ................................................................................................................................................... 10The Marketing Environment .................................................................................................................... 10Aim .............................................................................................................................................................. 10Objectives ................................................................................................................................................... 10Learning outcome ........................................................................................................................................ 102.1 Introduction ............................................................................................................................................112.2 Economic Cycles ................................................................................................................................... 122.3 Strategic Planning and the Marketing Process ....................................................................................... 122.4 SWOT Analysis ..................................................................................................................................... 152.5 Consumer Behaviour ............................................................................................................................ 15 2.5.1 Factors Affecting Consumer Behaviour ................................................................................ 15 2.5.2 Consumer Attitude ................................................................................................................. 16 2.5.3 Consumer Beliefs ................................................................................................................... 16 2.5.4 Consumer Effects ................................................................................................................... 162.6 Behavioural Intention ............................................................................................................................. 172.7 Reference Group .................................................................................................................................... 182.8 The Family Life Cycle ........................................................................................................................... 182.9 Family Decision Making ........................................................................................................................ 182.10 Organisational Buyers .......................................................................................................................... 20Summary .................................................................................................................................................... 21References .................................................................................................................................................. 21Recommended Reading ............................................................................................................................. 21Self Assessment ........................................................................................................................................... 22

Chapter III ................................................................................................................................................. 24Economic Environment ............................................................................................................................. 24Aim ............................................................................................................................................................. 24Objectives ................................................................................................................................................... 24Learning outcome ........................................................................................................................................ 243.1 Introduction ............................................................................................................................................ 253.2 Economic Marketing Overview ............................................................................................................. 253.3 The Global Economy ............................................................................................................................. 253.4 Balance of Payments .............................................................................................................................. 26

III

3.5 The Nature of Economy ......................................................................................................................... 27 3.5.1 Classification of Economic Activity As Per Countries .......................................................... 27Summary .................................................................................................................................................... 28References ................................................................................................................................................... 28Recommended Reading ............................................................................................................................. 28Self Assessment ........................................................................................................................................... 29

ChapterIV ............................................................................................................................................. 31Cultural Environment ............................................................................................................................... 31Aim ............................................................................................................................................................. 31Objectives ................................................................................................................................................... 31Learning outcome ........................................................................................................................................ 314.1 Introduction ............................................................................................................................................ 324.2 Various Approaches of culture ............................................................................................................... 32 4.2.1 Anthropological Approach ..................................................................................................... 32 4.2.2 Maslow’s Approach ............................................................................................................... 32 4.2.3 Self Reference Criterion ........................................................................................................ 34 4.2.4 Diffusion Theory .................................................................................................................... 34 4.2.5 High and Low Context Cultures and Perception ................................................................... 364.3 Elements of Culture .............................................................................................................................. 36Summary ..................................................................................................................................................... 38References ................................................................................................................................................... 38Recommended Reading ............................................................................................................................ 38Self Assessment .......................................................................................................................................... 39

Chapter V .................................................................................................................................................... 41Market Entry Strategy .............................................................................................................................. 41Aim ............................................................................................................................................................. 41Objectives ................................................................................................................................................... 41Learning outcome ........................................................................................................................................ 415.1 Introduction ............................................................................................................................................ 425.2 Implementation of Marketing Strategy ................................................................................................. 425.3 Cunningham’s Five Strategy ................................................................................................................. 435.4 Entry Strategies ...................................................................................................................................... 445.5 Piggybacking .......................................................................................................................................... 475.6 Foreign Production ................................................................................................................................. 475.7 Special Features of Commodity Trade ................................................................................................... 49Summary .................................................................................................................................................... 51References ................................................................................................................................................... 51Recommended Reading ............................................................................................................................. 51Self Assessment .......................................................................................................................................... 52

Chapter VI .................................................................................................................................................. 54Competitive Analysis and Strategy........................................................................................................... 54Aim ............................................................................................................................................................. 54Objectives ................................................................................................................................................... 54Learning outcome ........................................................................................................................................ 546.1 Introduction ............................................................................................................................................ 556.2 Industry Analysis ................................................................................................................................... 556.3 Competition Analysis ............................................................................................................................. 58 6.3.1 Competitive Strategy ............................................................................................................. 58 6.3.2 Generic Approaches ............................................................................................................... 596.4 Strategy for Success ............................................................................................................................... 59 6.4.1 Sourcing ................................................................................................................................. 60

IV

Summary .................................................................................................................................................... 61References .................................................................................................................................................. 61Recommended Reading ............................................................................................................................ 61Self Assessment .......................................................................................................................................... 62

Chapter VII ................................................................................................................................................ 64Product and Promotion Decision .............................................................................................................. 64Aim ............................................................................................................................................................. 64Objectives .................................................................................................................................................... 64Learning outcome ........................................................................................................................................ 647.1 Introduction ........................................................................................................................................... 657.2 Basic Concept ....................................................................................................................................... 657.3 Product Design ....................................................................................................................................... 657.4 Production Decision ............................................................................................................................... 66 7.4.1 Manufacturing Process .......................................................................................................... 66 7.4.2 Specifications ........................................................................................................................ 67 7.4.3 Culture ................................................................................................................................... 67 7.4.4 Physical Product .................................................................................................................... 67 7.4.5 Packaging ............................................................................................................................... 68 7.4.6 Labelling ................................................................................................................................ 68 7.4.7 Branding ................................................................................................................................ 68 7.4.8 Warranty ................................................................................................................................. 68 7.4.9 Service ................................................................................................................................... 687.5 Product Strategy .................................................................................................................................... 697.6 Promotion Decision .............................................................................................................................. 69 7.6.1 Global Promotion .................................................................................................................. 70 7.6.2 Campaign Design ................................................................................................................... 70Summary .................................................................................................................................................... 72References ................................................................................................................................................... 73Recommended Reading ............................................................................................................................ 73Self assessment .......................................................................................................................................... 73

Chapter VIII ............................................................................................................................................... 76Distribution and Global Marketing Logistics documentation ............................................................... 76Aim ............................................................................................................................................................. 76Objectives ................................................................................................................................................... 76Learning outcome ........................................................................................................................................ 768.1 Introduction ........................................................................................................................................... 778.2 Channel Structure ................................................................................................................................... 778.3 Role of Government ............................................................................................................................... 808.4 International Merchant ........................................................................................................................... 818.5 Market Strategy in Distribution Channel ............................................................................................... 828.6 Tariff for Distribution Channel .............................................................................................................. 83 8.6.1 Custom Duties during the time of import .............................................................................. 838.7 International Trade and Export Contracts .............................................................................................. 83 8.7.1 Terms of Payment ................................................................................................................. 848.8 Documents for Distribution in Global Market ....................................................................................... 84 8.8.1 Export Documentation ........................................................................................................... 84 8.8.2 Commercial Document .......................................................................................................... 84 8.8.3 Official Document ................................................................................................................. 86 8.8.4 Insurance Document .............................................................................................................. 87 8.8.5 Transport Document .............................................................................................................. 87Summary .................................................................................................................................................... 89References ................................................................................................................................................... 89Recommended Reading ............................................................................................................................. 89Self Assessment ........................................................................................................................................... 90

V

List of Figures

Fig. 1.1 Relation between product life cycle (Trade and investment) ........................................................... 5Fig. 2.1 Components of strategy .................................................................................................................. 13Fig. 2.2 BCG Matrix .................................................................................................................................... 14Fig. 2.3 Factors of consumer behaviour ....................................................................................................... 16Fig. 4.1 Maslow’s Hierarchy ....................................................................................................................... 33Fig. 4.2 Rate of adaptors .............................................................................................................................. 35Fig. 5.1 Phases of strategy ........................................................................................................................... 42Fig. 5.2 Methods for foreign market entry ................................................................................................... 44Fig. 5.3 Aggressive and passive export path ................................................................................................ 45Fig. 5.4 Export marketing channel for Kenyan horticulture product ........................................................... 46Fig. 6.1 Forces influencing competition in the Industry .............................................................................. 55Fig. 6.2 Porter’s Five Force Model .............................................................................................................. 56Fig. 6.3 Generic competitive advantage ...................................................................................................... 59Fig. 7.1 Cycle of manufacturing process ..................................................................................................... 67Fig. 7.2 Product strategy .............................................................................................................................. 69Fig. 7.3 Block diagram of conveying message ............................................................................................ 70Fig. 7.4 Phases of Campaign design ............................................................................................................ 71Fig. 8.1 Channel for consumer .................................................................................................................... 78Fig. 8.2 Channel for business to business .................................................................................................... 78Fig. 8.3 Cotton distribution .......................................................................................................................... 81

VI

List of Tables

Table 1.1 Stages of domestic to global evolution .......................................................................................... 4Table 5.1 Matrix for comparing alternative methods of market entry ....................................................... 49Table 6.1 Factors affecting international competitiveness for products/commodities ................................. 57Table 6.2 Sources of competitive advantage for selected commodity systems ........................................... 58Table 8.1 Documents Required for Export .................................................................................................. 85

VII

Abbreviations

CIF - Cost Insurance FreightCMD - Citrus Marketing BoardCSC - Cold Storage CompanyEPRG - Ethnocentrism Polycentrism Regiocentrism GeocentrismEPZ - Export Processing ZonesESAP - Economic Structural Adjustment ProgrammesFOB - Free On BoardGATT - General Agreement on Tariffs and TradeHCDA - Horticultural Crops Development AuthorityICT - Information and Communication TechnologyLDCs - Less Developed CountriesPTA - Preferential Trade AreaSRC - Self Reference CriterionSWOT - Strength Weakness Opportunity ThreatUN - United Nations

1

Chapter I


Aim

The aim of this chapter is to:

explain the general concept of marketing•

introduce the basic fundamental of International Marketing•

establish the relationship between product life cycle, trade and investment•

Objectives

The objectives of this chapter are to:

enlistvariousdefinitionandoperationalactivitiesofmarketing•

understanding the strategic concept and modern culture trend of marketing•

explain global marketing•

enlist various marketing stages•

Learning outcome

At the end of this chapter, the students will be able to:

understand the concept of marketing•

difference between global market and local market•

analyse the product life cycle and how it affected by investments•


2

1.1 Introduction Whetheranorganizationmarketsitsgoodsandservicesdomesticallyorinternationally,thedefinitionofmarketingstill applies. Due to the globalization the scope of marketing is broadened when the organization decides to sell across international boundaries.For example, the organization’s language of business may be English, but it may have to conduct business in French, Japanese or German. This not only requires translation facility of various languages, but cultural conditions have to be accounted for as well. Doing business in different cultural forms may be different from doing it the English way. Let us, firstly definemarketing and then see how, bymarketing acrossmultinational boundaries, differences,whereever they exist, have to be accounted for.

1.2 Definition of Marketing Variousauthorshavedefinedthetermmarketinginmanywayssuchas;

S.Carterdefinesmarketingas:• The process of building lasting relationships through planning, executing and controlling the conception, pricing, promotion and distribution of ideas, goods and services to create mutual exchange that satisfy individual and organizational needs and objectives. Kotler says that • marketing is the social process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others.Adcockdefines• Marketing as the the right product, in the right place, at the right time, at the right price.Palmerdefines• marketing is essentially about marshalling the resources of an organization so that they meet the changing needs of the customer on whom the organization depends.Bartlesdefines• marketing is the process whereby society, to supply its consumption needs, evolves distributive systems composed of participants, who, interacting under constraints - technical (economic) and ethical (social) - create the transactions or flows which resolve market separations and result in exchange and consumption.

The long held tenets of marketing are:Customer value •Competitive advantage •Focus•

This means that organizations have to study the market, develop products or services that satisfy customer needs and wants, develop the 'correct' marketing mix and satisfy its own objectives as well as give the customer satisfaction onacontinuingbasis.However,itbecameclearinthe1980's, thatthedefinitionofmarketingwastoonarrow.Preoccupation with the tactical workings of the marketing mix led to neglect of long term product development, so strategic marketing was born. The focus shifted from knowing everything about the customer, to knowing the customer in a context which includes the competition, government policy and regulations, and the broader economic, social, and political macro forces that shape the evolution of markets.

Inglobalmarketingterms,thismeanscreatenetworking,workingcloselywithhomecountry’sgovernmentofficialsand industry competitors to gain access to a target market. Also, the marketing objective has changed from one of satisfyingorganizationalobjectivestooneofstakeholderbenefits-includingemployees,society,andgovernment.Profitisstillessentialbutnotanendinitself.

1.3 Understanding Strategic Marketing StrategicmarketingaccordingtoWensley,hasbeendefinedas:"initiating,negotiatingandmanagingacceptableexchange relationships with key interest groups or constituencies, in the pursuit of sustainable competitive advantage withinspecificmarkets,onthebasisoflongrunconsumer,channelandotherstakeholderfranchise."Whetheronetakesthedefinitionofmarketingorstrategicmarketing,marketingmuststillberegardedasbothaphilosophy and a set of functional activities. As a philosophy, embracing customer value (or satisfaction), planning, and organizing activities to meet individual and organizational objectives, marketing must be internalized by all membersofanorganization,becausewithoutsatisfiedcustomerstheorganizationwilleventuallydie.

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Marketing is only a philosophy. It has some operational activities also like:Advertising•Selling•Promotional activities•Campaigning •Market research•Product development•

It is both. In planning for marketing, the organization has to basically decide what it is going to sell, to which target market and with what marketing mix (5 P's: product, place, promotion, price and people).

Although these tenets of marketing planning must apply anywhere, when marketing across national boundaries, the difference between domestic and international marketing lies almost entirely in the differences in national environments within which the global programme is conducted and the differences in the organization and programs ofafirmoperatingsimultaneouslyindifferentnationalmarkets.

1.4 Post Modern Era of MarketingIt is recognized that in the post modern era of marketing, even the assumptions and long standing tenets of marketing like the concepts of consumer needs, consumer sovereignty, target markets and product/ market processes are being challenged. The emphasis is towards the emergence of the customizing consumer demand, that is, the customer who takes elements of the market offerings and moulds a customized consumption experience out of these.

Even further, post modernism, posts that the consumer who is the consumed, the ultimate marketable image, is also becoming liberated from the sole role of a consumer and is becoming a producer. This reveals itself in the desire for the consumer to become part of the marketing process and to experience immersion into “thematic settings” rather than merely encounter products.

So in consuming food products for example, it becomes not just a case of satisfying hunger needs, but also can be rendered as an image-producing act. Like if someone wants to reduce his or her thirst in the month of summer, thenthefirstthingcomesintomindisCocaCola(“ThandaboletoCocaCola”).Inthepostmodernmarketplacetheproductdoesnotprojectimages,itfillsimages.Thisistrueinsomefoodstuffs.Theconsumptionof“designerwater” or “slimming foods” is a statement of a self-image, not just a product consuming act.

Acceptance of post modern marketing affects discussions of products, pricing, advertising, distribution, and planning. However, given the fact that this textbook is primarily written with the developing economies in mind, where the environmental conditions, consumer sophistication and systems are not such that allow a quantum leap to postmodernism, it is intended to mention the concept in passing. Further discussion on the topic is available in the accompanying list of readings.

1.5 Global MarketingWhen organizations develop into global marketing organizations, they usually evolve into this from a relatively smallexportbase.Somefirmsnevergetanyfurtherthantheexportingstage.Marketingoverseascan,therefore,be anywhere on a continuum of 'foreign' to 'global.' It is well to note at this stage that the words 'international,' 'multinational' or 'global' are now rather outdated descriptions. In fact 'global' has replaced the other terms to all intents and purposes.

'Foreign' marketing means marketing in an environment different from the home base, it’s basic form being 'exporting'. Over time, this may evolve into an operating market rather than a foreign market. One such example is the Preferential Trade Area (PTA) in Eastern and Southern Africa where involved countries can trade inter-regionally under certain common modalities. Another example is the cold storage company of Zimbabwe.


4

Management emphasis

Stage one Domestic

Stage two International

Stage three Multinational

Stage four Global

Focus Domestic Ethnocentric Polycentric Geocentric

Marketing strategy Domestic Extension Adaption Extension

Structure Domestic International Worldwide areaAdaption creation matrix/mixed

Management style Domestic Centralised top down Decentralised bottom up Integrated

Manufacturing stance Mainly domestic Mainly domestic Host country Lowest cost worldwide

Investment policy Domestic Domestic used worldwide

Mainly in each host country

Cross subsidization

Performance evaluation Domestic market share

Against home country market share

Each host country market share Worldwide

Table 1.1 Stages of domestic to global evolution

In global marketing, the mode of operation is very different. Organizations begin to develop and run operations in the targeted country or countries outside of the domestic one. In practice, organizations evolve and Table 1.1 outlines a typology of terms which describes the characteristics of companies at different stages in the process of evolving from domestic to global enterprises.

1.6 Marketing Evolutionary StagesThe four stages of marketing's evolution are as follows:

I. Domestic focusStage one: Domestic in focus, with all activity concentrated in the home market. Whilst many organizations can survive like this, for example raw milk marketing, solely domestically oriented organizations are probably doomed to long term failure.

II. Home focusStage two: Home focus, but with exports (ethnocentric). Probably believes only in home values, but creates an export division. Example: Homemade pickles, spices which are distributed locally.

III. Multinational focusStage three: Organizations which come under stage two realize that they must adapt their marketing mixes to overseas operations. The focus switches to multinational (polycentric) and adaptation becomes paramount.

IV. Global focusStage four: Creating value by extending products, services globally and focus on serving emerging global markets (geocentric). This involves recognizing that markets around the world consist of similarities and differences and that it is possible to develop a global strategy based on similarities to obtain scale economies, but also recognizes and responds to cost effective differences. Its strategies are a combination of extension, adaptation, and creation. It is unpredictable in behavior and always alert to opportunities.

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1.7 Factors Leading to InternationalizationThere have been many underlying forces, concepts, and theories which have emerged as giving political explanation to the development of international trade. Remarkably, despite the trend to world interdependency, some countries have been less involved than others. Some of the major factors are like :

The reduction in trade and investment barriers in the post-World War II period. •The rapid growth and increase in the size of developing countries’ economies.•Changes in technologies.•

The USA, for example, has a remarkably poor export record. About 2000 US companies only account for more than 70% of US manufacturers’ exports. This has been mainly due to its huge statewide domestic market, which is tantamount to international trade, for example, Californian fruit being sold three thousand kilometers away in New Jersey.Japanhasrisenfasttodominatetheexportrankings,withcountriesofAfricastrugglingtomakeasignificantmark,mainlybecauseoftheiremphasisonexportingprimaryproducts.Thissectionwillbrieflyexaminetheforceswhich have been instrumental in the development of world trade.

1.8 The International Product Trade CycleThemodeldescribestherelationshipbetweentheproductlifecycle,tradeandinvestment(seefigure1.1)andisattributable to Venon1 (1966).

The international product trade cycle model suggests that many products go through a cycle during which high-income,mass consumption countrieswhich are initial exporters, lose their exportmarkets andfinally becomeimporters of the product. At the same time other countries, particularly less developed but not exclusively so, shift frombeingimporterstoexporters.ThesestagesarereflectedinFigure1.1.

Fig. 1.1 Relation between product life cycle (Trade and investment)


6

From a high income country point of view, Phase 1 involves exporting, based on domestic product strength and surplusPhase 2, when foreign production beginsPhase 3 when production in the foreign country becomes competitivePhase 4 when import competition begins

Theassumptionbehindthiscycleisthatnewproductsarefirstlylaunchedinhighincomemarketsbecausea)thereis the potential is vast and b) the product can be tested best domestically, near its source of production. Thus, new products generally emanate from high income countries and, over time, orders begin to be solicited from lower income countries and so a thriving export market develops. High income country entrepreneurs quickly realize that the markets to which they are selling often have lower production costs and so production is initiated abroad for the new products, so starts the second stage.

In the second stage of the cycle, foreign and high income country production begins to supply the same export market. As foreign producers begin to expand and gain more experience, their competition displaces the high income export production source. At this point high income countries often decide to invest in foreign countries to protect their share. As foreign producers expand, their growing economies of scale make them a competitive source for third country markets where they compete with high income exporters.

Thefinalphaseofthecycleoccurswhentheforeignproducerachievessuchascaleandstartsexportingtotheoriginal high income producer at a production cost lower than its original high income producer, at a production cost lower than its original high income supplier. High income producers, once enjoying a monopoly in their own market, now face competition at home. The cycle continues as the production capability in the product extends fromotheradvancedcountriestolessdevelopedcountriesathome,thenininternationaltrade,andfinally,inotheradvanced countries’ home markets.

Whilst the underlying assumption behind the International product trade cycle is that the cycle begins with the export of new product ideas from high income countries to low income importers, and then low income countries begin production of the product, etc., Things do not always turn out as the cycle suggests. Sometimes a high or even low income exporter may put a product into a high/low income country which is simply unable to respond. In this case, theTradeCycleceasestobetheunderpinningconcept.Thismaybeduetoanumberoffactorslike;

lack of access to capital to build the facilities to respond to the import•lack of skills or that the costs of local production cannot get down to the level of costs of the imported •product

In this case, product substitution between the exporter and importer may also take place. A classic example of this phenomenon is the case of Zimbabwe Sunsplash fruit juice drinks.

1.9 Orientation of ManagementPerlmutter(1967)identifieddistinctive“orientations”ofmanagementofinternationalorganizations.His'EPRG'scheme identified four types of attitudes or orientations associatedwith successive stages in the evolution ofinternational operations -

Ethnocentrism - home country orientation - exporting surplus•Polycentrism - host country orientation - subsidiary operation•Regiocentrism - regional orientation - world market strategies•Geocentrism - world orientation - world market strategies•

7

Summary Firstly,itcoveredtheconceptofmarketingbyelaboratingsomeoftheimportantdefinitionofmarketing.The•focus of marketing shifted from knowing everything about the customer, to knowing the customer in a context which includes the competition, government policy and regulations, and the broader economic, social, and political macro forces that shape the evolution of markets. The 'post modern' era of marketing, even the assumptions and long standing tenets of marketing like the concepts •of 'onsumer needs, consumer sovereignty, target markets and product/ market processes are being challenged.When organizations develop into global marketing organizations, they usually evolve into this from a relatively •smallexportbase.Somefirmsnevergetanyfurtherthantheexportingstage.Marketingoverseascan,therefore,be anywhere on a continuum from foreign to global.Someofthemajorfactorsofinternationalizationarediscussedsuchas;thereductionintradeandinvestment•barriers in the post-World War II period, the rapid growth and increase in the size of developing countries’ economies and changes in technologies.The international product trade cycle model suggests that many products go through a cycle during which high-•income,massconsumptioncountrieswhichareinitialexporters,losetheirexportmarketsandfinallybecomeimporters of the product.

ReferencesSomebasic definition ofmarketing andmarketing concept. http://www.marketingteacher.comhttp://www.•marketingteacher.com/lesson-store/lesson-what-is-marketing.html. Last accessed 10th March 2011.Keegan W.J(2003). • Global marketing Management. 4th ed. Prentice Hall International Edition.World Bank. World Development Report. The Challenge of Development. Oxford University.•

Recommended ReadingPhilip R. Cateora. (March 2004).• International Marketing:Concept of Marketing.McGraw-HillCompanies;12th ed. Hakan Hakansson. • International Marketing and Purchasing of Industrial goods. John Wiley & Sons.Michael R. Czinkota, Illka A. Ronkainen. International Marketing. Publisher: South-Western College.•


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Self Assessment

Over the last few decades, ———————— have grown because of a number of market factors. 1. Internationalisma. terrorism b. warfarec. restrictionsd.

EPRGschemeidentified—————typesofattitudesororientationsassociatedwithsuccessivestagesinthe2. evolution of international operations.

two a. four b. three c. fived.

Acceptance of ———————— marketing affects discussions of products, pricing, advertising, distribution 3. and planning.

post-moderna. pre-modernb. ancientc. marketing trendsd.

Standardised approach towards International Marketing can be aided and abetted with ————————.4. technology a. financeb. raw material c. technologyd.

International ———————— cycle is that the cycle begins with the export of new product ideas from high 5. income countries to low income importers.

product trade a. culture trade b. income trade c. custom traded.

The more culturally unbounded the product is, the more can ————— clustering take place. 6. domestic a. global b. economic c. financiald.

The international product trade cycle ——————— suggests that many products go through a cycle.7. modela. trendb. directionc. process d.

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High-income, mass consumption countries which are initial —————, lose their export markets. 8. importers a. exporters b. local c. global marketersd.

Stage two organizations which realize that they must adapt their ———— to overseas operations. 9. marketing mixes a. culture mixes b. joint venture mixes c. corporate mixesd.

The scope of marketing is broadened when the organization decides to sell across ————————— 10. boundaries.

domestic a. international b. district c. global d.


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Chapter II

The Marketing Environment

Aim


explain the environmental concept of marketing•

introduce strategic planning in the marketing process•

indentify various changing attitude of behavioural intention•

Objectives


describe the economic cycle for international marketing, BCG matrix and SWOT analysis•

enlist various levels of strategic planning and factors affecting consumer behaviour•

formulate the family life cycle for international marketing•

explain the concept of organisational buyer•

Learning outcome


understand the various environmental factors affecting marketing concept•

know about strategic levels of marketing process•

identify the economic factors which effects the global marke• t

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2.1 Introduction Last chapter we discussed about general overview of marketing and various stages of marketing starting from local market to global market. To support the global marketing, various environmental elements should be considered.

The elements are likePolitical•Competition•Economics•Technological•Legal•Social•

Political: Businesses are very vulnerable to changes in the political situation. For example, because consumer groups lobbied Congress, more stringent rules were made on the terms of car leases. The tobacco industry is currently the target of much negative attention from government and public interest groups. Currently, the desire to avoid aiding theenemymayresultinlawsthatmakeitmoredifficultforAmericanfirmstoexportgoodstoothercountries.

Competition: Competitorsoftencreepinandthreatentotakeawaymarketsfromfirms.Forexample,Japaneseauto manufacturers became a serious threat to American car makers in the late 1970s and early 1980s. Similarly, theLotusCorporation,makerofoneofthefirstcommerciallysuccessfulspreadsheets,soonfacedcompetitionfromothersoftwarefirms.Notethatwhilecompetitionmaybefrustratingforthefirm,itisgoodforconsumers.Infact,wewillcomebacktothis point when we consider the legal environment. Note that competition today is increasingly global in scope.

Economics: Somefirmsinparticularareextremelyvulnerabletochangesintheeconomy.Consumerstendtoputoffbuyinganewcar,goingouttoeat,orbuildingnewhomesinbadtimes.Incontrast,ingoodtimes,firmsservingthoseneedsmayhavedifficultykeepingupwithdemand.

Technological: Changesin technologymaysignificantly influencethedemandforaproduct.Forexample, theadvent of the fax machine was bad news for Federal Express.

Legal: Firms are very vulnerable to changing laws and changing interpretations by the courts. Firms in the U.S. are very vulnerable to lawsuits. McDonald’s, for example, is currently being sued by people who claim that eating the chain’s hamburgers caused them to get fat.Someimpactsofthelegalenvironment:Firmsaresignificantlylimitedinwhattheycandobyvariouslaws—somelaws, for example, require that disclosures be made to consumers on the effective interest rates they pay on products bought on installment. A particularly interesting group of laws relate to antitrust. These laws basically exist to promotefaircompetitionamongfirms.Someprinciplesinvolvedhereinclude:

Collusion: • Firmsmaynotconspiretofixprices(agreethattheywillnotsellbelowanagreeduponprice)orreduce services.Predation: • Firms may not sell their products below their cost of production for the purpose of driving competitors out of business so that they, themselves, can raise prices when competition is reduced.Market share: • Firms which have an unacceptably large market share may be broken up by court order so that manysmallerfirmswillbearoundtocompete(ThisiswhathappenedtoAT&T,andattimes,IBMhasbeenworried about this prospect).Tying: • Afirmthatcontrolsavaluableproductmaynotrequiretheconsumertobuyamorecommonplaceoneto get the scarce product. For example, Intel controls many of the newest microprocessors (e.g., Pentium IV). Intelalsomakesmotherboardsforcomputers;however,motherboardsaremadebyalotoffirms.Intelwouldbe thought to abuse its effective monopoly power if it required consumers to buy a motherboard in order to get its newest chips.


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Social: Changesincustomsordemographicsgreatlyinfluencefirms.Morewomenworkoutsidethehometoday,sothere is a greater demand for prepared foods. There are more unmarried singles today. This provides opportunities forsomefirms(e.g.,fastfoodrestaurants).Today,therearemoreblendedfamiliesthatresultasparentsremarryafter divorce. These families are often strapped for money but may require duplicate items for children at each parent’s residence.

2.2 Economic CyclesThe economy goes through cycles. In the late 1990s, the U.S. economy was quite strong, and many luxury goods weresold.Currently,theeconomyissomewhatweak,andmanyfirmsarefacingtheresults.

Carmakers,forexample,haveseendecliningprofitmargins(andevenlosses)astheyhavehadtocutpricesandofferlowinterestratesonfinancing.Generally,ingoodeconomictimes,thereisagreatdealofdemand,butthisintroducesafearofpossibleinflation.IntheU.S.,theFederalReservewillthentrytopreventtheeconomyfromoverheating. This is usually done by raising interest rates. This makes businesses less willing to invest, and as a result, people tend to make less money. During a recession, unemployment tends to rise, causing consumers to spend less. This may result in a bad circle, with more people losing their jobs due to lowered demands. Some businesses, however, may take this opportunity to invest in growth now that things can be bought more cheaply.

2.3 Strategic Planning and the Marketing ProcessI. Plans and planningIn general strategy, it means Plan of Action. Plans are needed to clarify what kinds of objectives an organization would like to achieve and how this is to be done. Such plans must consider the availability of resources like one of the major resource is capital.

Microsoft keeps a great deal of cash on hand to be able to jump on opportunities that come about. Small startup softwarefirms,ontheotherhand,mayhavelimitedcashonhand.Thismeansthattheymayhavetoforegowhatwouldhavebeenagoodinvestmentbecausetheydonothavethecashtoinvestandcannotfindawaytoraisethecapital.

Otherresourcesthataffectwhatafirmmaybeabletoachieveincludetrademarks/brandnames.ItwouldbeverydifficulttocompetewithfactorssuchasPatents.ItwouldbedifficulttocompeteagainstCokeandPepsiinthecolamarket,competeagainstIntelandAMDinthemicroprocessormarketsinceboththesefirmshaveanumberofpatentsthataredifficulttogetaround.

Plansaresubjecttothechoicesandpoliciesthattheorganizationhasmade.Somefirmshavegoalsofsocialresponsibility,forexample.Somefirmsarewillingtotakegreaterrisks,whichmayresultinaverylargepayoffbutalso involve the risk of a large loss, than others. Figure 2.1 shows the entities relate to strategy. Strategic marketing is best seen as an ongoing and never-ending process. Typically:

theorganizationwillidentifytheobjectivesitwishestoachieve.Thiscouldinvolveprofitabilitydirectly,but•oftenprofitabilityisalongtermgoalthatmayrequiresomeintermediatesteps.Thefirmmayseektoincreasemarket share, achieve distribution in more outlets, have sales grow by a certain percentage, or have consumers evaluatetheproductmorefavorably.Someorganizationshaveobjectivesthatarenotfocusedonmonetaryprofite.g., promoting literacy or preventing breast canceran analysis is made, taking into consideration issues such as organizational resources, competitors, the competitors’ •strengths, different types of customers, changes in the market, or the impact of new technologybased on this analysis, a plan is made based on tradeoffs between the advantages and disadvantages of the •different options availablethisstrategyisthencarriedout.Thefirmmaydesignnewproducts,revampitsadvertisingstrategy,investin•getting more stores to carry the product, or decide to focus on a new customer segmentafter implementation, the results or outcome are evaluated. If results are not as desired, a change may have to be •madetothestrategy.Evenifresultsaresatisfactory,thefirmstillneedstomonitortheenvironmentforchanges

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Fig. 2.1 Components of strategyII Levels of strategyPlansforafirmcanbemadeatseveraldifferentlevelslike;

Corporate level•Business level•Functional level•

At the corporate level,themanagementconsiderstheobjectivesofthefirmasawhole.Forexample,Microsoftmay want to seek to grow by providing high quality software, hardware, and services to consumers. To achieve this goal,thefirmmaybewillingtoinvestaggressively.

Plans can also be made at the business unit level. For example, although Microsoft is best known for its operating systemsandapplicationssoftware,thefirmalsoprovidesInternetaccessandmakesvideogames.Differentmanagerswill have responsibilities for different areas, and goals may best be made by those closest to the business area being considered. It is also more practical to hold managers accountable for performance if the plan is being made at a morespecificlevel.Therefore,plansareneededbothatthecorporateandatthebusinesslevels.

Occasionally, plans will be made at the functional level, to allow managers to specialize and to increase managerial accountability. Marketing, for example, may be charged with increasing awareness of Microsoft game consoles to 55%oftheU.S.populationortoincreasethenumberofunitsofMicrosoftOfficesold.Financemaybechargedwith raising a given amount of capital at a given cost. Manufacturing may be charged with decreasing production costs by 5%.

Afirm’smissionshouldgenerallyincludeadiscussionofthecustomersserved(e.g.,Wal-MartandNordstrom’sserve different groups), the kind of technology involved, and the markets served.Several issues are involved in selecting target customers. We will consider these in more detail within the context ofsegmentation,butfornow,thefirmneedstoconsiderissuessuchas:

the size of various market segments•howwellthesesegmentsarebeingservedbyexistingfirms•


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Fig. 2.2 BCG Matrixchanges in the market e.g., growth of segments or change in technology•howthefirmshouldbepositioned,orseenbycustomers.Forexample,Wal-Martpositionsitselfasproviding•valueinretailing,whileNordstrom’sdefinesitselfmoreintermsofhighlevelsofcustomerservice

III Boston Consulting Group MatrixTheBostonConsultingGroupmatrixprovidesafirmanopportunitytoassesshowwellitsbusinessunitsworktogether. Each business unit is evaluated in terms of two factors:

market share•growth prospects in the market•

Basically, larger the firm’s share, stronger is its position and greater the growth in themarket, better futureopportunities. The following four combinations emerge:

A star represents a business unit that has a high share in a growing market. For example, Nokia has a large share •in the rapidly growing market for cellular phones.Aquestionmarkresultswhenaunithasasmallshareinarapidlygrowingmarket.Thefirm’sposition,then,is•not as strong as it would have been had its market share been greater, but there is an opportunity to grow. For example, Hewlett-Packard has a small share of the digital camera market, but this is a very rapidly growing market.Acashcowresultswhenafirmhasalargeshareinamarketthatisnotgrowing,andmayevenbeshrinking.•Brother has a large share of the typewriter market.A dog results when a business unit has a small share in a market that is not growing. This is generally a somewhat •unattractivesituation,althoughdogscanstillbeprofitableintheshortrun.Forexample,SmithCoronanowhasa small share of the typewriter market.

Firmsareusuallybestoffwithaportfoliothathasabalanceoffirmsineachcategory.Thecashcowstendtogeneratecash but require little future investment. On the other hand, stars generate some cash, but even more cash is needed to invest in the future—for research and development, marketing campaigns, and building new manufacturing facilities.Therefore,afirmmaytakeexcesscashfromthecashcowanddivertittothestar.Forexample,Brothercouldharvestitsprofitsfromtypewritersandinvestthisintheunitmakingcolourlaserprinters,whichwillneedthecashtogrow.Ifafirmhascashcowsthatgeneratealotofcash,thismaybeusedtotrytoimprovethemarketshareofaquestionmark.Afirmthathasanumberofpromisingstarsinitsportfoliomaybeinserioustroubleifitdoesnothaveanycashcowstosupportit.Ifitisabouttorunoutofcash—regardlessofhowprofitableitis—itbecomesvulnerableasatakeovertargetfromafirmthathasthecashtocontinuerunningit.

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2.4 SWOT AnalysisSWOT is the acronym for Strengths, Weaknesses, Opportunities and Threats. It represents a conscious, deliberate andsystematiceffortbyanorganisationtoidentifyopportunitiesthatcanbeprofitablyexploitedbyit.PeriodicSWOT analysis facilitates the generation of ideas. The factors in SWOT analysis will vary from project to project. Some of the common features of SWOT analysis include:

Strengths Weaknesses Opportunities Threatsbrand reputation•customer satisfaction•less cost and more •productionstrong distribution •channeloptimum utilisation of •scarce resources

a weak brand name•poor reputation among •customershigh cost structure•lack of access to the •best natural resourceslack of access to key •distribution

unfulfilledcustomer•needsnew technologies•removal of •international trade barrier

new regulations•entry of new •competitorincreasing trade •barriers

2.5 Consumer Behaviour Consumerbehaviourinvolvesthepsychologicalprocessesthatconsumersgothroughinrecognisingneeds,findingways to solve these needs, making purchase decisions (e.g., whether or not to purchase a product and, if so, which brand and where), interpret information, make plans, and implement these plans (e.g., by engaging in comparison shopping or actually purchasing a product).

2.5.1 Factors Affecting Consumer Behaviour Often,wetakeculturalinfluencesforgranted,buttheyaresignificant.AnAmericanwillusuallynotbargainwithastoreowner.This,however,isacommonpracticeovertheworld.Physicalfactorsalsoinfluenceourbehaviour.We are more likely to buy a soft drink when we are thirsty, for example, and food manufacturers have found that it is more effective to advertise their products on the radio in the late afternoon when people are getting hungry. A person’sself-imagewillalsotendtoinfluencewhatheorshewillbuy—anupwardlymobilemanagermaybuyaflashycartoprojectanimageofsuccess.Socialfactorsalsoinfluencewhattheconsumersbuy—often,consumersseek to imitate others whom they admire, and may buy the same brands. The social environment can include both themainstreamculture(e.g.,Americansaremorelikelytohavecornflakesorhamandeggsforbreakfastthanto


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Fig. 2.3 Factors of consumer behaviour

rice, which is preferred in many Asian countries) and a subculture (e.g., rap music often appeals to a segment within the population that seeks to distinguish itself from the mainstream population). Thus, sneaker manufacturers are eagertohavetheirproductswornbyadmiredathletes.Finally,consumerbehaviourisinfluencedbylearning—youtryahamburgerandlearnthatitsatisfiesyourhungerandtastesgood,andthenexttimeyouarehungry,youmayconsider another hamburger.

2.5.2 Consumer AttitudeConsumer attitudes are a composite of a consumer’s (1) beliefs about (2) feelings about (3) and behavioural intentions toward some object within the context of marketing, usually a brand, product category, or retail store. These componentsareviewedtogethersincetheyarehighlyinterdependentandtogetherrepresentforcesthatinfluencehow the consumer will react to the object.

2.5.3 Consumer BeliefsThefirstcomponent isbeliefs.Aconsumermayholdbothpositivebeliefs towardanobject (e.g.,coffee tastesgood) as well as negative beliefs (e.g., coffee is easily spilled and stains papers). In addition, some beliefs may be neutral (coffee is black), and some may be differ depending on the person or the situation (e.g., coffee is hot and stimulates—good on a cold morning, but not well on a hot summer evening when one wants to sleep). Note also that the beliefs that consumers hold need not be accurate (e.g., that pork contains little fat), and some beliefs may, upon closer examination, be contradictory.

2.5.4 Consumer EffectsConsumers also hold certain feelings toward brands or other objects. Sometimes these feelings are based on the beliefs (e.g., a person feels nauseated when thinking about a hamburger because of the tremendous amount of fat it contains), but there may also be feelings which are relatively independent of beliefs. For example, an extreme environmentalist may believe that cutting down trees is morally wrong, but may have positive effect toward Christmas trees because he or she unconsciously associates these trees with the experience that he or she had at Christmas as a child.

Perception/Sensation

Cognition

Affect

Beliefs

Social and other influence

Market Research

Strategy

Consumer

Info Search

Choices

Preferences

Communication

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2.6 Behavioural IntentionBehavioural intention is what the consumer plans to do with respect to the object (e.g., buy or not buy the brand). Aswitheffect, this is sometimesa logicalconsequenceofbeliefs (oreffect),butmaysometimes reflectothercircumstances e.g., although a consumer does not really like a restaurant, he or she will go there because it is a hangout for his or her friends.

Changingattitudesisgenerallyverydifficult,particularlywhenconsumerssuspectthatthemarketerhasaself-serving agenda in bringing about this change (e.g., to get the consumer to buy more or to switch brands). Here are some possible methods:

Changing effect: One approach is to try to change effect, which may or may not involve getting consumers to •change their beliefs. One strategy uses the approach of classical conditioning - trying to pair the product with a liked stimulus. For example, we pair a car with a beautiful woman. Alternatively, we can try to get people to like the advertisement and hope that this liking will spill over into the purchase of a product. For example, the PillsburyDoughboydoesnotreallyemphasisetheconveyanceofmuchinformationtotheconsumer;instead,it attempts to create a warm, fuzzy image. Although Energizer Bunny ads try to get people to believe that their batteries last longer, the main emphasis is on the likeable bunny. Finally, products which are better known, through the mere exposure effect, tend to be better liked—that is, the more a product is advertised and seen in stores,themoreitwillgenerallybeliked,evenifconsumerstodonotdevelopanyspecificbeliefsabouttheproduct.

Changingbehaviour:Peopleliketobelievethattheirbehaviourisrational;thus,oncetheyuseourproducts,•chances are that they will continue unless someone is able to get them to switch. One way to get people to switch toourbrandistousetemporarypricediscountsandcoupons;however,whenconsumersbuyaproductonadeal, they may justify the purchase based on that deal (i.e., the low price) and may then switch to other brands on deal later. A better way to get people to switch to our brand is to at least temporarily obtain better shelf space so that the product is more convenient. Consumers are less likely to use this availability as a rationale for their purchase and may continue to buy the product even when the product is less conveniently located.

Changing beliefs: Although attempting to change beliefs is the obvious way to attempt attitude change, particularly •whenconsumersholdunfavourableorinaccurateones,thisisoftendifficulttoachievebecauseconsumerstendto resist. Several approaches to belief change exist:

Changecurrentlyheldbeliefs:Itisgenerallyverydifficulttoattempttochangebeliefsthatpeoplehold, �particularly those that are strongly held, even if they are inaccurate. For example, the petroleum industry advertisedforalongtimethatitsprofitswerelowerthanwerecommonlybelieved,andprovidedextensivefactual evidence in its advertising to support this reality. Consumers were suspicious and rejected this information, however.Change the importance of beliefs: Although the sugar manufacturers would undoubtedly like to decrease the �importance of healthy teeth, it is usually not feasible to make beliefs less important — consumers are likely toreason,why,then,wouldyoubotherbringingthemupinthefirstplace?However,itmaybepossibletostrengthen beliefs that favour us e.g., a vitamin supplement manufacturer may advertise that it is extremely important for women to replace iron lost through menstruation. Most consumers already agree with this, but the belief can be made stronger. Consumers are less likely to resist the addition of beliefs so long as they donotconflictwithexistingbeliefs.Thus,thebeefindustryhasaddedbeliefsthatbeef(1)isconvenientand (2) can be used to make a number of creative dishes. Vitamin manufacturers attempt to add the belief that stress causes vitamin depletion, which sounds quite plausible to most people.Changetheideal:It isusuallydifficult,andveryrisky,toattempttochangeideals,andonlyfewfirms �succeed. For example, Hard Candy may have attempted to change the ideal away from traditional beauty toward more unique self-expression.


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2.7 Reference GroupAusefulframeworkofanalysisofgroupinfluenceontheindividualisthesocalledreferencegroup—thetermcomesabout because an individual uses a relevant group as a standard of reference against which oneself is compared. Reference groups come in several different forms. The inspirational reference group refers to those others against whomonewouldliketocompareoneself.Forexample,manyfirmsuseathletesasspokespeople,andtheserepresentwhat many people would ideally like to be. Associative reference groups include people who more realistically represent the individuals’ current equals or nearequals—e.g., co-workers, neighbours, or members of churches, clubs, and organisations. Finally, the dissociative reference group includes people that the individual would not like to be like. For example, the store literally named The Gap came about because many younger people wanted to actively dissociatefromparentsandotherolderanduncoolpeople.Thequalitypaperbackbookspecificallysuggestsinitsadvertising that its members are a breed apart from conventional readers of popular books.

2.8 The Family Life CycleIndividuals and families tend to go through a life cycle. The simple life cycle goes from child/teenager —> young single —> young couple —> full nest — > empty nest —> widow(er).

In real life, this situation is, of course, a bit more complicated. For example, many couples undergo divorce. Then we have the scenario: full nest —> single parent.

Thissituationcanresulteitherfromdivorceorfromthedeathofoneparent.Divorceusuallyentailsasignificantchange in the relative wealth of spouses. In some cases, the non-custodial parent (usually the father) will not pay the required child support, and even if he or she does, that still may not leave the custodial parent and children as well off as they were during the marriage. On the other hand, in some cases, some non-custodial parents will be called on to pay a large part of their income in child support. This is particularly a problem when the non-custodial parent remarries and has additional children in the second (or subsequent marriages). In any event, divorce often results in a large demand for:

low cost furniture and household items•time saving goods and services•

Divorcedparentsfrequentlyremarry,orbecomeinvolvedinothernon-maritalrelationships;thus,wemayseefullnest —> single parent —> blended family. Here, the single parent who assumes responsibility for one or more children may not form a relationship with the other parent of the child.Generally,therearetwomainthemesintheFamilylifecycle,subjecttosignificantexceptions:

As a person gets older, he or she tends to advance in his or her career and tends to get greater income (exceptions: •maternity leave, divorce, retirement).Unfortunately, obligations also tend to increase with time (at least until one’s mortgage has been paid off). •Children and paying for one’s house are two of the greatest expenses.

Note that although a single person may have a lower income than a married couple, the single may be able to buy more discretionary items since he or she has fewer current obligations. This will change when a house is bought or children come along.

2.9 Family Decision MakingIndividual members of families often serve different roles in decisions that ultimately draw on shared family resources. Some individuals are information gatherers/holders, who seek out information about products of relevance. These individuals often have a great deal of power because they may selectively pass on information that favours their chosenalternatives.Influencersdonotultimatelyhavethepowertodecidebetweenalternatives,buttheymaymaketheirwishesknownbyaskingforspecificproductsorcausingembarrassingsituationsiftheirdemandsarenotmet.The decision maker(s) have the power to determine issues such as:

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Whether to buy•Which product to buy •Which brand to buy•Where to buy it•When to buy•

Note, however, that the role of the decision maker is separate from that of the purchaser. From the point of view of the marketer, this introduces some problems since the purchaser can be targeted by point-of-purchase (POP) marketing efforts that cannot be aimed at the decision maker. Also note that the distinctions between the purchaser and decision maker may be somewhat blurred:

The decision maker may specify what kind of product to buy, but not which brand•The purchaser may have to make a substitution if the desired brand is not in stock•The purchaser may disregard instructions (by error or deliberately)•

Itshouldbenotedthatfamilydecisionsareoftensubjecttoagreatdealofconflict.Therealityisthatfewfamiliesarewealthyenoughtoavoidstrongtensionbetweendemandsonthefamily’sresources.Conflictingpressuresareespecially likely in families with children and/or when only one spouse works outside the home. Note that many decisions inherently come down to values, and that there is frequently no objective way to arbitrate differences. Onespousemaybelievethatitisimportanttosaveforthechildren’sfuture;theothermayvaluespendingnow(onprivateschoolsandcomputerequipment)tohelppreparethechildrenforthefuture.Whoisright?Thereisnoclearanswer here. The situation becomes even more complex when more parties such as, children or other relatives are involved.

CultureCultureispartoftheexternalinfluencesthatimpacttheconsumer.Thatis,culturerepresentsinfluencesthatareimposed on the consumer by other individuals.

The United States has undergone some changes in its predominant culture over the last several decades. Again, however, it should be kept in mind that there are great variations within the culture. For example, on the average, Americanshavebecomelessmaterialisticandhavesoughtmoreleisure;ontheotherhand,thepercentageofpeopleworking extremely long hours has also increased.

SignificantchangeshaveoccurredingenderrolesinAmericansociety.Oneofthereasonsforthisisthatmorewomen work outside the home than before. However, women still perform a disproportionate amount of housework, and men who participate in this activity tend to do so reluctantly. In general, commercials tend to lag somewhat behind reality e.g., few men are seen doing housework, and few women are seen as buyers and decision makers on automobile purchases.

Regionalinfluence,bothintheUnitedStatesandotherareas,issignificant.Manyfoodmanufacturersofferdifferentproduct variations for different regions. Joel Girardeau, in his book The Nine Nations of North America, proposed ninedistinctregionalsub-culturesthatcutacrossstatelines.Althoughsignificantregionaldifferencesundoubtedlyexist,researchhasfailedtosupportGirardeau’sspecificcharacterisations.

Consumer behaviour is frequently affected by the situation. For example, people may buy different products when shopping for others than they would for themselves. We tend to make quicker but less elaborate decisions when facingtimepressure.Therearealsoinfluencesofmood.Forexample,peoplewhoareunhappytendtomakemorerational and more critical decisions.


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2.10 Organisational BuyersA large portion of the market for goods and services is attributable to organisational, as opposed to individual, buyers. In general, organisational buyers, who make buying decisions for their companies for a living, tend to be somewhat more sophisticated than ordinary consumers. However, these organisational buyers are also often more risk averse. There is a risk in going with a new, possibly better (lower price or higher quality) supplier whose product is unproven and may turn out to be problematic. Often the fear of running this risk is greater than the potential rewardsforgettingabetterdeal.Intheolddays,itusedtobesaidthat“Youcan’tgetfiredforbuyingIBM.”Thisattitudeisbeginningtosoftenabittodayasfirmsfaceincreasingpressurestocutcosts.

Organisational buyers come in several forms. Resellers involve either wholesalers or retailers that buy from one organisation and resell to some other entity. For example, large grocery chains sometimes buy products directly from the manufacturer and resell them to end-consumers. Wholesalers may sell to retailers who in turn sell to consumers.Producersalsobuyproductsfromsub-manufacturerstocreateafinishedproduct.Forexample,ratherthan manufacturing the parts themselves, computer manufacturers often buy hard drives, motherboards, cases, monitors,keyboards,andothercomponentsfrommanufacturersandputthemtogethertocreateafinishedproduct.Governments buy a great deal of things. For example, the military needs an incredible amount of supplies to feed and equip troops. Finally, large institutions buy products in huge quantities. For example, UCR probably buys thousands of reams of paper every month.

Organisational buying usually involves more people than individual buying. Often, many people are involved in making decisions as to

whether to buy•what to buy•at what quantity•from whom•

Anengineermaymakeaspecificationastowhatisneeded,whichmaybeapprovedbythemanagers,withthefinalpurchasebeingmadebyapurchasespecialistwhospendsallofhisorhertimefindingthebestdealonthegoods that the organisation needs. Often, such long purchase processes can cause long delays. In the government, rulesareoftenespeciallystringente.g.,vendorsoffruitcakehavetomeetfourteenpagesofspecificationsputoutby the General Services Administration. In many cases, government buyers are also heavily bound to go with the lowestprice.Evenifitisobviousthatahigherpricedvendorwillofferasuperiorproduct,itmaybedifficulttoaccept that bid.

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Summary Firstlyitcoveredvariousenvironmentalelementslike;Political,Competition,Economics,Technological,Legal•and Social.Then it described for various strategic planning and processes. In general strategy, it means 'Plan of Action'. •Plans are needed to clarify what kinds of objectives an organization would like to achieve and how this is to be done. Such plans must consider the availability of resources like one of the major resource is capital.Plansforafirmcanbemadeatseveraldifferentlevelslike;Corporatelevel,BusinesslevelandFunctional•level.TheBostonConsultingGroupmatrixprovidesafirmanopportunitytoassesshowwellitsbusinessunitswork•together. Each business unit is evaluated in terms of two factors: market share and the growth prospects in the market.Consumer behaviour involves the psychological processes that consumers go through in recognising needs, •findingwaystosolvetheseneeds,makingpurchasedecisions(e.g.,whetherornottopurchaseaproductand,if so, which brand and where), interpret information, make plans, and implement these plans (e.g., by engaging in comparison shopping or actually purchasing a product).Thefirstcomponentisbelief.Aconsumermayholdbothpositivebeliefstowardanobject(e.g.,coffeetastes•good) as well as negative beliefs (e.g., coffee is easily spilled and stains papers). In addition, some beliefs may be neutral (coffee is black), and some may differ depending on the person or the situation (e.g., coffee is hot and stimulates—good on a cold morning, but not well on a hot summer evening when one wants to sleep).Ausefulframeworkofanalysisofgroupinfluenceontheindividualisthesocalledreferencegroup—theterm•comes about because an individual uses a relevant group as a standard of 'reference' against which oneself is compared. Reference groups come in several different forms.A large portion of the market for goods and services is attributable to organisational, as opposed to individual, •buyers. In general, organisational buyers, who make buying decisions for their companies for a living, tend to be somewhat more sophisticated than ordinary consumers.

References Ries A. Trout J. Positioning. • The Battle of Your mind.Warren J. Keegan, Mark Green, • Global Marketing (3rd Editionpages, Publisher: Prentice Hall)Masaaki Kotabe, Kristiaan Helsen. • Global Marketing Management Publisher: Wiley

Recommended ReadingVern Terpstra, Lloyd C. • International Dimensions of Marketing. Russow Publisher: South-Western CollegeHakan Hakansson. • International Marketing and Purchasing of Industrial goods. John Wiley & Sons.Michael R. Czinkota, Illka A. Ronkainen. • International Marketing. Publisher: South-Western College


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Self Assessment

————————— auto manufacturers became a serious threat to American car makers in the late 1970s. 1. Japanese a. Indian b. China c. Brazild.

Organisational buying usually involves ———— people than individual buying. 2. more a. less b. equalc. nilld.

Family decisions are often subject to a great deal of ———————. 3. understandingsa. conflictb. economical c. negotiation d.

The reality is that few families are ——————— enough to avoid a strong tension due to demands on the 4. family’s resources.

wealthy a. poor b. not capable c. educatedd.

Consumer ———————— are a composite of a consumer’s beliefs, feelings and behavioural intentions 5. toward an object.

attitudesa. habits b. responses c. behaviourd.

Usually a brand, product category, or retail store components are viewed together since they are highly 6. __________.

interdependenta. independentb. costly c. capabled.

The beliefs that consumers hold need not be ———————. 7. incorrect a. accurate b. wrong c. particular d.

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Consumers holding certain feelings toward brands or other objects are based on 8. ————————————.

misunderstandings a. beliefs b. miscommunication c. mismanagementd.

An extreme environmentalist may ——————— that cutting down trees is morally wrong.9. believe a. not believe b. not agree c. acceptd.

Changing attitudes is generally ————————, particularly when consumers suspect that the marketer 10. has a self-serving 'agenda'.

notdifficulta. difficultb. easy c. manipulative d.


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Chapter III

Economic Environment

Aim


describe the economic environment in general•

explain the global economy•

identifythebalanceofpaymentinfinancialtransformation•

Objectives


explain the major changes in global economy•

identify the global economy in terms of world trade and comparative cost•

explain the nature of economy in economic environment•

enlist the economic activity as per countries•

Learning outcome


understandtheeconomicenvironmentanditsfluctuation•

understand the global effect in marketing concept•

identify the developing and developed countries as per their economic activities•

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3.1 IntroductionThe chapter starts off with a review of the global economy, the composition of world trade and the World Trade Institutions. Regionalism is a major phenomenon of the late 80's and early 90's and so the chapter describes in detail a number of major regional economic blocs. Very important in any discussion on economic factors is the size ofmarket,andmorespecifically,themarketabilitytopurchase,whichdependsonlevelsofincome.Thechapterfinishesbylookingatthenatureofeconomicactivityincludingthestagesofmarketdevelopment,urbanisationandinfrastructure as important precursors to the degree of economic activity.

3.2 Economic Marketing OverviewInthepastfiftyyearstheglobaleconomyhaschangedrapidly.Particularlymarkedhasbeenthedevelopmentofworld economic integration and standardised products. Coca Cola, Nissan and Marlboro cigarettes are examples of products which serve nearly every market. Generally there have been three major changes:

capital movements rather than trade have become the driving force of the global economy•production has become 'uncoupled' from employment•primary products have become “uncoupled” from the industrial economy •

The world economy is in control - individual nations are not, despite the large world economic share of the USA and Japan.

Taking each of these changes in turn, world trade is about some US$ 3 trillion, however, capital movements are much higher. The London Eurodollar market is worth about US$ 75 trillion per annum and foreign exchange transactions are US$ 35 trillion per annum.

Another change is the decoupling of employment from production. Employment is in decline whilst manufacturing output is growing or remains static at 20-25% of GNP. Sectors such as agriculture, are achieving higher productivity through mechanisation but this is at the expense of employment. Still another change is the decoupling of the primary product market from the industrial economy. Unfortunately the prime producers have been dramatically affected.

Finally, themost significant change is the changeof focus fromdomestic to theworld economy as the chiefeconomic unit. This has been grasped by Japan and Germany, but not really by the USA, or Africa. These factors have repercussions on exporting by developing countries.

Firstly, with developing countries’ emphasis on the export of primary products, they are at the mercy of world supplyanddemandmovements,withtheresultantfluctuationsinprices.Depressedworldmarketpricescanhavea deleterious effect on developing economies.

Secondly, the rapid globalisation and focus away from domestic economies has created global competition and in turn, this has pushed up quality. Generally speaking, unless developing countries can break into non-committally based products, they are being further left behind in the global economic stakes. However positively, whilst developed worlds concentrate on industrial and service products, it leaves opportunities for developing countries to export more food based products.

3.3 The Global EconomyThe development of the global economy can be traced back many hundreds of years when traders from the east and west came together to exchange goods. However, the growth of the modern global economy is marked by a number of features as follows:

I. The Legacy of Mercantilism 1500-1750The prevalent wisdom was one of nationalism, that is, that one nation prospered at the expense of another. Nations like the UK, Netherlands and later France and Germany, with powerful navies which ruled the waves in the West, and the traders of the East, dominated that area. Over time, nationalism gave way to bullionism, where gold and silver, rather than other raw materials, became the basis of wealth. Still later, domination took another form, where


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countries were believed to be powerful if they had a favourable balance of trade - an excess of exports over imports. Mercantilism died with the development of the United Nations (UN) and the General Agreement on Tariffs and Trade (GATT), along with Adam Smith’s tome on the 'Wealth of Nations' which advocated market forces as the principal driving force to development and wealth.

II. World TradeEconomic progress is linked to world trade and those who preach trade restrictions are denying this fact. Countries like the old communist bloc (Russia, East Germany, etc.) have not developed as fast as those with more outward orientation. The same can be said of African nations, where the inability to industrialise and export in volume has locked them into, generally, and primary product producers. Economic Structural Adjustment Programmes (ESAP) are supposed to remedy this situation by giving 'command economies' a market oriented focus.

Another argument concerns whether marketing has relevance to the process of economic development. Less developed countries (LDCs) have traditionally focused on production and domestic income generation. Also, marketing addresses itself to needs and wants and it could be argued that where LDC's productive capabilities are farlessthanunsatisfiedneedsandwants,themarketingissuperfluous.However,adopting'marketing'couldleadtothemoreefficientandeffectiveuseofproductiveandmarketingresourcesanditmaybeabletofocusoncurrentneedsandfindbettersolutions.Forexample,techniquesdevelopedintheWestforoptimisingtransportresourcescould well be transferred to effect. Similarly, adopting new methods of marketing may give better results. A good example is the Cold Storage Company of Zimbabwe (CSC). By changing from the current system of marketing cattle(theCSCtakesincattle,atfixedpricesandslaughters)toanauctionsystembydescription,allactorsinthesystemcouldbenefit.

Decisions in product, price, communications and merchandising can stimulate economic development. Changing fromfixedpricesystemstomarketbasedpricingcouldleadtothefasterachievementofdevelopmentobjectives(forexample'higherincomes').IncurrentdroughtconditionsinAfrica,governmentscouldwellbenefitfromadvertisingotherformsofnutritiousfood,forexample,fish,ratherthanletthepopulacebeleftuninformedanddisgruntledabout the lack of maize.

Price has been called the immediate basis for international trade - cheaper prices based on different cost structures, especially labour. Countries trade because they produce and export goods in which they enjoy a greater comparative advantageandimportgoodsinwhichtheyhaveleastcomparativeadvantage.Afurtherrefinementofthisistheinternational product cycle discussed fully in chapter one.

3.4 Balance of PaymentsThis is the measure of all economic transactions between one nation and another. The balance of payments is made upofthecurrentaccount,showingtradeingoodsandservices;andthecapitalaccount,whichshowsfinancialtransactions.

In1989,afterofficialtransfers,theUSAhadaUS$109,242milliondeficitonitscurrentaccount,Japanhada$131,400millionsurplus,Tanzania,a$778,5milliondeficitandZimbabwe,a$2,783milliondeficit.The balance of payments account helps marketers select the location of supply for foreign markets and the selection ofmarkets.Thecapitalaccountmayshowthenationswhichhavecontrolrestrictionsandhencebedifficulttodealwith. In this regard, African nations are generally disadvantaged.

The primary purposes of the balance of payment are:toprovidestandardsforconcepts,definitions,classifications,andconventions•to facilitate the systematic national and international collection, organization and comparability of balance of •payments transition.

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3.5 The Nature of EconomyThe economic environment is more than just money. Natural resources, raw materials now are important in future. If synthetic gold or tobacco were developed or, in the case of the latter, became unfashionable, Zimbabwe’s economy would be ruined.

Topography may produce two, three or more sub-markets in a country. Zambia, for example, has 'rural' and 'urban' areas with different needs and wants. Extremes of climate - like the Southern African drought in 1992 can devastate economies and derail any economic development plans and exports. Simply, products are not available to export, because they are being consumed by the domestic economy.

3.5.1 Classification of Economic Activity As Per Countries

Pre-industrial countries - incomes less than US$ 400 GNP per capita. Limited industrialisation, low literacy •rates, high birth rates, heavy reliance on foreign aid, political instability. Parts of Sub-Saharan Africa. Little market potential.Less developed countries - per capita between US$ 401 and US$ 1,635. Early stages of industrialisation, growing •domestic market, mature product markets, increasing competitive threat.Developing countries - per capita income between US$ 1,636 and US $ 5,500. Decrease in percentage of •agricultural workers, industrialisation, rising wages, high literacy rates, lower wage rates than developed countries, formidable competitors.Industrialised countries - per capita income between US$ 5,501 and US$ 10,000. Moving towards post •industrialisation, high standard of living.Advanced countries - per capita income in excess of US$ 10,000. Post industrialisation, information processors, •knowledge based, less machine based. Product opportunities are in new products, innovations and raw materials plus fresh foods.


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Summary Firstly, it covered the economic marketing overview of international marketing. Generally, there have been •three major changes when economy affects the marketing. These are capital movements rather than trade have become the driving force of the global economy, production has become 'uncoupled' from employment and primary products have become 'uncoupled' from the industrial economy The development of the global economy can be traced back many hundreds of years when traders from the east •and west came together to exchange goods.Economic progress is linked to world trade and those who preach trade restrictions are denying this fact. •Countries like the old communist bloc (Russia, East Germany, etc.) have not developed as fast as those with more outward orientation.Thebalanceofpaymentsismadeupofthecurrentaccount,showingtradeingoodsandservices;andthecapital•account,whichshowsfinancialtransactions.

ReferencesDavid Meerman Scott (2010).• The New Rules of Marketing and PR. Marketing to Reach Buyers Directly. Kindle Edititon.World Bank. World Development Report. The Challenge of Development. Oxford University.•Michael R. Czinkota, Illka A. Ronkainen. • International Marketing. Publisher: South-Western College

Recommended ReadingTerpstra. V. • International Marketing. 4th EditionPhilip R. Cateora. (March 2004). • International Marketing. Concept of Marketing.McGraw-HillCompanies;12th ed. Hakan Hakansson. • International Marketing and Purchasing of Industrial goods. John Wiley & sons.

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Self Assessment

Capital movements rather than trade have become the driving force of the ————————economy.1. global a. domestic b. district c. local marketd.

Employment is in ——————— while manufacturing either grows or remains static.2. decline a. flatb. upward c. downwardd.

——————— prices may collapse but industrial economies can be unaffected.3. Commodity a. IMF b. Rupee c. Dollard.

Growth achievable in —————— trade is often at a greater rate than domestically and the returns higher. 4. International a. domestic b. local c. globald.

—————— is the most important variable affecting market potential.5. Incomea. Profitb. Challan c. Moneyd.

In Kenya the lowest —————— of the population receive less then 3% of national resource.6. 30% a. 20% b. 50% c. 60%d.

Per capita judges a country’s level of ————————development and its degree of modernisation and 7. progress.

economica. culturalb. political c. sociald.


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Gross National Product is a better indicator of potential than Gross Domestic Product as ————————— 8. includes more than 'product'.

FDPa. GDPb. WTO c. NNPd.

WorldGNPfiguresrevealtheconcentrationofwealthinthethreenations,theUSA,JapanandWesternEurope9. for which —————— trails far behind.

Africaa. Australiab. China c. Brazild.

While evaluating ——————————— it is wise to consider individual product areas.10. marketsa. culture b. growth c. economyd.

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ChapterIV

Cultural Environment

Aim


explain the general idea of cultural environment•

enlist the approaches for channel environment•

describe the diffusion theory on the basis of innovation, communication channel and problem solving•

Objectives


explain the anthropological approach•

enlist the level of Maslow’s approach and the elements of culture•

identify the SRC for cultural environment•

Learning outcome


understand the concept of culture as per marketing theory•

analyse the diffusion theory of communication, and problem solving•

identify the various elements of culture•


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4.1 IntroductionMuch argument in the study of culture has revolved around the 'standardisation' versus 'adaptation' question. In the searchforstandardization,certain 'universals'canbeidentified.Murdock(1954)suggestedalist,includingagegrading, religious rituals and athletic sport.

Levitt (1982) suggested that traditional differences in task and doing business were breaking down and this meant that standardisation rather than adaptation is becoming increasingly prevalent. Culture, alongside economic factors, is probably one of the most important environmental variables to consider in global marketing. Culture is very often hidden from view and can be easily overlooked. Similarly, the need to overcome cultural myopia is paramount.

4.2 Various Approaches of cultureKeegan (1989) suggested a number of approaches to the study of culture like

Anthropological Approach•Maslow’s Approach•Self Reference Criterion (SRC)•Diffusion theory•High and low context cultures and perception.•

Thesearebrieflyreviewedhere.

4.2.1 Anthropological ApproachAnthropology is the study of humanity. Cultural anthropology is also called as social anthropology or socio-cultural anthropology. There are several ways of understanding culture – from the linguistic level with a focus on discourse andconflicts,toa'takenforgranted'levelwhere'tacitknowledge'isthekeyphrase,whereascultureas'websofsignificance'canbeunderstoodfromanepistemologicalposition,inshort,howwegrasptheworld.

In addition, different cultural perspectives like integration, differentiation and ambiguity are important in cultural analyzes, but whether one is dealing with a single unitary culture, many subcultures, or no culture at all, is not a theoretical question but an empirical one, as will be demonstrated using oil drilling as a case. One implication of this is that researchers should be more sensitive to different cultural levels/perspectives and methodological triangulation in their cultural analyses – and managers should be a little more modest in their efforts to manage cultures.

4.2.2 Maslow’s ApproachMaslow’sapproachdefinessevencategoriesforaccomplishmentofbasicneedsofallhumanneeds.AsperMaslow'stheory, individuals must meet the needs at the lower level of pyramid before they are successfully tackle the next levels.

Variouslevelsaregivenbelow:(Referfig.4.1)Physiological needs•Need for security •Need to be loved and belong •Self esteem•Needs to know and understand•Aesthetic need•Self actualization•

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Fig. 4.1 Maslow’s Hierarchy (Source: Wadsworth Cengage Learning)

Thephysiologicalneedsarethefoundationofthepyramid.Maslowsuggestedthatthefirstandmostbasicneedpeople have is the need for survival: their physiological requirements for food, water, and shelter. People must have food to eat, water to drink, and a place to call home before they can think about anything else. If any of these physiological necessities is missing, people are motivated above all else to meet the missing need.

Aftertheirphysiologicalneedshavebeensatisfied,peoplecanworktomeettheirneedsforsafetyandsecurity.(Butthephysiologicalneedsmustbemetfirst.)Safetyisthefeelingpeoplegetwhentheyknownoharmwillbefallthem,physically,mentally,oremotionally;securityisthefeelingpeoplegetwhentheirfearsandanxietiesarelow.After the physiological needs and the needs for survival and for safety and security have been met, an individual can be motivated to meet the needs represented at higher levels of the pyramid.

The third level of the pyramid is needs associated with love and belonging. These needs are met through satisfactory relationships with family members, friends, peers, classmates, teachers, and other people with whom individuals interact.Satisfactoryrelationshipsimplyacceptancebyothers.Havingsatisfiedtheirphysiologicalandsecurityneeds, people can venture out and seek relationships from which their need for love and belonging can be met.

Once individuals have satisfactorily met their need for love and belonging, they can begin to develop positive feelings ofself-worthandself-esteem,andacttofosterprideintheirworkandinthemselvesaspeople.ThefifthlevelofMaslow’s pyramid represents an individual’s need to know and understand. According to Maslow’s hierarchy, this motivationcannotoccuruntilthedeficiencyneedshavebeenmettotheindividual’ssatisfaction.

Aestheticsreferstothequalityofbeingcreatively,beautifully,orartisticallypleasing;aestheticneedsaretheneedsto express oneself in pleasing ways. Decorating your living room, wrapping birthday presents attractively, washing and waxing your car, and keeping up with the latest styles in clothing are all ways of expressing your aesthetic sense. Peoplearemotivatedtomeetthisneedonlyafterthepreviousfiveneedshavebeenmet.

At the top of the pyramid is the need for self-actualization, which is a person’s desire to become everything he or she is capable of realizing and use his or her full potential, capacities, and talents.


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4.2.3 Self Reference CriterionIt is the assumption that the product can successfully penetrate the abroad market after getting success in home market. There are three approaches in self reference criterion, as mentioned below -

Definetheproblemorgoalintermsofhomecountrytraits,habitsandnorms.•IsolatetheSRCinfluenceintheproblemandexamineitcarefullytoseehowitcomplicatesthepattern.•RedefinetheproblemwithouttheSRCinfluenceandsolvefortheforeignmarketsituation.•

4.2.4 Diffusion TheoryDiffusion is the process by which an innovation is communicated through certain channels over time. Diffusion is a different type of communication which spread the messages of new ideas in products and services.The main components of diffusion theory is given below:

Innovation•Communication channel•Innovation stages•Problem solving•Innovation•

An innovation is a newly generated idea which is perceived by an individual. The characteristics of an innovation, as perceived by the members of a social system, determine its rate of adoption. Four major drivers of innovations are like:

Global challenge•Public sector challenge•Networking•Creating value for customer•

Companies will constantly search for new business opportunities, and they will realize that global challenges such as climate change, economic growth and social needs consists a huge new market.

By creating new and more responsible solutions, companies can cultivate new business opportunities. Innovation inpublicsectorismoredemandnowdays.However,thedifficultiesalsoseemquitesubstantial.Citizenslookformore individualized welfare services of higher quality, but the amount of resources allocated to the welfare system are under pressure, and the system’s ability to innovate can be questioned.

Thesechallengesopenahugeterritoryforprivatecompaniesiftheycanfindwaysforinnovatingwiththeownersofwelfare institutions, but the path into public services is a road with many political obstacles. Collaborative networks among various companies open the door of innovation and growth. Previously, companies usually searched for knowledge from renowned experts and institutions. Today, with some sector variation, companies locate knowledge from a wide range of sources, even from individuals with a background and from different organizations also.

Companies have to open their innovation processes. They must listen carefully to customers and address needs based on the customer’s terms and not the company’s. Information and communication technology (ICT) will be a key enabler in co-creating unique value with individual customers and in enhancing the experiences of the consumers. ICT enables companies to create new customers for organisational growth. Companies will involve users in early stagesoftheirinnovationprocessesbytappingtacitorhiddenknowledgefromcustomers,andbyfindinginspirationin users’ new solutions to problems.

Communication channelCommunication is the process by which the information can be shared between individual or in group in order to achieve a common goal. A communication channel is the means by which messages get from one individual to another.

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Mass media channels are more effective in creating knowledge of innovations, whereas interpersonal channels are moreeffectiveinformingandchangingattitudestowardanewidea,andthusininfluencingthedecisiontoadoptorrejectanewidea.Mostindividualsevaluateaninnovation,notonthebasisofscientificresearchbyexperts,butthrough the subjective evaluations of near-peers who have adopted the innovation.

The three stages of innovation are - Decision making•Adaptability•Rate of adaptor•

Thedecisionmakingprocessworksoutinfivemajorphases,givenbelow:Knowledge – person becomes aware of an innovation and has some idea of how it functions•Persuasion – person forms a favourable or unfavourable attitude toward the innovation•Decision – person engages in activities that lead to a choice to adopt or reject the innovation•Implementation – person puts an innovation into use•Confirmation–personevaluatestheresultsofaninnovation-decisionalreadymade•

Adaptability means the degree to which an individual or a unit adopting new ideas than other members of social system.

Fig. 4.2 Rate of adaptors

Rate of adaptor means the relative speed with which an innovation is adopted by members of a social system. The rate of adoption is usually measured as number of members of the system that adopt innovation in a given period of time. Refer to Fig. 4.2.

Problem solvingAsocialsystemisdefinedasasetofinterrelatedunitsthatareengagedinjointproblem-solvingtoaccomplishacommon goal. The members or units of a social system may be individuals, informal groups, organizations, and/or subsystems. The social system constitutes a boundary within which an innovation diffuses. How the system's social

Num

ber

of a

dopt

ers

InnovatorsEarly

adoptersLate

majority Laggards


36

structure affects diffusion has been studied. A second area of research involved how norms affect diffusion. Norms are the established behaviour patterns for the members of a social system.

Athirdareaofresearchhashadtodowithopinionleadership,thedegreetowhichanindividualisabletoinfluenceinformally other individuals' attitudes or overt behaviour in a desired way with relative frequency. A change agent isanindividualwhoattemptstoinfluenceclients'innovation-decisionsinadirectionthatisdeemeddesirablebya change agency.

4.2.5 High and Low Context Cultures and PerceptionHall (1977) has suggested the concept of high and low context cultures as a way of understanding different cultural orientations. In low context cultures, messages have to be explicit, in high context cultures, less information is required in the verbal message. In low context cultures, for example like Northern Europe, a person’s word is not to be relied upon, things must be written. On the other hand, in high context cultures like Japan and the Middle East, a person’s word is their bond. It is primarily a question of trust.

Perception Perception is the ability to see what is in culture. The SRC can be a very powerful negative force. High perceptual skills need to be developed so that no one misperceives a situation, which could lead to negative consequences. Many of these theories and approaches have been 'borrowed' from other contexts themselves, but they do give a useful insight into how one might avoid a number of pitfalls of culture in doing business overseas.

Consumer products are likely to be more culturally sensitive than business to business products, primarily because technology can be universally learned. However there are dangers in over generalisations. For example, drink can be very universal and yet culture bound. Whilst appealing to a very universal physiological need - thirst - different drinks can satiate the same need. Tea is a very English habit, coffee American but neither are universals in African culture. However, Coca Cola may be acceptable in all three cultures, with even the same advertising appeal.

Nationalism Nationalism is a cultural trait which is increasingly surfacing. The break-up of Yugoslavia and the USSR are witness to the fact. In Western, developed countries, a high degree of interdependence exist, so it is not so easy to be all that independent. In fact, blocs like NAFTA and the EU are, if anything, becoming more economically independent. However, less developed countries do not yet have the same interdependence in general, and so organisations need to re-assess their contribution to the development of nations to make sure that they are not holding them 'to hostage'.

Culture is a very powerful variable and cannot be ignored. Whilst 'universals' are sought, there is still a need to understand local customs and attitudes. These are usually no better understood than by the making use of in-country personnel.

4.3 Elements of Culture There are seven major elements of culture associate with person’s entire way of life. The elements are -

Social organization•Customs and traditions•Language•Arts and literature•Religion•Forms of government•Economic system•

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Social organisationSociety starts from a smaller group in an organisation. The smaller group in an organisation are like

Family: Nuclear family or joint family•Friends: relatives •Religious group•Social classes: Social classes based money, occupation, education and race •Occupation: Business class or self employed •

Customs and traditions Tradition and customs are varying from one country to another. It is one of the cultural element which affects global market a lot. On the other hand we can say that rules and behaviour change drastically when custom and tradition differ.

LanguageLanguagereflectsthenatureandvaluesofsociety.Theremaybemanysubculturallanguageslikedialectswhichmay have to be accounted for. Some countries have two or three languages. In Zimbabwe there are three languages -English, Shona and Ndebele with numerous dialects. In Nigeria, some linguistic groups have engaged in hostile activities. Language can cause communication problems - especially in the use of media or written material. It is best to learn the language or engage someone who understands it well.

Forms of governmentVarious forms of government are like:

democracy•republic•dictatorship•

In democratic government people have supreme power, where as in republic people choose their own leaders. In case of dictatorship a ruler or group holds power by force.

Economic system There are four types of economic systems in cultural elements. These are:

Traditional•Market•Command•Mixed•


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Summary Culture, alongside economic factors, is probably one of the most important environmental variables to consider •in global marketing. Culture is very often hidden from view and can be easily overlooked. Similarly, the need to overcome cultural myopia is paramount.Then it described the various approaches of culture. Anthropology is the study of humanity. Cultural anthropology •is also called as social anthropology or socio-cultural anthropology. There are several ways of understanding culture–fromthelinguisticlevelwithafocusondiscourseandconflicts,toa'takenforgranted'levelwhere'tacitknowledge'isthekeyphrase,whereascultureas'websofsignificance'canbeunderstoodfromanepistemologicalposition,inshort,howwegrasptheworld.Maslow’sapproachdefinessevencategoriesforaccomplishmentof basic needs of all human needs. It is the assumption that the product can successfully penetrate the abroad market after getting success in home market.Communication is the process by which the information can be shared between individual or in group in order •to achieve a common goal. A communication channel is the means by which messages get from one individual to another. The three stages that are integral to the process of innovation are also discussed. These are Decision making, •adaptability and Rate of adapter.Nationalism is a cultural trait which is increasingly surfacing. The break-up of Yugoslavia and the USSR are •witness to the fact. In Western, developed countries, a high degree of interdependence exist, so it is not so easy to be all that independent. In fact, blocs like NAFTA and the EU are, if anything, becoming more economically independent.Then lastly it described the elements of culture which affects the economic environment•

ReferencesPhilip R. Cateora. (March 2004). • International Marketing. Concept of marketing.McGraw-HillCompanies;12th ed Hakan Hakansson. • International Marketing and Purchasing of Industrial goods. John Wiley & Sons.Diffusion of Innovation Theory. http://a.parsons.edu/~limam240/thesis/documents/Diffusion_of_Innovations.•pdfFranke. R. H. • Cultural Roots of Economic Performance.

Recommended Reading DirkPilat,Head,StructuralPolicyNewNatureofInnovation.http://www.newnatureofinnovation.org/full_report.•pdfKeegan W.J(2003). • Global marketing Management. 4th ed. Prentice Hall International Edition.World Bank. World Development Report. The Challenge of Development. Oxford University•

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Self Assessment

The main elements of culture are —————— , ———————.1. religion, ethics a. market, product b. currency, demand c. market, demandd.

The main approaches to culture are ————— , —————-2. anthropological, self reference a. direct, indirectb. higher, lowerc. easy,difficultd.

Nationalism is a _________trait3. sociala. culturalb. economicalc. financiald.

____________ is one of the stages of innovation.4. Decision makinga. Planning b. Strategy implementationc. Creativity in marketingd.

Anthropology is a study of ____________.5. marketing concepta. humanityb. culturec. costomd.

__________ is one of the forms of government.6. Democracya. Command economy b. Market economyc. Mix economyd.

Languagereflectsthenatureand_________ofsociety.7. valuea. cultureb. ethicsc. nationalisimd.


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Aesthetics refer to the ideas in a culture concerning ———————.8. beauty and good tastea. moneyb. politicsc. social d.

In Zimbabwe, most people would instantly recognise FAVCO as the brand of ————————— produce.9. Horticulturala. Cosmeticsb. Clothingc. Anthropology d.

'Culture', itself is made up of a number of learned characteristics including ——————————.10. aesthetics, educationa. demand, supplyb. trade, unionc. culture, societyd.

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Chapter V

Market Entry Strategy

Aim


formulate the strategy for entering into the new market•

describe the market entry strategy•

understand the concept called export processing zone•

Objectives


enlist the phases of marketing strategy•

describe the Cunningham’s marketing strategy•

explain the production of foreign production strategy•

Learning outcome


understand the concept of strategy and how it is used in global marketing•

describe the concept called export processing zone•

identify the aggressive and passive export•


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5.1 IntroductionGenerally, strategy means the 'Plan of Action'. This plan of action is to be taken for organisational growth. The various phases of strategy are mentioned in Figure-5.1.

Fig. 5.1 Phases of strategy

Market exploration is the phase where research is done to know opportunity and scope in local and global market. In second phase, the strategy is made on the basis of product, pricing, positioning and segmentation. The last phase is strategy implementation phase which is the most crucial part for any organisation because it gives the shape to formulated strategy.

5.2 Implementation of Marketing Strategy Marketing strategy can be implemented on the basis of following points:

Identify the potential and target customer to generate business leads•Technical barrier for entry in new market•Competitor’s analysis•Possible partners•Government regulation•Location analysis•

Potential customers help for a long way in the success of a company in a new market. Business leads are generated only because of potential customers and effective strategy implementation. Technology is one of the main attribute for success of any organization. It is one of the main competitive elements for entry into the new market. The main strategy which are adapted:

The scalability of the technology used•User friendliness of the technology•

Market Exploration Phase

Strategy Formulation Phase

Strategy Implementation Phase

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Competitor analysis is an important part of the strategic planning process. Competitor analysis has several important roles in strategic planning:

To help management understand their competitive advantages/disadvantages relative to competitors•To understand competitors’ past, present and future strategies•To provide information about the competitive advantage in future.•

5.3 Cunningham’s Five Strategy Cunningham'sfivestrategiesarementionedbelow.

Technical innovation strategy - perceived and demonstrable superior products•Productadaptationstrategy-modificationstoexistingproducts•Availability and security strategy - overcome transport risks by countering perceived risks•Low price strategy - penetration price •Total adaptation and conformity strategy - foreign producer gives a straight copy.•

Marketing products from developing countries to developed countries poses major problems. Buyers in the interested foreign country are usually very careful as they perceive transport, currency, quality and quantity problems.

This is true, say, in the export of cotton and other commodities. Because, in most agricultural commodities, production and marketing are interlinked, the infrastructure, information and other resources required for building market entry can be enormous. Sometimes this is way beyond the scope of private organisations, so the Government may get involved.Itmaygetinvolvednotjusttosupportaspecificcommodity,butalsotohelpthe'publicgood'.

Whilst the building of a new road may assist the speedy and expeditious transport of vegetables, for example, and thus aid in their marketing, the road can be put to other uses, in the drive for public good utilities. Moreover, entry strategies are often marked by 'lumpy investments'. Huge investments may have to be undertaken, with the investor paying a high risk price, long before the full utilisation of the investment comes. Good examples of this include the building of port facilities or food processing or freezing facilities. Moreover, the equipment may not be able to beusedforotherprocesses,sotheassetspecificequipment,lockedintoaspecificuse,maymaketheownerveryvulnerable to the bargaining power of raw material suppliers and product buyers who process alternative production or trading options.

Zimfreeze, Zimbabwe is experiencing such problems. It built a large freezing plant for vegetables but found itself without a contract. It has been forced, at the moment, to accept sub optional volume product materials just in order to keep the plant ticking over.

In building a market entry strategy, time is a crucial factor. The building of an intelligence system and creating an image through promotion takes time, effort and money. Brand names do not appear overnight. Large investments in promotion campaigns are needed. Transaction costs also are a critical factor in building up a market entry strategy and can become a high barrier to international trade. Costs include search and bargaining costs. Physical distance, language barriers, logistics costs and risks limit the direct monitoring of trade partners. Enforcement of contracts maybecostlyandweaklegalintegrationbetweencountriesmakesthingsdifficult.Also,thesefactorsareimportantwhen considering a market entry strategy. In fact these factors may be so costly and risky that Governments, rather than private individuals, often get involved in commodity systems. This can be seen in the case of the Citrus Marketing Board of Israel. With a monopoly export marketing board, the entire system can behave like a single firm,regulatingthemixandqualityofproductsgoingtodifferentmarketsandnegotiatingwithtransportersandbuyers. Whilst these Boards can experience economies of scale and absorb many of the risks listed above, they can shieldproducersfrominformationabout,andfrombuyers.Theycanalsobecomethe'fiefdoms'ofvestedinterestsand become political in nature. They, then result in giving reduced production incentives, and cease to be demand or market oriented, which is detrimental to producers.


44

Normal ways of expanding the markets are by expansion of product line, geographical development or both. It is important to note that the more the product line and/or the geographic area is expanded, the greater will be the managerial complexity. New market opportunities may be made available by expansion but the risks may outweigh the advantages, in fact it may be better to concentrate on a few geographic areas and do things well. This is typical of the horticultural industry of Kenya and Zimbabwe. Traditionally these have concentrated on European markets where the markets are well known. Ways to concentrate include concentrating on geographic areas, reducing operational variety (more standard products) or making the organisational form more appropriate. In the latter, attempt is made to 'globalise' the offering and the organisation to match it. This is true of organisations like Coca Cola and MacDonald’s. Global strategies include 'country centred' strategies (highly decentralised and limited international coordination), 'localmarketapproaches'(themarketingmixdevelopedwiththespecificlocal(foreign)marketinmind)orthe'lead market approach' (develop a market which will be a best predictor of other markets). Global approaches give economies of scale and the sharing of costs and risks between markets.

5.4 Entry StrategiesThere are a variety of ways in which organisations can enter foreign markets. The three main ways are -

Direct export•Indirect export •Productioninaforeigncountry(seefigure5.2).•

Fig. 5.2 Methods for foreign market entry

Exportingisthemosttraditionalandwellestablishedformofoperatinginforeignmarkets.Exportingcanbedefinedas the marketing of goods produced in one country into another. Whilst no direct manufacturing is required in an overseascountry,significantinvestmentsinmarketingarerequired.Thetendencymaybenottoobtainasmuchdetailedmarketinginformationascomparedtomanufacturinginthemarketingcountry;however,thisdoesnotnegate the need for a detailed marketing strategy.

The advantages of exporting are:manufacturing is home based thus, it is less risky than overseas based•gives an opportunity to learn about overseas markets before investing in bricks and mortar•reduces the potential risks of operating overseas•

The disadvantage is mainly that one can be at the mercy of overseas agents and so the lack of control has to be weighed against the advantages. For example, in the exporting of African horticultural products, the agents and Dutchflowerauctionsareinapositiontodictatetoproducers.

Home market production

Direct export indirect export

Foreign prodution

-Agent

- Distributor- Government

- Overseassubsidiary

- Licesing- Joint Venture

- Contractmanufacture- Ownership

- Exportprocessing zone-Trading company

- Export Managementcompany

- Piggyback- Countertrade

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A distinction has to be drawn between passive and aggressive exporting. A passive exporter awaits orders or comes acrossthembychance;anaggressiveexporterdevelopsmarketingstrategieswhichprovideabroadandclearpictureofwhatthefirmintendstodointheforeignmarket.Theydistinguishedbetweenfirmswhosemarketingeffortswerecharacterised by no activity, minor activity and aggressive activity.

Thosefirmswhoareaggressivehaveclearlydefinedplansandstrategies, includingproduct,price,promotion,distribution and research elements. Passiveness versus aggressiveness depends on the motivation to export. In countries like Tanzania and Zambia, which have embarked on structural adjustment programmes, organisations are being encouraged to export, motivated by foreign exchange earnings potential, saturated domestic markets, growth andexpansionobjectives,andtheneedtorepaydebtsincurredbytheborrowingstofinancetheprogrammes.Thetype of export response is dependent on how the pressures are perceived by the decision maker. Piercy (1982) highlights the fact that the degree of involvement in foreign operations depends on endogenous versus exogenous motivating factors, that is, whether the motivations were as a result of active or aggressive behaviour based on the firm’sinternalsituation(endogenous)orasaresultofreactiveenvironmentalchanges(exogenous).

Ifthefirmachievesinitialsuccessatexportingquicklyallthegood,buttherisksoffailureintheearlystagesarehigh. The learning effect in exporting is usually very quick. The key is to learn how to minimise risks associated with the initial stages of market entry and commitment - this process of incremental involvement is called creeping commitment(seefigure5.3).

Fig. 5.3 Aggressive and passive export path

Exporting methods include direct or indirect export. In direct exporting the organisation may use an agent, distributor, or overseas subsidiary, or act via a government agency. In effect, the Grain Marketing Board in Zimbabwe, being commercialised but still having government control, is a government agency. The Government, via the Board, are the only permitted maize exporters. Bodies like the Horticultural Crops Development Authority (HCDA) in Kenya maybemerelyapromotionalbody,dealingwithadvertising,informationflowsandsoon,oritmaybeactiveinexporting itself, particularly giving approval (like HCDA does) to all export documents. In direct exporting, the majorproblemisthatofmarketinformation.Theexporter’staskistochooseamarket,findarepresentativeoragent, set up the physical distribution and documentation, promote and price the product. Control, or the lack of it, isamajorproblemwhichoftenresultsindecisionsonpricing,certificationandpromotionbeinginthehandsofothers. Certainly, the phytosanitary requirements in Europe for horticultural produce sourced in Africa are getting

Aggressive export paths

Active export behaviour Export success

Export commitment

Active pre-export paths

Passive export paths

Passive export behaviour

Poor results

Withdrawal from exporting

Tentativecommitment

Inactive pre-export behaviour


46

very demanding. Similarly, exporters are price takers as produce is sourced also from the Caribbean and Eastern countries. In the months June to September, Europe is on season because it can grow its own produce, so prices are low. As such, producers are better off supplying to local food processors. In the European winter prices are much better, but product competition remains.

According to Collett (1991), exporting requires a partnership between exporter, importer, government and transport. Without these four coordinating activities, the risk of failure is increased. Contracts between buyer and seller are a must. Forwarders and agents can play a vital role in the logistics procedures such as booking air space and arranging documentation. A typical coordinated marketing channel for the export of Kenyan horticultural produce is given infigure5.4.

In this case, the exporters can also be growers and in the low season both these and other exporters may send produce to food processors which is also exported.

Fig. 5.4 Export marketing channel for Kenyan horticulture product

Exporting can be very lucrative, especially if it is of high value added produce. For example in 1992 and 1993, Zimbabweexported5338,38tonnesofflowers,4678,18tonnesofhorticulturalproduceand12,000tonnesofcitrusat a total value of about US$ 22 016,56 million. In some cases, a mixture of direct and indirect exporting may be achieved with mixed results. For example, the Grain Marketing Board of Zimbabwe may export grain directly to Zambia, or may sell it to a relief agency like the United Nations, for feeding the Mozambican refugees in Malawi. Payment arrangements may be different for the two transactions.

Nali products of Malawi gives an interesting example of a 'passive to active' exporting mode. It is interesting to note that Korey ,1986 warned that direct modes of market entry may be less and less available in the future. Growing trading blocks like the European Union (EU) or European Fair Trade Association (EFTA) means that the establishment of subsidiaries may be one of the only ways forward in future. Indirect methods of exporting include the use of trading companies (very much used for commodities like cotton, soya, cocoa), export management companies, piggybacking and countertrade.

Indirect methods offer a number of advantages including:Contracts - in the operating market or worldwide•Commission sales give high motivation (not necessarily loyalty)•The manufacturer/exporter needs little expertise•Credit acceptance takes the burden from manufacturer•

Producer

Middleman

Importer

Processors

Wholesale market food distribution

Exporter

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5.5 PiggybackingPiggybacking is an interesting development. The method means that organisations with little exporting skill may use the services of one that has. Another form is the consolidation of orders by a number of companies in order to take advantage of bulk buying. Normally, these would be geographically adjacent or able to be served, say, on an air route. The fertiliser manufacturers of Zimbabwe, for example, could piggyback with the South Africans for both import potassium from outside their respective countries.

5.6 Foreign ProductionBesides exporting, other market entry strategies include the following:

Licensing•Joint ventures •Contract manufacture •Ownership •Participation in export processing zones or free trade zones•

LicensingLicensingisdefinedas'themethodofforeignoperationwherebyafirminonecountryagreestopermitacompanyin another country to use the manufacturing, processing, trademark, know-how, or some other skill provided by the licensor.'

The mode of operation is not dissimilar to franchising. Coca Cola is an excellent example of licensing. In Zimbabwe, United Bottlers have the license to make 'Coke'. Licensing involves little expense and involvement. The only cost is signing the agreement and policing its implementation.

Licensing gives the following advantages: good way to start foreign operations and open the door to low risk manufacturing relationships•linkage of parent and receiving partner interests means both get most out of the marketing effort•capital not tied up in foreign operation•options to buy into partner exist or provision to take royalties in stock•

The disadvantages of licensing are as follows:limitedformofparticipation-tolengthofagreement,specificproduct,process,ortrademark•potential returns from marketing and manufacturing may be lost•partner develops know-how and so license is shortl•licensees become competitors - overcome by having cross technology transfer deals•requiresconsiderablefactfinding,planning,investigation,andinterpretation•

Those who decide to license ought to keep the options open for extending market participation. This can be done through joint ventures with the licensee.

Joint ventures Jointventurescanbedefinedas“anenterpriseinwhichtwoormoreinvestorsshareownershipandcontroloverproperty rights and operation.” Joint ventures are a more extensive form of participation than either exporting or licensing. In Zimbabwe, Olivine industries have a joint venture agreement with HJ Heinz in food processing.


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Joint ventures give the following advantages:sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in •technology or processJointfinancialstrength.•May be only means of entry•May be the source of supply for a third country.•

They also have disadvantages: Partners do not have full control of management.•May be impossible to recover capital if need be.•Disagreement on third party markets to serve and•Partnersmayhavedifferentviewsonexpectedbenefits.•

If the partners carefully map out in advance, what they expect to achieve and how, then many problems can be overcome.

Ownership The most extensive form of participation is 100% ownership and this involves the greatest commitment in capital and managerial effort. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing. However, as mentioned earlier, repatriation of earnings and capital have to be carefully monitored. The more unstable the environment, the less likely is the ownership pathway an option. The forms of participation: exporting, licensing, joint ventures or ownership, are on a continuum rather than discrete and can take many formats.

Integratedchannelsoffertheadvantagesofplanningandcontrolofresources,flowofinformation,andfastermarketpenetration, and are a visible sign of commitment.

The disadvantages are that they incur many costs (especially marketing), the risks are high, some may be more effective than others (due to culture), and in some cases their credibility amongst locals may be lower than that of controlled independents.

Independent channels offer lower performance costs, risks, less capital, high local knowledge, and credibility. Disadvantagesincludelessmarketinformationflow,greatercoordinatingandcontroldifficulties,andmotivationaldifficulties.Inaddition,theymaynotbewillingtospendmoneyonmarketdevelopmentandselectionofgoodintermediariesmaybedifficultasgoodonesareusuallytakenupanyway.

Once in a market, companies have to decide on a strategy for expansion. One may be to concentrate on a few segments in a few countries - typical are cashew nuts from Tanzania and horticultural exports from Zimbabwe and Kenya - or concentrate on one country and diversify into segments. Other activities include country and market segment concentration-typicalofCocaColaorGerberbabyfoods,andfinallycountryandsegmentdiversification.

Another way of looking at it is by identifying three basic business strategies: stage one - international, stage two - multinational (strategies correspond to ethnocentric and polycentric orientations respectively) and stage three - global strategy (corresponds with geocentric orientation). The basic philosophy behind stage one is extension of programmes and products, behind stage two is decentralisation as far as possible to local operators and behind stage three is an integration which seeks to synthesis inputs from world and regional headquarters and the country organisation. Whilst most developing countries are hardly in stage one, they have within them organisations which are in stage three. This has often led to a rebellion against the operations of multinationals, often unfounded.

Export Processing Zones (EPZ)AnEPZisfirstandforemostamanagedpolicytoolofgovernments.Aswithanypolicytool,itisproperlyutilized

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to achieve a social objective that is not being met by current programs and policies. In a free zone, the government can create a coherent policy framework that is different than the policy framework in the rest of the economy.Traditionally the policy framework has been applied to a small geographical area or enclave that does not tend to have a resident population. It is this type of small area Economic Progressive Zone (EPZ) that has been on the mind of most Vanuatu government and private sector individuals who knew about the program. However, increasingly freezonesinthemodernworldhavebeendefinedbynon-geographiccriteria,orhaveincludedmuchlargerareaswith resident families.

Entry modeEvaluation criteria Indirect

exportDirect export

Marketing subsidiary

Counter trade

Licensing Joint venture

Wholly owned

operation

EPZ

Company goalsa) Size of companyb) Resourcesc) Productd) Remittancee) Competitionf) Middlemen g) characteristicsEnvironmental h) characteristicsNumber of i) marketsMarketj) Market feedbackk) International l) market learningControlm) Marketing costsn) Profitso) Investmentp) Administration q) personnelForeign problemsr) Flexibilitys) Riskt)

Table 5.1 Matrix for comparing alternative methods of market entry

Organisations are faced with a number of strategy alternatives when deciding to enter foreign markets. Each one has to be carefully weighed in order to make the most appropriate choice. Every approach requires careful attention to marketing, risk, matters of control and management. A systematic assessment of the different entry methods can be achieved through the use of a matrix (see Table 5.1). 5.7 Special Features of Commodity TradeAs has been pointed out time and again in this text, the international marketing of agricultural products is a close coupledaffairbetweenproductionandmarketingandenduser.Certaincharacteristicscanbeidentifiedinmarketentrystrategieswhicharedifferentfromthemarketingofsaycarsortelevisionsets.Thesereferspecificallytotheinstitutional arrangements linking producers and processors/exporters and those between exporters and foreign buyers/agents.


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Institutional Links between producers and processors/exportersOne of the most important factors is contract coordination. Whilst many of the details vary, most contracts contain thesupplyofcredit/productioninputs,specificationsregardingquantity,qualityandtimingofproducerdeliveriesandaformulaorpricemechanism.Sucharrangementshaveimprovedtheflowofmoney,informationandtechnologies,and very importantly, shared the risk between producers and exporters.

Most arrangements include some form of vertical integration between producers and downstream activities. Often processors enter into contracted out grower arrangements or supply raw inputs. This institutional arrangement has now,incidentally,spilledoverintothedomesticmarketwherefirmsarewishingtotargethigherquality,higherpriced segments.

Producertradeassociations,boardsorcooperativeshaveplayedasignificantpartintheentrystrategiesofmanyexporting countries. They act as a contact point between suppliers and buyers, obtain vital market information, liaise with Governments over quotas, etc. and provide information, or even get involved in quality standards. Some are very active, witness the Horticultural Crops Development Authority (HCDA) of Kenya and the Citrus Marketing Board(CMD)ofIsrael,thelatterbeingaGovernmentagencywhichspecificallygotinvolvedinsupplyquotas.

Institutional Links between exporters and foreign buyers/agentsLinkages between exporters and foreign buyers are often dominated by open market trade or spot market sales or salesonconsignment.Thephysicaldistancesinvolvedarealsoverysignificant.

Most contracts are of a seasonal, annual or other nature. Some products are handled by multinationals, others by formalintegrationbyprocessors,buildingupimport/distributionfirms.InthecaseofKenyanfreshvegetables,familial ties are very important between exporters and importers. These linkages have been very important in maintaining market excess, penetrating expanding markets and in obtaining market and product change information, thus reducing considerably the risks of doing business. In some cases, the government gets involved in negotiating deals with foreign countries, either through trade agreements or other mechanisms. Zimbabwe’s imports of Namibian mackerel were the result of such a government negotiated deal.

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Summary Firstly, it covered the phases of strategy. Market exploration is the phase where research is done to know •opportunity and scope in local and global market. In second phase, the strategy is made on the basis of product, pricing, positioning and segmentation. Last phase is the strategy implementation phase which is the most crucial part for any organisation because it gives the shape to formulated strategy.In marketing products from developing countries to developed countries poses major problems. Buyers in the •interested foreign country are usually very careful as they perceive transport, currency, quality and quantity problems.Exporting is the most traditional and well established form of operating in foreign markets. Exporting can be •definedasthemarketingofgoodsproducedinonecountryintoanother.Whilstnodirectmanufacturingisrequiredinanoverseascountry,significantinvestmentsinmarketingarerequired.Thosefirmswhoareaggressivehaveclearlydefinedplansandstrategies,includingproduct,price,promotion,•distribution and research elements.Piggybacking is an interesting development. The method means that organisations with little exporting skill •may use the services of one that has. Another form is the consolidation of orders by a number of companies in order to take advantage of bulk buying.The most extensive form of participation is 100% ownership and this involves the greatest commitment in capital •and managerial effort. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing.Linkages between exporters and foreign buyers are often dominated by open market trade or spot market sales •orsalesonconsignment.Thephysicaldistancesinvolvedarealsoverysignificant.

ReferencesVern Terpstra, Lloyd C.• International Dimensions of Marketing. Russow Publisher: South-Western CollegeHakan Hakansson. • International Marketing and Purchasing of Industrial goods. John Wiley & sons.Michael R. Czinkota, Illka A. Ronkainen.• International Marketing. Publisher: South-Western College

Recommended ReadingKorey, G. “• Multilateral Perspectives in International Marketing Dynamics” European Journal of Marketing,Shipley, D.D. and Neale, C.W. “• Successful Countertrading. Management Decision”, Vol. 26,Keegan, W.J. “• Global Marketing Management”,4th ed.


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Self Assessment

Interlinking of production and marketing means private __________ alone may not be possible.1. company a. investment b. capital c. institutionsd.

_______ intervention may be needed to build infrastructure.2. Privatea. Publicb. Governmentc. Companyd.

Licensingismethodofforeignoperationwherebyafirminonecountryagreestopermita_______company3. in another country to use the manufacturing.

locala. foreignb. domesticc. globald.

An _______ is one in which two or more investors share ownership and control over property rights and 4. operation.

enterprisea. templeb. giftc. financialInstitutiond.

_________, distributor, Government, overseas - subsidiary are direct investment options.5. Merchanta. Agentb. Middle menc. Third partyd.

Trading company, export Management Company, ________, countertrade are indirect investment options.6. piggy banka. investment b. servicec. balance of paymentd.

A zone within a country, exempt from tax and duties, for the processing or reprocessing of goods for export is 7. called

EPZa. SSF b. SSC c. GDPd.

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Licensing, ___________, contract manufacture, ownership, export processing zone are under foreign investment 8. option.

joint venture a. partnership b. Quality of Servicec. collaborationd.

Direct exchange of one good for another (may be straight or closed or clearing account method) has no 9. _________.

advantagesa. disadvantagesb. qualityc. creditd.

Devise a ________ entry strategy for the product, clearly showing which you would use and justify your choice 10. indicatingwhythemethodchosenwouldgivebenefitstoyourcountry.

culturea. society b. marketc. qualityd.


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Chapter VI

Competitive Analysis and Strategy

Aim


describe the competition in the market as per industry analysis•

explain competitive strategy of market•

understand strategies used in competitive market•

Objectives


analyse the industry analysis•

describePorter’sfiveforcemodel•

explain the various strategy for success•

Learning outcome


understand the competition in industries•

identifythefiveforcesincompetitivemarket•

portray various succes strategies•

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6.1 IntroductionCompetition in most global product/markets is intense. In the fertiliser industry for example, few companies dominate - including Norsk Hydro. Product type competition has also become intense, for example, Pannar and Cargil seeds, so has brand competition, for example Israel’s CARMEL and South Africa’s OUTSPAN. Substitute competition has also become an increasingly bitter battleground, with products being able to replace others as technology and tastes have changed.

6.2 Industry AnalysisOne way to look at competition is by industry analysis. Competition drives down rates of return on invested capital. If the rate is “competitive” it will encourage investment, if not, it will discourage competition. Porter (1980) and (1985),lookedattheforcesinfluencingcompetitioninanindustryandtheelementsofindustrystructure.Figure6.1showsthefourforcesinfluencingcompetition,threatofnewentrants,threatofsubstituteproducts,macrofactorslike changes in technology and social factors and micro factors like customers’ or buyers’ changing needs.

Fig. 6.1 Forces influencing competition in the Industry

Porter further postulated that the elements of industry structure are suppliers, buyers, new entrants and substitute product (see Figure 6.2).

Porter’sfiveforcemodelgivestheframeworkandinformationforeconomicfactorswhichaffectsthepriceandprofitsofanindustry.Itisoneoftheeconomictoolwhichprovidesanswerstothefollowinginformation

Howthecompanycanmakeprofit?•Whatkindofopportunitiescanprovidesuccesstotheorganization?•It is the base for generating strategic choices.•

In 1990, Porter hypothesized in his text, “The Competitive Advantage of Nations”, why some nations were more competitivethanothers.Aswellasbeingabletosuccessfullymanoeuvrethroughtheenvironment,heidentifiedthatthe foundation of success lay in the diamond of home advantage. To successfully launch an international challenge, heidentifiedfourhomeprerequisites-themaximumuseofendowedresources(naturalandhuman),theformingof domestic networks to fully exploit these resources, domestic demand (which may involve the invitation to world

Threat of new entrants

Threat of substitute products

Macro forcesEconomicsSocialCulturalTechnological Political

The industryCompetitors

jockeying for position

Micro forcesCustomer or buyer changing needs and wantsGovernmentsSuppliers bargaining power and effectiveness


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classplayerstohelpdeveloptheseresourcesinthecountry)andfinally,anindustryandenvironmentalstructure(the latter provided by Government) in order that these forces can thrive.

Unfortunately,inmanydevelopingnations,onlythefirststagehasbeenreachedandeventhenmuchoftheaddedvalue is exported.

Fig. 6.2 Porter’s Five Force Model

A food system, to be competitive, must have two requisites. Firstly it must be competitive with other agricultural systems or any other system for that matter (say wildlife management) in attracting resources, and secondly it must be absolutely competitive against similar commodity systems or industries in other countries. The commodity system may have to compete against those industries in international markets or be threatened by them in its domestic markets. Porter would refer to this as competitive advantage or international competitiveness. While Porter concentrates on two factors in the control of manufacturing industries i.e.:

Lower cost of production and delivery - leading to under pricing over competition•Differentiation of product - quality, image, services. In export oriented agriculture it is essential to recognise a third •potential source of competitive advantage, that of Complementary supply - off season, meeting production shortfalls because of weather, disease and so on. However, complementary supply may not be a competitive strategy per-se, in the long term, because a supplier must still look at himself as a low cost or product differentiated supplier.

As in industrial products, many factors go into making up the comparative or competitive advantage of a supplier. Similarly in food systems, many technological, market or natural resource endowment factors go towards making up the competitive advantage. Many of these factors have actually been discussed, and these are summarised in table 6.1. These factors are primarily related to the size and patterns of food demand (shaped by incomes, tastes, technologicaldevelopments,etc.),microeconomicsandsectorpolicies(rateofinflation,investmentpolicies,naturalresources and human capital endowments (weather, soils, labour), physical and social infrastructure (roads, ports, telephones, power system) and micro-marketing relationship (quality/ price relationships, management).

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Factor Vector

Market research Income, tastes, resources and strengths of competing, suppliers, work patterns, population clusters, price, elasticity

Macroeconomics and sector policies Termsofaccessandtrade,pricepolicies,fiscalandmonetarypolicies, tariff and non tariff barriers

Natural resources and human capital Geological resources, labour, climate, experience

Physical, technical, and social infrastructure

Transport, credit, market information, extension, communications, marketing extension, post harvest facilities

Micro marketing relationships

Qualitycontrol,efficienciesofmanagement-buying,selling, handling, production, marketing, promotion, credit coordination, market research, risk analysis, relationship building.

Table 6.1 Factors affecting international competitiveness for products/commodities

In Porter’s analysis, industry competitors can be “threatened” by new or potential entrants and substitutes. In food marketing systems, barriers to new entrants can exist, as well as barriers to international competitiveness. These barrierscanberelatedtotechnicalcharacteristicsofcommodities,perishability,bulkiness;productioncharacteristics-smallscaleproducersincurringhighertransportcosts;productionsupportsystems;disseminationofinformationtoproducers;processinganddistributionfunctions-economiesofscale,andlaws;rulesandstandards-hygienerequirements, sizing, grading, phytosanitary systems. Conversely these factors can also be standardised by the government or other market intermediaries and players to make the “threat” of new entrants even more real. These include standard technological measures like containerisation, packaging, wax coating, use of accredited pesticides, mechanicalhandling;standardlaws,rulesandregulations,size,standards,gradesandrulesdefiningpropertyrights;permissibleformsofcooperationandcompetition;unusualbrandmarksorreputations;spotorcontacttrading;standard channels of distribution and so on. All these can help facilitate the entry of a newcomer and make the incumbent be particularly on guard and responsive. Table 6.2 give an example of a number of sources of competitive advantage for selected worldwide products.


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Table 6.2 Sources of competitive advantage for selected commodity systems

One of the remarkable success stories, against nearly all the odds, has been that of Argentina beef. It is an example of how, through low cost of production and product differentiation, it has been able to maintain its international competitiveness.

Many more examples exist of less developed countries taking advantage of the low cost of production and product differentiation to make an international success. But this is not limited to LDC' s alone. Israel found itself unable to compete internationally with its citrus products, but found a new way to remain competitive internationally.

6.3 Competition AnalysisIn order to know how best to compete, as well as the analysis given above, one needs to know the way competitors measure themselves, their strategy to date, their major strengths and weaknesses and likely future strategy. In the firstofthese-knowingthewaycompetitorsseethemselves-muchcanbelearnedfrompublicaccounts,interviewsand the trade press. Other ways are to have competitive personnel, take part in trade fairs, purchase the competitor’s product and take it apart, or indulge in “espionage”. In identifying the competitor’s strategy to date, it is not enough tobelievewhattheysaybuttoreconstructtheirstrategy.Evaluatingresourcesisdifficult.Itisessentialtolookattheirproduction,marketing,financialandmanagementresources.Onthebasisofthesefirstthree,itispossibletoguess the future.

Notallcompetitorsarenecessarilybad.Goodcompetitorscanabsorbdemandfluctuations,expandthemarket,increase motivation, and act responsively to the industry. There is, for example, room for all developing countries to take a share in most world markets in commodities, without one country wishing to be too aggressive.

6.3.1 Competitive StrategyValuechainanalysisespousesthreerolesformarketinginaglobalcompetitivestrategy.Thefirstrelatestotheconfigurationofmarketing. Itmaybe advantageous to concentrate somemarketing activities in oneor a fewcountries. A second role relates to the coordination of activities across countries to gain leverage say, of know- how. A third critical role of marketing is its role in tapping opportunities for upstream advantage in the value chain.

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6.3.2 Generic ApproachesAccording to Porter (1980), there are three generic approaches to outperforming others in an industry - overall cost leadership,differentiationandfocus(seefigure6.3).

Figure 6.3 Generic competitive advantage

Ifthereareafewperceiveddifferencesbetweenproductsandtheirusesarewidespread,thenthelowestcostfirmswill get the advantage. This is the case of television sets and many fruit products. If there is a large perceived differencecreated,thenthefirmhasmorepriceleeway.CARMELandOUTSPANsuccessfullycreatedaperceivedquality advantage, as have Cadbury and Nestle. Focus strategies concentrate on serving a particular segment better thananyoneelse.AgoodexampleofthisistheDutchflowerauctionorGerberbabyfoods.

6.4 Strategy for SuccessSuccess can be achieved in industries by identifying growth segments within an overall market, enhancing quality andstressingoperatingefficiencies.Infragmentedindustriessuccesscanbeachievedbythecreationofeconomiesof scale. In the poultry and beef cattle industry, for example, this means feed lots and intensive rearing. Another way of overcoming fragmentation is by “positioning”, which must be consistent.

The three types of positioning strategy are market leader, market challenger or market follower. In market leadership, thefirmmustworkatmaintainingitsposition,havinggottherethrough,say,costadvantageorinnovation,bybeingvery responsive to market needs. We saw in the case of Argentina’s beef and Brazil’s frozen concentrated orange juice that success was built on:

Economies of scale - low cost of production•Customer knowledge - shifting the product mix to meet changing demand•Technological innovation - vacuum packing policy, bulk transport•Infrastructural development - supermarkets, transport systems•

In the market challenger category, an organisation may publicly announce its intention to take over the number one position either by price advantage, product innovation or promotion. We shall see this later in the case of Thailand’s tuna industry.


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The market follower is allowed to stay in the market only if the leader chooses to maintain a price umbrella and not maximise share. However the follower may be able to service segments on a more personal level than the leader and hence maintain an industry position.

Otherstrategiesincludemarketflanking-aclassicalJapaneseapproach.Thecompetitivepositionoftheindustryis very important to the global marketer. Intelligence, such as that gathered by the process described in chapter five,isanessentialprerequisitetodesigningastrategy.Toooftendevelopingcountriesattempttogainentryintothe international market without knowledge of the industry or competitors. Malaysia attempted to break into the cocoa industry, but did not achieve success because the cocoa was the wrong type and the product could not be absorbedintotheworldmarket.Inthecutflowerindustry,itisthehighvaluetypeswhicharegivingthereturnsnow - carnations, roses, orchids - rather than the low value ones. In marketing vegetables to the UK, any other route but through buying agents, until recently, was a recipe for disaster. Now it is somewhat changing. The need to properly assess the market and devise a strategy on the assessment is a must to succeed.

The copy adapt strategy is a relatively well tried strategy in which an organisation may seek to copy a successful product/market strategy pioneered by another organisation and adapt it to local conditions or other markets. Many examples of this strategy exist in LDCs, where the local populace may simply not have the income to afford the real thing. Typical examples exist in all countries but none more so than in India. One can see agricultural land implements, tractors, ox carts and many other cheaper adaptations of well known marques, for example, the International Harvester and the Indian Mahindra tractor look alike.

6.4.1 SourcingA different approach to gaining competitive advantage may be through “out sourcing” from a number or countries, or throughout sourcing in country as in the case of Kenya vegetables. In analysing a value chain, the organisation may finditmuchcheaperoreasiertosourcecertaincomponentsofthechainfromoutsideofthecountryitisoperatingin. This is often called the make or buy decision. The criteria for the outsourcing decision are:

Factor costs and availability•Logistics:timerequiredtofillorders,securityandsafetyandtransportationcosts•Country’s infrastructure•Political risk•Market access•Foreign exchange•Technological capability•

“As illustration of the above discussion, take the assembly of tractors in Zimbabwe. The electronics and some other components are incapable of being sourced locally because of the technical sophistication required in the production process. These components have, therefore, to be imported. It is only when all the factors listed above are in place, that global sourcing can occur effectively. Continuing with the Zimbabwean example, it is impossible forthecountrytobehighlyoutsourceorientatedandfindcheaperlabourfactorcountriestomanufactureproductsbecause,priorto1990,therewasinsufficientforeignexchangetopayforthem.Since1990,witheconomicreform,this situation is now rapidly changing.

Outsourcing is a well-established global strategy. It is uncommon for global organisations like Ford and Toyota to source components and end products from a variety of countries or to shift global production to the most cost competitiveeconomies.Worldmarketsareastageonwhichaplayermustchooseorfindhisuniquepart.Essentially,this is what competitive strategy is all about.

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Summary One way to look at competition is by industry analysis. Competition drives down rates of return on invested •capital.Porter’sfiveforcemodelgivestheframeworkandinformationforeconomicfactorswhichaffectsthepriceand•profitsofanindustry.Itisoneoftheeconomictoolwhichprovidesanswerstothefollowinginformation.Itisthe base for generating strategic choices:

Howthecompanycanmakeprofit �What kind of opportunities can provide success to the organization �

In order to know how best to compete, as well as the analysis given above, one needs to know the way competitors •measure themselves, their strategy to date, their major strengths and weaknesses and likely future strategy.Success can be achieved in industries by identifying growth segments within an overall market, enhancing •qualityandstressingoperatingefficiencies.Infragmentedindustriessuccesscanbeachievedbythecreationof economies of scale. In the poultry and beef cattle industry, for example, this means feed lots and intensive rearing.Valuechainanalysisespousesthreerolesformarketinginaglobalcompetitivestrategy.Thefirstrelatestothe•configurationofmarketing.Itmaybeadvantageoustoconcentratesomemarketingactivitiesinoneorafewcountries.

References Porter, M.E. “• Competitive Strategy”. New York: The Free Press.Porter, M.E. “• The Competitive Advantage of Nations”. New York: The Free Press.Porter, M.E. “• Competition in Global Industries”. Boston: Harvard Business School Press.

Recommended Reading Philip R. Cateora. (March 2004). • International Marketing. Concept of marketing.McGraw-HillCompanies;12th ed Hakan Hakansson. • International Marketing and Purchasing of Industrial goods. John Wiley & sons.Michael R. Czinkota, Illka A. Ronkainen. • International Marketing. Publisher: South-Western College


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Self Assessment

Success can be achieved in industries by identifying growth segments within an overall market, 1. ——————qualityandstressingoperatingefficiencies.

enhancinga. reducing b. maintainingc. analyzingd.

The three types of positioning strategy are market leader, market challenger or market —————————.2. viewera. followerb. directionc. qualityd.

In——————leadership,thefirmmustworkatmaintainingitsposition,costadvantageorinnovation.3. marketa. localb. politicalc. sociald.

The principal sources of ___________ advantage are lower costs of production and a differentiated product 4. offering.

comparativea. competitiveb. controllingc. complianced.

_______ developed countries usually have the former, but may have to work hard to obtain the latter.5. morea. lesser b. none of thec. economically d.

There are other ________ available to marketers other than low cost, these include market leadership, market 6. challengerormarketflanking.

strategya. quality b. companyc. productd.

Industry competitors can be 'threatened' by _______ or potential entrants and substitutes.7. old a. new b. strategyc. entryd.

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In food marketing systems, barriers to new entrants can exist, as well as barriers to international _________.8. comparativea. competitivenessb. controllingc. complianced.

Thebarrierscanberelatedtotechnicalcharacteristicsofcommodities,___________,bulkiness;production9. characteristics - small scale producers incurring higher transport costs.

comparativea. complianceb. perishabilityc. physical evidence d.

In fragmented industries, success can be achieved by the creation of __________.10. economica. economic of scale b. qualityc. serviced.


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Chapter VII

Product and Promotion Decision

Aim


explain the basic concept of product and promotion decision•

enlist the standardisation factors of product design•

understand the manufacturing process•

Objectives


describe the product design•

enlist the production decision variables•

explain promotion decision factors•

Learning outcome


understand the product design concept•

identify various promotional decisions•

analyse promotion decision factors•

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7.1 Introduction Decisions regarding the product, price, promotion and distribution channels are based on the elements of the “marketing mix”. Marketing mix is the consolidation of product, price, place and promotion. It can be argued that product decisions are probably the most crucial as the product is the very epitome of marketing planning. These can include the imposition of a global standardised product where it is inapplicable, for example large horsepower tractorsmaybetotallyunsuitableforareaswheresmallscalefarmingexistsandwhereincomesarelow;devolvingdecisionstoaffiliatedcountrieswhichmayletqualityslip;andtheattempttosellproductsintoacountryywithoutcognizance of cultural adaptation needs. The decision whether to sell globally standardised or adapted products is too simplistic for today’s marketplace. Many product decisions lie between these two extremes. Cognizance has also to be taken of the stage in the international life cycle, the organisation’s own product portfolio, its strengths and weaknesses and its global objectives.

Unfortunately, most developing countries are in no position to compete on the world stage with many manufactured value-added products. Quality, or lack of it, is often the major letdown. As indicated earlier, most developing countries are likely to be exporting raw materials or basic and high value agricultural produce for some time to come.

7.2 Basic Concept A good, idea, method, information, object, or service that is the end result of a process and serves as a need or want satisfied.Itisusuallyabundleoftangibleandintangibleattributes(benefits,features,functions,uses)thataselleroffers to a buyer for purchase.

Inpostmodernisation,itisincreasinglyimportantthattheproductfulfilstheimagewhichtheproduceriswishingto project. This may involve organizations producing symbolic offerings represented by meaning laden products that chase stimulation-loving consumers who seek experience-producing situations. So, for example, selling mineral watermaynotbeenough.Itmayhavetobe'Antarctic'insource,andflavourful.Thisopensupawealthofnewmarketing opportunities for producers.

A product’s physical properties are characterized the same, the world over. They can be convenience or shopping goodsordurablesandnon-durables;however,onecanclassifyproductsaccordingtotheirdegreeofpotentialforglobal marketing:

Local products - seen as only suitable in one single market•International products - seen in other markets•Multinational products - products which are manufactured in various nation is called as multinational product•

Global products - products designed to meet global segments.It is becoming increasingly important to maintain quality products based on the ISO 9000 standard, as a prerequisite to export marketing. Consumer beliefs or perceptions also affect the world brand concept. World brands are based on the same strategic principles, same positioning and same marketing mix but there is a change in message which is communicated to the user or other images.

Infertilisers,brandslikeNorskHydroareuniversal;intractors,MasseyFerguson;insoups,Heinz;intobacco,BAT;inchemicals,Bayer.Theseworldbrandnameshavebeenbuiltupovertheyearswithgreatinvestmentsinmarketing and production. Few world brands, however, have originated from developing countries. This is hardly surprising, given the lack of resources. In some markets, product saturation has been reached, yet surprisingly the same product may not have reached saturation in other similar markets.

7.3 Product DesignChanges in design are made to improve the product sales, and this, over the accompanying costs. Changes in design are also subject to cultural pressures. The more culture-bound the product is, for example food, the more adaptation is necessary. Most products fall in between the spectrum of standardisation to adaptation extremes. The application the product is put to also affects the design. In the UK, railway engines were designed from the outset to be sophisticated because of the degree of competition, but in the US this was not the case. In order to burn the


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abundant wood and move the prairie debris, large smoke stacks and cow-catchers were necessary. In agricultural implements, a mechanised cultivator may be a convenience item in a UK garden, but in India and Africa it may beessentialequipment.Asstatedearlier,theperceptionsoftheproduct’sbenefitsmayalsodictatethedesign.Arefrigerator in Africa is a very necessary and functional item, kept in the kitchen or the bar. In Mexico, the same item is a status symbol and, therefore, kept in the living room.

Factors encouraging standardisation are:Economies of scale in production and marketing•Consumer mobility - the more consumers travel, the more is the demand•Technology•

Factors encouraging adaptation are:Usability as per requirment - These may be due to climate, skills, level of literacy, culture or demographic •conditions. Maize, for example, would never sell in Europe rolled and milled as in Africa. It is only eaten whole.InZimbabwe,Kapentafishcanbeusedasarelish,butwillalwaysbeeatenasastartertoamealinthedeveloped countries.General market factors - incomes, tastes, per capita income and occupation etc. Canned asparagus may be very •affordable in the developed world, but may not sell well in the developing world.Government - taxation, import quotas, non- tariff barriers, labelling, health requirements. Non-tariff barriers •are an attempt, despite their supposed impartiality, at restricting or eliminating competition. A good example of this is the Florida tomato growers, cited earlier, who successfully got the US Department of Agriculture to issue regulations establishing a minimum size of tomatoes marketed in the United States. The effect of this was to eliminatetheMexicantomatoindustrywhichgrewatomatothatfellundertheminimumsizespecified.Somenon-tariff barriers may be legitimate attempts to protect the consumer, for example the ever stricter restrictions on horticultural produce insecticides and pesticides use may cause African growers a headache, but they are deemed to be for the public good.History - Sometimes, as a result of colonialism, production facilities have been established overseas. In Kenya, •the tea industry is a colonial legacy, as is the sugar industry of Zimbabwe and the coffee industry of Malawi. These facilities have long been adapted to local conditions.Financialconsiderations-Inordertomaximisesalesorprofits,theorganisationmayhavenochoicebuttosell•itsproductstolocalpeople.Wheneveranewproductisdesignedfinancialaspectsshouldalsobetakenintoconsideration. Pressure - Sometimes, as in the case of the EU, suppliers are forced to adapt to the rules and regulations imposed •on them if they wish to enter into the market.

7.4 Production DecisionIn decisions on producing or providing products and services in the international market, it is essential that the production of the product or service is well planned and coordinated, both within and with other functional areas of thefirm,particularlymarketing.Forexample,inhorticulture,itisessentialthatanysupplieroranyofhisoutgrower(sub-contractor)cansupplywhathesayshecan.Thisisespeciallyvitalwhencontractsforsupplyarefinalised,asfailure to supply could incur large penalties. The main elements to consider are the manufacturing process itself, specifications,culture,thephysicalproduct,packaging,labelling,branding,warrantyandservice.

7.4.1 Manufacturing ProcessManufacturing is the use of machines, tools and labour to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in whichrawmaterialsaretransformedintofinishedgoodsonalargescale.Suchfinishedgoodsmaybeusedformanufacturing other, more complex products, such as aircraft, household appliances or automobiles, or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users, the consumers.

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Manufacturing takes turns under all types of economic systems. In a free market economy, manufacturing is usuallydirectedtowardthemassproductionofproductsforsaletoconsumersataprofit.Inacollectivisteconomy,manufacturing is more frequently directed by the state to supply a centrally planned economy. In free market economies, manufacturing occurs under some degree of government regulation.The process of manufacturing shown in Fig. 7.1

Fig. 7.1 Cycle of manufacturing process7.4.2 Specifications Specificationisveryimportant inagriculturalproducts.Somemarketswillnot takeproduceunless it iswithintheirspecification.Specificationsareoftensetbythecustomer,butagents,standardauthorities(liketheEUortheInternational Trade Center, Geneva) and trade associations can be useful sources. Quality requirements often vary considerably. In the Middle East, red apples are preferred over green apples. In one example, French red apples, well boxed, are sold at 55 Dinars per box, whilst not so attractive Iranian greens are sold for 28 Dinars per box. In export, the quality standards are set by the importer. In Africa, Maritim (1991)2, found generally, that there are no consistentstandardsforproductqualityandgrading,makingitdifficulttodointernationaltraderegionally.

7.4.3 CultureProduct packaging, labelling, physical characteristics and marketing have to adapt to the cultural requirements when necessary. Religion, values, aesthetics, language and material culture all affect production decisions. Effects of culture on production decisions have been dealt with already in chapter three.

7.4.4 Physical ProductThephysicalproductismadeupofavarietyofelements.Consumersarelookingforbenefitsandthesemustbeconveyed in the total product package. Physical characteristics include range, shape, size, colour, quality, quantity and compatibility. Subjective attributes are determined by advertising, self-image, labelling and packaging. In manufacturing or selling produce, cognizance has to be taken of cost and country legal requirements. Again a number of these characteristics are governed by the customer or agent.

Forexample, inbeefproductssoldtotheEU,thereareverystrictqualityrequirementstobeobserved.Infishproducts,theJapanesedemandmoreexotictypesthan,say,wouldbesoldintheUK.Noneofthedriedfishproductsproduced by the Zambians on Lake Kariba, and sold into the Lusaka market, would ever pass the hygiene laws if sold internationally. In sophisticated markets like seeds, the variety and range is so large that constant watch has to be kept on the new strains and varieties in order to be competitive.

Raw Material Extraction Manufacturing/Production

Transportation

Utilisation/Reuse

Disposal Recycling


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7.4.5 PackagingPackaging serves many purposes. It protects the product from damage which could be incurred in handling and transportation and also has a promotional aspect. It can be very expensive. Size, unit type, weight and volume are very important in packaging. For aircraft cargo, the package needs to be light but strong, for sea, cargo containers are often the best form. The customer may also decide the best form of packaging. In horticultural produce, developed countries often demand blister packs for mangetouts, beans, strawberries and so on, whilst for products like pineapples, aseacontainermaysuffice.Costsofpackaginghavealwaystobeweighedagainsttheadvantagesgainedbyit.

Increasingly, environmental aspects are coming into play. Packaging which is non-degradable - plastic, for example - is less in demand. Bio-degradable, recyclable, reusable packaging is now the order of the day. This can be both expensive and demanding for many developing countries. Now tetra pack is in demand for its portability. So those liquid foods can easily being moved from one place to another place.

7.4.6 LabellingLabelling not only serves to express the contents of the product, but may be promotional (symbols for example CashelValleyZimbabwe;HJHeinz,Africafe,Tanzania).TheEUisnowplacingverystringentregulationsinforceon labelling, even to the degree that the pesticides and insecticides used on horticultural produce have to be listed. This could be very demanding for producers, especially small scale, ones where production techniques may not be standardised. Government labelling regulations vary from country to country. Bar codes are not widespread in Africa, but do assist in stock control. Labels may have to be multilingual, especially if the product is a world brand. Translationcouldbeaproblemwithmanywordsbeingtranslatedwithdifficulty.Againlabellingisexpensive,andin promotion terms non-standard labels are more expensive than standard ones. Requirements for crate labelling, etc. for international transportation will be dealt with later under documentation.

7.4.7 Branding Branding include the promotional aspects. A family brand of products under the Zeneca (ex ICI) label or Sterling Health are likely to be recognised worldwide, and hence enhance the subjective product characteristics.

7.4.8 WarrantyMany large value agricultural products like machinery require warranties. Unfortunately not everyone upholds them. It is common practice in Africa that if the original equipment has not been bought through an authorised dealer in the country, that dealer refuses to honour the warranty. This is unfortunate, because not only may the equipment havebeenlegitimatelyboughtoverseas;italsoactuallybuildsupconsumerresistancetothedealer.

7.4.9 ServiceIn agricultural machinery, processing equipment and other items which are of substantial value and technology, service is a prerequisite. In selling products to many developing countries, manufacturers have found their negotiations at stake due to the poor back-up service. Often, this is no fault of the agent, distributor or dealer in the foreign country, butduetoexchangeregulations,whichmakeobtainingsparepartsdifficult.Manyorganisationsattempttogetaroundthis by insisting that a Third World buyer purchases a percentage of parts on order with the original items. Allied to thisproblemisthepoorqualityofserviceduetoinsufficienttraining.Goodoriginalequipmentmanufacturerswillinsist on training and updating as part of the agency agreement. In order to illustrate the above points, cotton can be used as an example. Cotton is a major foreign exchange earner for Zimbabwe. In 1990/ 91, 52,000 tonnes were sold overseas at a value of Zim$ 238 million. As the spinners, particularly those in the export market, are in a highly competitive industry, it is essential that the raw material is as clean as possible. Also today’s spinning equipment is highly technical and the spinner wishes to avoid costly break-downs by all means.

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7.5 Product Strategy Seefig.7.2wherevariousproductstrategiesarementioned. Local and international environment depends upon the adaptability of product by the potential customer. If elements of the environment like culture, manufacturing process, availability of resources, government rules and regulation changes then the product strategy also changed accordingly.

Fig. 7.2 Product strategy

Firm’s internal situation concerned with availability of resources in an organization. If the resources are up to the mark, then the product will developed in a proper way, otherwise it is a bigger task to be developed. Customer needs based upon the customer’s requirements. The customer requirements are like labelling, Packaging, branding, service and warranty.

7.6 Promotion Decision Products or services will not sell unless people are told about them. It is true that few companies from developing countries are global in operation, so much of the promotion process is limited to either third party advertising (for example, theDutchadvertisingKenyagrownflowers)or takingpart in internationalexhibitions (forexample,the Zimbabwe International Trade Fair in Bulawayo). As many primary products of developing countries become the end products of developed countries, most promotion is limited to mentions of origin in developed country promotion.

Nonetheless, the rules still apply for effective promotion, whether it is of limited or more extensive nature. Most basic marketing textbooks cover the “ground” rules for effective advertising and promotion and so the reader is referred to these rather than repeat these again here. It is usual to distinguish between advertising and promotion. Advertisingisdefinedas:“Anyformofcommunicationinthepaidmedia.”Promotion,ontheotherhand,isdefinedas: “An incentive, usually at the point of sale, intended to enhance the intrinsic value of a product or service.”Otherexpressionsincommonuseare'abovetheline'and'belowtheline',thelinebeinganimaginaryone,definingthe boundary between promotion from the retailer to consumer and the other from manufacturer to retailer.

Product Strategy

Customer Needs

Firm’s Internal Situation

Competitive Situation

Local and

International Environment


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Fig. 7.3 Block diagram of conveying message7.6.1 Global Promotion When organisations advertise across international boundaries, a number of important factors have to be taken into consideration. When the process is ostensibly straightforward, (that is someone (seller) says something (message) to someone (buyer) through a medium), the process is compounded by certain factors. These are illustrated in figure7.3.

These mitigating factors can be called noise and have an effect on the decision to extend, adapt or create new messages. Language differences may mean that straight translation is not enough when it comes to message design. Advertising may also play different roles within developed, between developed and underdeveloped and within underdeveloped countries. In developing countries, education and information may be paramount objectives. In developed countries, the objectives may be more persuasive.

Cultural differences may account for the greatest challenge. However, many, notably Elinder (1961) challenged the need to adapt messages and images, as he argued that consumer differences between countries are diminishing. Changes may be needed only in translation. However, this is only one point of view, as there is no doubt that cultural differences do exist across the world. For example, it would be quite unacceptable to have swim-suited ladies advertising sun care products in Moslem countries.

Threemajordifficultiesoccurinattemptingtocommunicateinternationally:The message may not get through to the intended recipient, due to a lack of media knowledge•The message may get through but not be understood, due to lack of audience understanding•The message may get through, be understood but not provoke action. This may be due to lack of cultural •understanding

Media availability is a mitigating factor. Take for example, television. In Africa a number of countries do have it, the extent of its use and time available may be limited. Media use and availability, coupled with the type of message which may or may not be used, is tied to government control. Government may ban types of advertising, as is the case of cigarettes on british television. Intending advertisers should refer to the appropriate codes of advertising practice available in each country.

7.6.2 Campaign DesignBefore embarking on a promotion campaign, the following questions, among many others, must be answered. What canbesaidabouttheproduct?Whichaudienceisbeingreached?Whatresourcesdoestheorganisationhave?Cansomeonedoitbetter,sayanagency?Thebasicstepsindesigningacampaignaresetoutinfigure7.4. Campaign objectivesAdvertisingmustonlybeundertakenforaspecificpurpose(s)andthispurposemustbetranslatedintoobjectives.Whilstdifficulttodirectlyattributetoadvertising,persuasiveadvertising’sultimateobjectiveistoobtainsales.Other objectives include building a favourable image, information giving, stimulating distributors or building

Seller CodedMessage

Language differencesGoverment controlsMedia availability,

Economic differences,Local distributer,Tastes, attitudes

Agency availability

Decodedmessage Buyer

*Noice

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confidenceinaproduct.Whateverobjective(s)arepursued,thesemustberelatedtotheproductlifecycleandthestage the product is in.

Fig. 7.4 Phases of Campaign design

BudgetsBudgets can be set in a variety of ways. Many budgets use a percentage of past or future sales, objective and task methods,orruleofthumb.“Scientific”methodsincludesalesresponsemethodsandlinearprogramming.

AgencyAgenciescanbeusedornotdependingontheorganisation’sownabilities,confidenceinthemarketandmarketcoverage. Many organisations, like Lintas and Interpublic, are worldwide and offer a wide range of expertise.

Message selectionMessage selection is probably where the most care has to be taken. Decisions hinge on the standardisation or adaptation of message decision, language nuances and the development of global segments and customers. Message design has three elements, illustration, layout and copy. Advertising appeals should be consistent with tastes, wants and attitudes in the market. Coke and Pepsi have found universal appeal. With the “post modern age” now affecting marketing, message design is becoming particularly crucial. It is not just a question of selling, but of crafting images. Itisoftentheimage,nottheproduct,whichiscommercialized.Productsdonotprojectimages,productsfilltheimages which the communication campaign project’s. Coke’s 'Life' theme is a classic in this regard.

In illustrations and artwork, some forms are universally understood. Coke, again, with its life theme is applicable anywhere. Cheese and beer adverts would go well together in Germany, but it would have to be cheese and wine in France.

Copy, or text, has been the subject of much debate. Effective translation requires good technical knowledge of the original and translated language, the product and the objectives of the original copy. Care has to be taken that the meaning does not get lost in translation.

Set Objectives

Set Budget

Use an agency

Message Selection

Media Choice

Campaign Scheduling

Campaign Evaluation

Organisation and control of campaign


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Media selectionThere is a great difference in variety and availability of media across the world. The choice of media depends on its cost, coverage, availability, character (national or local or international) and its atmosphere, for example in Zimbabwe, posters versus adverts in the Financial Gazette.

In advertising, the choice is television, radio, press, magazines, cinema, posters, direct mail, transport and video promotion. In promotion the choice is wide, between money-off offers, discounts, extra quantities, and so on. Other forms of promotion include exhibitions, trade missions, public relations, selling, packaging, branding and sponsored events. Governments can be a very powerful promotion source, both by providing organizations like Horticultural PromotionCouncils andbygiving information andfinance.GATT/UNCTADGenevaprovides a promotionalservice,givinginformationaboutproductstointerestedparties.TradeFairsarepopularbothasaflagflyer,andasaproductdisplayandcompetitiveinformationgatheringfacility.Thereareover600tradefairsworldwide;Theseinclude the Hanover Fair, Germany, the Royal Agricultural Show, UK for machinery and the Zimbabwe International Trade Fair for agricultural produce and other things in general. The criterion for participating in fairs is always cost versus effectiveness.

Campaign schedulingSchedulinginternationalcampaignsisdifficult,especiallyifhandledaloneratherthanwithanagencyorthirdparty.Scheduling decisions involve decisions on when to break the campaign, the use of media solely or in combination, andthespecificdatesandtimesforadvertisementstoappearinthemedia.

Campaign evaluationAdvertising campaign evaluation is not very easy at the best of times. Whilst it would be nice to say that “X” sales hadresultedfrom“Y”advertisinginputs,toomanyinterveningfactorsmakethesimpletie-updifficult.Evaluationtakes place at two levels - the effectiveness of the message and the effectiveness of the media. Few African developing countries, except Kenya, have any sophisticated methods for campaign evaluation. Measures include message recall tests, diary completion, and brand recall.

Organisation and controlWhen companies like Nestle may have centrally organised and controlled advertising campaigns, many are devolved to local subsidiaries or agencies. The degree of autonomy afforded to local subsidiaries depends on the philosophy of the organisation and the relative knowledge of the local market by the principal.

Global advertising, or even regional advertising, is a phenomenon not normally associated with African countries, as time goes by it may be. Unfortunately few countries see or use the overseas media to advantage. For developing countries, trade missions can be very useful for promotion. This is a relatively cheap but effective medium. Few countriesactivatetheiroverseasembassiessufficientlytogeneratepossibletrade.If,however,itisdone,theforegoingsections have to be considered carefully in order that possible mistakes are avoided.

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Summary Decisions regarding the product, price, promotion and distribution channels are based on the elements of the •marketing mix. Marketing mix is the consolidation of product, price, place and promotion. It can be argued that product decisions are probably the most crucial as the product is the very epitome of marketing planning.A good, idea, method, information, object, or service that is the end result of a process and serves as a need or •wantsatisfier.Itisusuallyabundleoftangibleandintangibleattributes(benefits,features,functions,uses)thata seller offers to a buyer for purchase.Changes in design are made to improve the product sales, and this, over the accompanying costs. Changes •in design are also subject to cultural pressures. The more culture-bound the product is, for example food, the more adaptation is necessary. Most products fall in between the spectrum of standardisation to adaptation extremes.Manufacturing is the use of machines, tools and labour to produce goods for use or sale. The term may refer to •a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, inwhichrawmaterialsaretransformedintofinishedgoodsonalargescale.

ReferencesDixie,G.B.R.,"• Horticultural Marketing",FAOAgriculturalServicesBulletin.Keegan,W.J.,"• Global Marketing Management",PrenticeHall.

Recommended Reading Ries A. Trout J. Positioning. • The Battle of Your mind.Warren J. Keegan, Mark Green, • Global Marketing (3rd Editionpages, Publisher: Prentice HallMasaaki Kotabe, Kristiaan Helsen. • Global Marketing Management. Publisher: Wiley


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Self assessment

In agricultural machinery, processing equipment and other items which are of substantial value and technology, 1. —————— is a prerequisite.

service a. tax b. loss c. profitd.

Manufacturers have found their negotiations at stake due to the poor back-up ———————.2. servicea. tax b. loss c. profitd.

Good original _________ manufacturers will insist on training and updating as part of the agency agreement. 3. equipment a. qulity b. softwarec. productd.

Decisions regarding the product, price, promotion and distribution channels are decisions on the elements of 4. the “__________”.

product mixa. marketing mix b. campaigningc. customerd.

It can be argued that product decisions are probably the most crucial as the product is the very epitome of 5. ___________ planning.

strategy a. marketing b. financialc. technologicald.

Most developing countries are in no position to compete on the world stage with many manufactured __________ 6. products.

value addeda. valuable b. costlyc. technologicald.

Aproductisacombinationof___________attributessay,sizeandshape;andsubjectiveattributessayimage7. or “quality”. A customer purchases on both dimensions.

physical a. cultural b. qualityc. technologicald.

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In——————————,itisincreasinglyimportantthattheproductfulfilstheimagewhichtheproducer8. is wishing to project.

post-modernisation a. pre-modernisation b. active-modernisation c. passive -modernisationd.

Quality, method of operation or use and maintenance are catchwords in ___________.9. marketing a. international marketing b. global marketingc. domestic marketingd.

Consumer beliefs or perceptions also affect the world brand concept. 10. perceptiona. quality b. servicec. motivationd.


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Chapter VIII

Distribution and Global Marketing Logistics documentation

Aim


introduce the distribution channel for global marketing•

formulate the channel structure for business distribution channel•

enlist the various channel structure for distribution channel•

Objectives


enlist various documents related to logistic (Global market)•

explain the role of government for distribution channel•

describe the international merchant role in distribution channel•

Learning outcome


understand the distribution channel•

portray the role of government in logistic•

identify the role of international merchant•

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8.1 Introduction Distribution has two elements, the institutional and the physical. The actual institutions are like retailers, agents and so on. Physical distribution aspects cover transport and warehousing.

While most agricultural exports from developing countries are either in a primary format (for example cotton, maize)orfinishedformat(forexampleflowers,vegetables),increasingattentionisbeingplacedonprocessedoradded value formats. This means that, whereas in the former, exporters are in the hands of agents, merchants or other middlemen, in the latter, much more needs to be understood of the channel itself. The more is known about the end user and the channel to reach him/her, the better equipped will be the exporter to understand and meet the needsandalsotoperhapsgainmoreoftheexportedaddedvalue.Itisafactinflowersforexample;thatthesearesold from the Dutch market to the Far East, where the price commanded is much more than the original exporter price. If the original exporter could participate in this channel, the greater would be the return.

Longerthechannel,themorelikelythatproducerprofitswillbeindirectlyreduced.Thisisbecausetheendproduct’spricemaybetooexpensivetosellinvolume,sufficientfortheproducertocovercosts.Sometimescuttingchannellength may be impossible, as country’s infrastructure requirements may dictate them being there. So longer the channel, the more margins are added.

Channelsareoneoftheimportantpartsofthemarketer’sactivities.Theyalsogiveveryvitalinformationflowtothe exporter. In deciding on channel design, the following have to be considered carefully:

Market requirements•The cost of channel service •Incentives for channel members and mode of payment•The size of the end market which is going to be served•Product characteristics like, complexity of product, price, perishability, packaging•Middlemen’s role- how aggressively they can sell the product to end user•Market and channel concentration and organization•Appropriate contractual agreements•Degree of logistic control•

8.2 Channel StructureChannel structure varies considerably according to whether the product is consumer or business to business oriented. The former tends to have a variety of formats, whereas the latter is less complicated. Figures 8.1 and 8.2 give the channel alternative structure. Most developing countries rely heavily on agents in distributing their products. We can now look in detail, at some important types of channel members which are relevant to some global marketing aspects.

BrokerBrokers do not take title to the goods traded but link suppliers and customers. They are commonly found in international markets and especially agricultural markets. Brokers have many advantages.

They are better informed by buyers and or sellers.•They are skilled socially to bargain and forge links between buyers and sellers.•They bring the “personal touch” to parties who may not communicate with each other.•They bring economies of scale by accumulating small suppliers and selling to many other parties.•They stabilise market conditions for a supplier or buyer faced with many outlets and supply sources.•

Personalize trading networkFrequently,relationshipsmaybebuiltupbetweenabuyerandaseller,inwhichovertimeasconfidencegrows,


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Fig. 8.1 Channel for consumer

unwritten and informal understandings develop. These relationships reduce information, bargaining, monitoring and enforcement costs. Often, as relationships build, trust develops. Trust and reciprocity can enable trade to developunstable economic circumstances, but both parties are aware the relationship can be undermined through opportunistic behaviour. The Kenyan fresh vegetable industry is a classic example of personalized trading networks enabling international trade between Kenya suppliers and their familial (often Asian) buyers in the United Kingdom.Associations, Voluntary Chains, Cooperatives

Fig. 8.2 Channel for business to business

Manufacturer/ Producer

Consumer

Mail order

Door to door

Manufacturer owned retail

Agents

RetailRetail

Sales force Sales

forceWholesale

Wholesale

Retail

Retail

Manufacturer/ Producer

Consumer

Distributor

AgentsSales force

Sales force

Wholesale

Wholesale

Wholesale

Wholesale

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Associations, voluntary chains and cooperatives can be made up of producers, wholesalers, retailers, exporters and processors who agree to act collectively to further their individual or joint interests. Members may have implicit or exclusive contracts, membership terms and standard operating procedures.

These forms of coordination have a number of advantages:Theyfigureoutthehugeinvestmentphenomenonbyspreadingthecostofinvestmentamongmembers.•They can reduce or pool members’ risks by bulk buying, providing insurance and credits, pooling market prices •and risk.They lower transaction costs of members through arbitration of disputes, provision of market information •systems,beafirststopforoutput.They can reduce marketing costs through the provision of promotion, protection of qualities and monitoring •members’ standards.They can act as a countervailing power between buyers and producers. This is very important where supermarkets •in the UK, for example, are now buying in such quantities that they are dictating terms to suppliers.

Developing countries do not have a history of good cooperative development, primarily because of poor management, financialproblemsandlackofoptimumutilizationofresource.However,theBombayMilkSchemeinIndiaisworking very well. The latter has been very successful in going into value added processing as well.

Contracting Contracting represents an intermediate institutional arrangement between spot market trading and vertical integration. Marketing and production contracts allow a degree of continuity over a season, cycle or other period of time, without the instantaneous of spot trading.

The two main types of contract are:Forward Markets-These involve commitments by buyers and sellers to sell and purchase a particular commodity •overastatedperiodoftime.Specificationsusuallyincludeweight,volumes,standardsandvalues.Pricesmaybebasedoncostplusornegotiated.Thesecontractsexistbetweenfarmersandfirsthandlersandexportersandimporters.Forward resource/management contracts- These arrangements combine forward market sale and purchase •commitmentswithstipulationsregardingthetransferanduseofspecificresourcesand/ormanagerialfunctions.In such a contract, the exchange of raw material or commodity is made on condition that it involves the use of certain inputs or methods, advised by the buyer, who may even take over the distribution function.

This is a typical Marks and Spencer arrangement. Marks and Spencer is a very successful, high quality and price retail operation in the UK. Such arrangements are found in many franchising, distributor or marketing/management agreements and help to internalise many future product transactions.Both these forms of contract reduce the risks on both the buyers’ and the sellers’ side. By creating forward markets, the seller reduces market risk, and the buyer ensures that he receives right commodities in right time. Forward/resource management contracts also have the advantage of the provision of credit, market information and, perhaps, other trade secrets. Production contracts to farmers are also a source of credit collateral.

Integration Integration vertically involves the combination of two or more separate marketing or production components under common ownership or management. It can involve investments forward or backward in existing activities or investments in interlinked activities. Integration horizontally means the linking of marketing or production separable at the same level in the system, for example, a group of retailers. Integration can bring a number of economies to food marketing systems, viz:

Production/logistical economies: Integration can bring economies of bulk, transport, and inventories. •Transactioncosteconomies:Integrationbringscosteconomiesbecausethefirmmaybecomethesolesupplier•ofgoodsandservicestoitself;theseincludebargainingcosts,informationsystemstreamliningandcentraliseddecision making.


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Riskbearingadvantages:Verticalintegrationcanovercomeriskanduncertainty,i.e.byinternalisingflows,the•organisation can eliminate the risk of variability in supplies, outlets, qualities and so on. More direct control over assetsmayenablethefirmtoinvestinprocessingandmarketingfacilitieswhichfurtherenablethedevelopmentof economies of scale. Typical examples include nuclear estates and outgrower schemes. Market imperfections: These can be absorbed often by vertically integrated organisations. Taxes, prices and •exchange controls and other regulations may be absorbed to give pecuniary gain. Also, integration enables the firmtoincreaseitsmarketshareandleveragewithsuppliersandcustomers

8.3 Role of GovernmentGovernment can take a leading role in the distribution of goods and services via state-owned Marketing Boards. The government may provide an infrastructure which the private sector just cannot afford, for example roads, utilities, training and extension. Government has the sovereign authority to provide the regulatory framework within which commodityoragriculturalexportsystemscanbedeveloped.Itcanalsodefinetherulesforinternationaltradeandmarket entry. It can negotiate in either a bilateral or multilateral form, to facilitate a particular commodity transfer or arrange lower terms of access.

Someoftherolesofgovermentarelike;toplaylikecooperatingorprovidingservicesindefinedmarkets.•provide credit or market information.•stabilisepriceswithpricecontrolslikefloororceilingprices,bufferstocks,quantitycontrolsandsoon.•regulate the competitive position of markets by passing regulations which protect or promote a market •structure.force suppliers into Marketing Boards as the only outlet and so alter the whole competitive structure of •industry.

Both,marketingboardsandmarketingorderscanbeusedtocontrolphysicalcommodityflows,enforcemarketquality standards and pool market risk. Finally, the government can enable suppliers through the introduction of export incentives, reduced taxes or export retention schemes.Example of International Channel Decision and Management for cotton (Source: ITC Training Manual)

Customer requirements Inmarketingcottonthebasicquestioniswhoisthecustomer?Forcottonitmaybeaninternationalmerchant(largeor small) or a local/regional merchant (large or small) or a spinning mill in the end user country. The customer has anumberofclearlydefinedneedsincludingthefollowing:

Availability - on time and in steady supply•Quality - reliable, even running, free from foreign matter, no country damage and will pass the micro, PSI and •GPT test valuesShipment - on time, in a container, clearly marked and direct to customer•Price - competitive at a given time. Its relative value must be competitive versus synthetics quality and against •the Liverpool indexTerms - these must be simple - FOB, CFR etc. and be in tune with arrival/delivery schedules. Deferred terms •and payment in home currency are advantageousArbitration - a system for rejection, substitution and penalties must be agreed•Information - advice on price developments, time to buy, who else buys and ranges of prices.•

In addition, the producer and merchant have needs and objectives:

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ProducerMaximuminflow-forgoodsandservices(freightinsurance)•Maintain presence in key markets•Image - quality, contract performance and administrative excellence•

Merchant Margin level •Market share/key customers - either big, international or niche•Image - cheapest, most aggressive, quality and customer service.•

Fig. 8.3 Cotton distribution

Channel structure Figure 8.3 below gives a typical channel structure for cotton. At each stage, value is added. The typical value chain is seed merchants, farmers, country buyers/cooperatives, ginner, buyer, merchant, selling agent and end user. 8.4 International MerchantA good merchant is characterized by the following characteristics, in comparison to the producer/seller selling direct:

Well informed•Well disciplined•Knows the details of his business•Thinks in terms of probabilities and absolute terms (risk/reward)•Is concerned but not dogmatic - he can accept when he is wrong•Reports to few and knowledgeable people•

An international merchant acts as a bridge between producers and consumers. He performs the following functions:

Language -conducts communications in suppliers’ and consumers’ preferred language•Medium of Supply -he prepares the logistics function including sea and/or land transportation arrangements, •documentation preparation and arrangements for insurance coverageFinancialactivities-financingthroughown/bankingfacilities•Currency risk - buys and sells in currencies required by sellers and buyers, does currency conversions, provides •

Producer

Agent Cooperative Country buyer

Central marketing company

Central buying

organisation

Broker agent

Merchant

Agent

User


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financialinformationandtechnicalassistanceandoffersacurrencygapguaranteeMarket risks - takes a long or short market basis position, deals with hedging, options, off-take and supply deals •and price guarantee contractsBrokerageservice-providesabrokeringserviceandfixations•Quality -gives information on quality available, gives quality recommendations for consumers, handles quality •option/basket contracts and shows quality alternativesCulture –bridge the gap between remote developing areas and highly advanced and sophisticated centres of •the world

The services he can provide to a producer are as follows: Provides latest market information•Information of competitors and prices•Financing (producer and end user)•Buying of all exportable qualities•Buying on local terms•Prompt payment•Buying when producer can/wants to sell•Contract guarantee for proper business.•

Despite of all of the above service they have some consequences which they can’t ignoreRepresentation - does agent handle other representations who are involved in business.•Pricingintegrity-doestheagentevertrytochangethepricegivenbythebusinessowner?•

8.5 Market Strategy in Distribution ChannelIn designing a marketing strategy for distribution channels both external factors (macro-environmental) and internal factors (micro-environmental) have to be considered.

External factorsThe principal factor to consider here is, government. In general the role of government has increased over the years with few truly free, purely supply/ demand oriented producer countries.Government has an effect on three areas - exports and imports.

Exports-governmentinfluenceherehasbeeninminimumpricelegislation,specialexchangerates,export•credit facilities and export duties.Imports-Basicallythishasbeenfreeofinfluencefortypicalimportingcountries,buttherearespecialadhoc•regulations for occasional imports.

Internal factorsAclearlydefinedstrategyisrequired.Primarilytheproducerhastodecidewhetheritwillsellpre-seasonorwhenthe crop comes in, and/or is it to be a one off or steady seller.

Pricing-theproducerhastodecideonwhatpricingstrategytofollow-averagefixed,averageoncall,speculative•or the use of options.Added to the price equation is basis trading. Basis trading has become more prevalent for exporters for a number •of reasons:

Themarketpositionriskistoolarge(basisfluctuationsarenormallylessthanmarkethedging) �Many conserve cash for margins �A producer/exporter has the opportunity to obtain more US dollars (or less) �A mill has the opportunity to obtain a lower (or higher) price �

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8.6 Tariff for Distribution ChannelTariff systems provide either a single rate of duty for each item applicable to all countries, or two or more rates, applicabletodifferentcountriesorgroupsofcountries.Tariffsareusuallygroupedintotwoclassifications:

Single Column TariffWith this system, there is only one level of import duty for each product, wherever the country of origin.

Two Column TariffThe initial single column of duties is supplemented by a second column of conventional duties, which shows reduced rates agreed through tariff negotiations with other countries. The second column is supplied to all countries enjoying the most favoured nation status within the framework of General Agreement on Tariffs and Trade (GATT). Signatories to GATT, with some exceptions, apply the most favourable tariff to products.

Preferential TariffA reduced tariff rate applied to imports from certain countries. GATT prohibits preferential tariffs except historical preference schemes like the Commonwealth, those part of a formal economic integration treaty like a free trade area and preference to companies of a developing country importing into a developed country.

8.6.1 Custom Duties during the time of importCustomsdutiesareoftwodifferenttypes-advaloremorspecificamountsperunitAdvalorem-Thisdutyisexpressedasapercentageofthevalueofgoods.Asdefinitionsofcustomsvaluesvaryfromcountrytocountry,itisbesttosecurevaluationpolicyinformationfirst.Auniformbasisforthevaluationofgoods for customs purposes was elaborated by the Customs Cooperation Council in Brussels and was adopted in 1953 (the Brussels Nomenclature came out of this). In this case the customs value is landed GIF cost at the port of entry.Thiscostshouldreflectthearm’slengthpriceofthegoodsatthetimethedutybecomespayable.

Specificduties-Expressedasaspecificamountofcurrencyperunitofweight,volume,length,ornumberofotherunitsofmeasurement,e.g.25centsperkg.Usuallyspecificdutiesareexpressedinthecurrencyoftheimportingcountry.

8.7 International Trade and Export ContractsThe export transaction is founded on a contract of international sale of goods with the special characteristic that it is entwined with other contracts, a thing that differentiates the international sale from the local sale.

These connected contracts are the contract of carriage by sea or air under which goods are exported and the contract of insurance by which the goods are insured. In many export transactions, delivery of the shipping documents amounts to performance of the contract of sale. These shipping documents consist normally of the bill of lading, the marine insurance policy and the invoice. The position becomes more involved when payment is made under a banker’s documentary credit because this common method of payment requires the addition of two other contracts to the export transaction, viz: the contract of the bank with the buyer and seller respectively.

A contract is a general agreement between a seller making an offer and a buyer making an acceptance. The acceptance shouldbeunqualifiedandanyvariationisregardedasarepudiationofthecontract.Theexportcontractshouldbeveryexplicitregardinggoodsandspecifications,price,modeofpayment,storage,packing,deliveryscheduleandso on. Normally the contract is sent with a pro forma invoice by airmail.

Although contracts may be oral or partly in writing and partly by word of mouth, it is always safer for the exporter to produce his terms of selling in writing and obtain the signatures of his buyer or authorised representative.The essential elements of a contract of sale should include the following:

Names and addresses of the parties •Product,standards(quality)andspecifications•


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Inspection of products •Packaging, labelling and marking requirements •Marine insurance •Port of shipment, destination and delivery schedule •Mode of payment •Price FOB, Common International Format (CIF), cost & freight etc. in international currency or currency asked •for by the buyer Settlement of disputes including the arbitration clause.•

Ifthebuyerissatisfiedwiththetermssetoutinthecontractandtheproforma,theexportercanthengetanorderwith duplicate copy of the contract, detailing payment arrangement and other details and an indication that a letter of credit (LC) has been opened in favour of the exporter. Details of documents required will also be indicated in the export order. The following must happen:

Acknowledgment-Exportermustacknowledgereceiptoftheorderindicatingthatconfirmationfollows.•Scrutiny-Contentsoftheorderinrespectofproduct,sizes,specifications,etc.asperquotationmustbeexamined•in terms of elements of contract conveyed by the exporter to his buyer. Qualities/ volume should be examined and ascertained in respect of capability to supply within the stipulated time.

8.7.1 Terms of Payment This is very important: If payment is to be by letter of credit (LC), the following should be borne in mind when examining the LC:

ConfirmationoftheLC.•Documents stipulated in the LC will be submitted by the exporter’s bank.•Draft to be drawn against the LC is for the period set out in terms of the contract•The credit validity period allowed in the LC. •Payment against the LC is permissible according to requirements of foreign exchange control regulations.•

8.8 Documents for Distribution in Global MarketVarious documents are needed for distribution channel. Some of the major documents are like

Export documentation•Commercial Documentation•OfficialDocumentation•Insurance Documents•Transport Documents•

8.8.1 Export DocumentationBelow is a list of basic documents used in export trade. See table 8.1

a) Invitation to quoteb) Quotec) Pro forma Invoiced) Orderconfirmation/acknowledgemente) Bill of lading/short form bill of ladingf) Airway billg) Marine (other) insurance policyh) Commercial invoice

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i) Consular invoicej) Certifiedinvoicek) Certificateoforiginl) Packing list/weight notem) Specificationsheetn) Manufacturer’sanalysiscertificateo) Health,sanitary,phytosanitary,veterinarycertificatesp) Qualityinspectioncertificate/certificateofvalueq) Independentthirdpartyinspectioncertificater) Dispatch advice notes) Dangerous goods declarationt) Shipping or export consignment notesu) Documentary credit of payment draftsv) Export licencesw) Import licencesx) Exporter’s commission advice to agenty) Customs and Excise export entry formsz) EU Movement documents EUR 1 Forma1) Otherspecificallyrequesteddocuments

Table 8.1 Documents Required for Export

8.8.2 Commercial DocumentVarious commercial documents are mentioned below

Pro forma invoiceThis is a form of quotation by the seller to a potential buyer. It is the same as Commercial Invoice except for the words'Proformainvoice'whichappearonit.Itmaybeaninvitationtothebuyertoplaceafirmorderandisoftenrequired by him so that the authorities of the importer’s country will grant him an import licence and/or foreign exchange permit. The pro forma invoice normally shows the terms of trade and price so that once the buyer has acceptedtheorder;thereisafirmcontracttobesettledasstipulatedintheproforma.Detailsfromtheacceptedproforma must be transposed identically to the commercial invoice that goods are in accordance with the pro forma invoice. No pro forma invoices are used in settlements:

In advance•On consignment•Subject to tender•After an invitation to tender has been accepted by the seller.•

Commercial invoiceThe following details must appear on a commercial invoice used in international trade:

Names and addresses of buyer and seller and date•Complete description of goods. If payment is to be obtained by means of documentary letter of credit, this •description of goods must exactly match the details in the documentary creditUnitpriceswhereapplicableandfinalpriceagainstshippingterms•Terms of settlement, e.g. documentary credit or 30 days on site. Documents against acceptance•Shipping marks and numbers•Weight and quantity of goods•


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Sometimes it is necessary to show to the customs authorities in the buyer’s country: Seller’s signature•Origin of goods•Ports of loading and discharge or places of taking in charge and delivery•Detailsoffreightandinsurancechargesspecifiedseparatelywhereapplicable.•

Certified invoiceAcertifiedinvoicemaybeanordinarysignedcommercialinvoicespeciallycertifying:

Thatthegoodsareinaccordancewithaspecificcontractorproforma•Thatthegoodsare,orarenot,ofaspecificcountryoforigin•Any statement required by the buyer from the seller.•

There are also formal certified invoiceswhichwhen submitted to the importingauthorities,will provide themwith the necessary evidence to pass the goods through customs with a lower import duty or none at all. Combined certificatesofvalueandorigin(CVO)areusedbetweenmembersoftheCommonwealthandspecialinvoicesfortheothermajortradeareassuchastheEU.Allcertifiedinvoicesmustbesignedandincaseofcombinedcertificatesof value and origin, they should be signed by a witness as well.

Packaging and list specificationThese documents set out details of the packing of the goods. These are required by the customs authorities to enable them to make spot checks or more thorough checks on the contents of any particular package. The packing list has nodetailsofcost/priceofthegoods;thespecificationdoeshavethesedetails.Thirdpartycertificateorinspection

Thisisacertificatedeclaringtheresultofanexaminationofthegoodsbyarecognisedindependentinspectionbody.In order to protect him from paying when sub-standard or worthless goods have been shipped, an importer can call for an independent check or examination of goods before they are despatched.This is important for the buyer as banks’ liabilities and responsibilities under documentary credit are limited to documents and not goods represented by the documents.

8.8.3 Official DocumentThesearelegion.Thissectionlooksatthefollowingfewofficialdocumentsonlyforexamplepurposes,

EURI form•TzL form•Consular invoice•Legalised invoice•ChamberofCommerceCertificateofOrigin•BlacklistCertificate•

European Commission Documents - EURI and TzLEURI form is used in respect of preferential exports from an EU country to a non EU country. The TzL is used for trade between EU member states, where the goods are being transported directly between member states and without passing through the territory of a non-member country.

Consular invoiceImporting authorities of several countries require consular invoices to be produced before goods may be cleared through customs. These invoices are normally obtained by the exporter from the Embassy of the importing country and are submitted to the Embassy for stamping at a charge. Sometimes, a Chamber of Commerce is required to certify on the consular invoice that the origin of the goods is as stated. This mainly happens in the South American

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countries.

Legalised invoiceSome countries require that commercial invoices should be legalized by their own embassy or consulate in the seller’s country. Sellers produce their own invoices and have them stamped (visaed) by the buyer’s embassy. This is normally required in the Middle East countries.Certificates of originThese constitute signed documents evidencing origin of the goods and are normally used by the importer’s country to determine the tariff rates. They should contain the description of goods and signature and seal of the Chamber of Commerce.

Blacklist CertificateCountries at war or with badly strained political relations may require evidence that:

The origin of the goods is not that of a particular country •That the parties involved (manufacturer, bank, insurance company, shipping line, etc.) are not blacklisted •That the ship or aircraft will not call at ports in such a country unless forced to do so.•

8.8.4 Insurance DocumentThe following are insurance documents required in international trade:

Letter of insurance •Insurancecompany’sopencovercertificate•

Letter of insuranceIt is normally issued by a broker to provide notice that an insurance has been placed pending the production of a policyoracertificate.Sometimesthistakestheformofacovernote.Theabovedocumentsdonotcontaindetailsofthe insurance being effected and therefore are not considered satisfactory by banks which normally require evidence of an insurance contract in documents required under a documentary credit.

Insurance company’s open cover certificateTheseareissuedbyinsurancecompaniestoembraceeitheropencoversorfloatingpolicies.Thesystemsofopencoverandfloatingpoliciesaresimilarinthat:

Once the system has been arranged, the insured party is covered for all his shipments on the terms and for the •risks agreed. The insured will declare to the insurance company the value and details of each shipment and willreceiveapre-printedinsurancecertificatemadevalidandthedocumentwillshowtheriskscoveredandbe pre-signed by the insurer.Under English Law, no action will be obtained on a contract of insurance evidenced solely by an insurance •certificate.So,anyactiontobetakenagainstinsurerscanonlybeonproductionofapolicytobesuedon.

8.8.5 Transport DocumentThe IATA airway bill (sometimes called an air consignment note or air freight note) is often issued in a set of 12 of which 3 are commercially important, the remainder being copies for airline purposes. The three important documents are:

for the issuing carrier•for the consignee •for the shipper•

The way bill is a receipt only and not a document of title and the goods are delivered to the named consignee without further formality once customs clearance has been obtained. If the third original document is in the hands of the shipper, this can be surrendered to the airline before delivery is made to the consignee.


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There might be an arrangement for payment whereby the bank might wish to have a lien over the goods until payment is effected by the importer. The goods will, therefore, be consigned to a correspondent bank (provided that the correspondent bank is agreeable to this) and in such a case the bank will release the goods or documents asinstructed.Thedocumentshouldbeartheairlinestampwithdateofdespatchandflightnumber,andbesignedon behalf of the airline.

Rail Consignment NoteWiththegrowthoffreightlinertraffic,thevolumeofgoodsbeingexportedbyrailthroughtofinalcontinentaldestination is increasing. Consequently, the carrier’s receipt, or duplicate copy, frequently accompanies the other documents. Goods will be released to the consignee, upon application and normal proof of identify, by the rail authorities at destination or by delivery direct. Control over the goods would be arranged in the same way as for an air consignment. The rail consignment note should bear the stamp of the station of departure and the date of departure.

Road Way Bill (CMR)The CMR (Convention Merchandises Routiers) consignment note is an internationally approved and recognized non-negotiable transport document used when goods are travelling by road through or to countries which are parties to the CMR. The contracting countries are Austria, Belgium, Bulgaria, Czechoslovakia, Denmark, Finland, France (including overseas territories), Federal German Republic, German Democratic Republic, Gibraltar, Greece, Hungary, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Spain, Sweden, Switzerland, United Kingdom (including Northern Ireland) and Yugoslavia.

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Summary Firstly, it covered the distribution channel based on institutional and physical. The actual institutions are like •retailers, agents and so on. Physical distribution aspects cover transport and warehousing.Channel structure varies considerably according to whether the product is consumer or business to business •oriented.Government can take a leading role in the distribution of goods and services via state-owned Marketing Boards. •The government may provide an infrastructure which the private sector just cannot afford, for example roads, utilities, training and extension. Government has the sovereign authority to provide the regulatory framework within which commodity or agricultural export systems can be developed.Tariff systems provide either a single rate of duty for each item applicable to all countries, or two or more rates, •applicable to different countries or groups of countries.Various documents are needed for distribution channel. Some of themajor documents are like; Export•documentation, Commercial documentation, Official documentation, Insurance documents, Transport documents

ReferencesSomebasic definition ofmarketing andmarketing concept. http://www.marketingteacher.comhttp://www.•marketingteacher.com/lesson-store/lesson-what-is-marketing.html. Last accessed 10th March 2011.Keegan W.J(2003). • Global marketing Management. 4th edition. Prentice Hall International Edition.World Bank. World Development Report. The Challenge of Development. Oxford University.•

Recommended ReadingPhilip R. Cateora. (March 2004). • International Marketing.Conceptofmarketing.McGraw-HillCompanies;12 edition Hakan Hakansson. • International Marketing and Purchasing of Industrial Goods. John wiley & sons.Michael R. Czinkota, Illka A. Ronkainen. • International Marketing. Publisher: South-Western College


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Self Assessment

The buyer instructs a bank in his own country (the issuing bank) to get a credit with a bank in the seller’s country 1. (the advising bank) in favour of the seller, is called ——————.

Letter of Credit a. Letter of Contract b. LetterofConflictc. Letter of Consignmentd.

It must be noted that a —————— contract is not a sale of goods itself but a sale of the documents of title.2. CIFa. ICCb. WWF c. Letter of Contractd.

A _________ arrangement will be agreed upon in the contract of sale.3. Letter of Credit a. Letter of Contract b. LetterofConflictc. Letter of Consignmentd.

Receipt issued by warehouse is known as __________.4. Warehouse Receipta. Letter of Creditb. LetterofConflictc. Letter of Contractd.

Howmanydocumentsarerequiredfortransportation?5. Onea. Twob. Threec. Fourd.

Thenumberofcertificateissuedbyinsurancedocumentsare_________.6. Onea. Twob. Threec. Fourd.

Howmanyofficialdocumentsarerequiredforlogistics?7. Foura. Fiveb. Sixc. Sevend.

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Thepricingstrategyofanyorganizationisdefinedby__________.8. Producera. Policy makerb. Governmentc. Financerd.

Howmanytariffsarethereindistributionchannel?9. Onea. Twob. Threec. Fourd.

The actual institutions are like _________.10. retaila. manufacturerb. quality controllerc. companiesd.


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Case Study I

Market Entry Strategy of Lopez FoodsLopez Foods, Inc. is an industry benchmark in food and plant safety, quality production, environmental protection and customer service. Currently, Lopez produces beef patties, ground beef and precooked sausages. In September of 2006, it was retained as Lopez's agency of record to provide market entry strategy and marketing support in launching their new brand, Country Cousin.

To promote this new brand Lopez Foods developed a comprehensive campaign including Print, Radio, Outdoor, Promotional, PR and Web-based elements. The marketing mix and media is designed to conduct research and demographicprofilingtoensurethatappropriatemessageshouldbeconveyedtoappropriateclient.Mainconcepttolaunchthisbrandisto“BringBreakfastBack”.Iteducatespeopleregardingthebenefitsofeatingabalancedbreakfast.Furthermore,weaimedtotailorourmessaginginawaythatalsocommunicatedthebenefitssharing breakfast with the family, as opposed to grabbing breakfast on the run or skipping it altogether.

QuestionsWhatisMarketingMix?Explainitbyconsideringtheabovecase.1. “BringBreakfastBack”Howthestrategyimplementedhere?2. Whichstrategyisusedinabovecase?3.

Answers

Marketing Mix is integration of following concepts.1. Product•Place•Price•Promotion and advertisement•Public relation•

Lopez Foods Inc is one of the renowned food making industry which has opted some marketing strategy to launch it’s new brand called “Country Cousin”. Campaigning activities like Print, Radio, Outdoor, Promotional, PR and internet are developed to promote this new brand. It helps the organisation to convey appropriate message to its client or customer.

“BringBreakfastBack”campaignwiththeintentionofeducatingpeopleonthebenefitsofeatingabalanced2. breakfast. Some of the main strategy which are used for launching this new brand areProductadaptationstrategy-modificationstoexistingproducts.Existingproductismodifiedandnewproduct•is made along with new concept. Competitive strategy: to compete in market and develop unique product is main motive of Lopez Foods•

ThemainstrategywhichisusedisProductadaptationstrategy-modificationstoexistingproducts.Brandnames3. do not appear overnight. Large investments in promotion campaigns are needed. Transaction costs also are a critical factor in building up a market entry strategy and can become a high barrier to international trade. Costs include search and bargaining costs. Physical distance, language barriers, logistics costs and risks limit the direct monitoringoftradepartners.ToovercomealloftheabovebarriersProductadaptationisfitforthissituation.

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Case Study II

The Gillette Co. - The Best a Man can Get

Gillette is known world over for its razor blades. Its manufacturing operations are conducted in more than 50 locations in 26 countries and its products are distributed in over 200 countries. In 1901, King C. Gillette and William Nickerson started the American Razor Company in Boston to produce Gillette razor sets. They could sell only51razorsetsinthefirstyear.However,inthenextyeartheysold90,844sets.Withinfouryears,in1905,Gilletteestablisheditsfirstoverseasoperations.Itdevelopedsalesbydistributingfreerazorbladesandwithboxesof Wrigley’s chewing gum.

During 1960s and 1970s the company expanded its product range by introducing Right Guard (deodorant), Trace 2( twin blade razor), Cricket (disposable lighter), Good News (disposable razor), and Erase Mate ( Erasable pens). It also acquired Braun (electric shavers and appliances). In 1984 it even branched into dental products. The different marketing strategies adopted by the company are as follows:

Identifying a product for which there was need and developing from the beginning a high quality product and •convincing the customers to buy the products. This enabled the company to sell more expensive product at a highermarginofprofit.They carried out market research, studied the needs of the customers and produced new products as demand •arose. The company always did considerable market research and design engineering. From the data obtained after the research, it launched a new razor in 1990, known as ‘Sevor’. Researches have stated that this is the most successful product launched in Gillette’s history and has helped it grab 9 per cent of the US market share in the year it was launched. They carried out test marketing and sales wave’s research.•Aftertheresearch,theyimplementedpricingstrategiesthatmadehugeprofits.•They studied product lie cycle and carried out effective product planning.•

Thus,Gillettehasmaderemarkableprofitsandestablishedasthemostsuccessfulorganization.

Questions:WhatarethedifferentmarketingstrategiescarriedoutbyGilletteCo.?1. Whatarethestagesofproductlifecycle?2. Whataretheadvantagesoftestmarketing?3. Customer behavior should be considered while deciding pricing strategies. Give reasons.4.


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Case Study III

Pricing Strategies of Premium Product

Ravindra Ghosh is a computer engineer who has successfully completed his M.Tech. course. He had a passion to study the characteristics of different software technology and prepare a unique product from the technologies. He was interested in developing new software product. That is why, after his course he invested a small capital to start manufacturing and selling the product under the brand name Power. Coming up from a middle-class family, Ghosh decided to set the price of the software much lesser than the other software available in the market. His pricing strategy worked out in the market. Thus, this paid rich dividends and Power became an instant success.

Usinghisnewlyacquiredfinancialstrengths,Ravindradevelopedhighqualityuniquesoftware.However,Ravindradid not consider customers needs and did not carried out any prior market research. Although the cost of production forthissoapwashigh,Ravindradecidedtosetlowerpricesformarketing.Thus,hedecidedtogainlowprofitmarginbymaintainingcomfortableproductinthemarket.Therefore,therewasnoprofitgainedandRavindrahadtofacelosses,asthecostofproductionwashigherthantheprofitsgained.

Questions:WhatmarketingstrategiesshouldRavindrahadfollowedtogetgoodprofits?1. DoyoufeelthatpricingstrategydecidedbyRavindrawasincorrect?Givereasons.2. Whyisconsumerneedsandmarketresearchimportantbeforesettingprice?3.

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Bibliography

ReferencesDavid Meerman Scott . (2010).The New Rules of Marketing and PR. Marketing to Reach Buyers Directly. •Kindle Edititon.Diffusion of Innovation Theory. http://a.parsons.edu/~limam240/thesis/documents/Diffusion_of_Innovations.•pdfDixie, G.B.R., “Horticultural Marketing”, FAO Agricultural Services Bulletin.•Franke. R. H. Cultural Roots of Economic Performance.•Hakan Hakansson. International Marketing and Purchasing of Industrial goods. John wiley & sons.•Keegan W.J(2003). Global marketing Management. 4• th edition. Prentice Hall International Edition.Masaaki Kotabe, Kristiaan Helsen. Global Marketing Management Publisher: Wiley•Michael R. Czinkota, Illka A. Ronkainen. International Marketing Publisher: South-Western College•PhilipR.Cateora.(March2004)..InternationalMarketing.Conceptofmarketing.McGraw-HillCompanies;•12 edition Porter, M.E. “Competition in Global Industries”. Boston: Harvard Business School Press.•Porter, M.E. “Competitive Strategy”. New York: The Free Press.•Porter, M.E. “The Competitive Advantage of Nations”. New York: The Free Press.•Ries A. Trout J. Positioning. The Battle of Your mind.•Somebasic definition ofmarketing andmarketing concept. http://www.marketingteacher.comhttp://www.•marketingteacher.com/lesson-store/lesson-what-is-marketing.html. Last accessed 10th March 2011.Vern Terpstra, Lloyd C. International Dimensions of Marketing Russow Publisher: South-Western College•Warren J. Keegan, Mark Green, Global Marketing (3rd Editionpages, Publisher: Prentice Hall•World Bank. World Development Report. The Challenge of Development. Oxford University.•

Recommended ReadingDirkPilat,Head,StructuralPolicyNewNatureofInnovation.http://www.newnatureofinnovation.org/full_report.•pdfHakan Hakansson. International Marketing and Purchasing of Industrial goods. John Wiley & sons.•Keegan W.J(2003). Global marketing Management. 4• th edition. Prentice Hall International Edition.Korey, G. “Multilateral Perspectives in International Marketing Dynamics” European Journal of Marketing,•Masaaki Kotabe, Kristiaan Helsen. Global Marketing Management Publisher: Wiley•Michael R. Czinkota, Illka A. Ronkainen. International Marketing Publisher: South-Western College•PhilipR.Cateora.(March2004)..InternationalMarketing.Conceptofmarketing.McGraw-HillCompanies;•12 ed Ries A. Trout J. Positioning. The Battle of Your mind.•Shipley, D.D. and Neale, C.W. “Successful Countertrading. Management Decision”, Vol. 26,•Terpstra. V. International Marketing. 4• th ed.Vern Terpstra, Lloyd C. International Dimensions of Marketing Russow Publisher: South-Western College•Warren J. Keegan, Mark Green, Global Marketing (3rd Editionpages, Publisher: Prentice Hall•World Bank. World Development Report. The Challenge of Development. Oxford University•


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Self Assessment Answers

Chapter Ia1. b2. a3. a4. a5. b6. a7. b8. a9. b10.

Chapter IIa 1. a 2. b 3. a 4. a 5. a 6. b 7. b 8. a 9. b10.

Chapter IIIa 1. a 2. a3. a 4. a 5. b 6. a 7. b 8. a 9. a10.

Chapter IVa 1. a 2. b3. a4. b5. a6. a 7. c 8. a 9. a 10.

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ChapterVb 1. c 2. b 3. a 4. b 5. a 6. a 7. a 8. a 9. c10.

ChapterVIa 1. b 2. a 3. b 4. b 5. a 6. b 7. b 8. c 9. b10.

ChapterVIIa 1. a 2. a 3. b 4. b 5. d 6. a 7. a 8. b 9. a10.

Chapter VIIIc1. d2. a3. a4. c5. b6. c7. a8. b9. a10.

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