1. PASIG CATHOLIC COLEGEMKTG 26 International MarketingChapter 1 Aspect of InternationalMarketingCollege Instructor: Mr. A. T. Quiwa, MB

2. Learning Objectives Explain the growing importance of internationalbusiness Describe how international marketing differs fromdomestic marketing Discuss the significant role of multinationalcorporation in the expansion of business on aninternational scale Compare alternative entry routes into foreignmarkets 3. International Business The term international business refers to a widerange of activities involved in conducting businesstransactions across national boundaries. International business suggest a comprehensiveapproach to operations of both large and small firmsengaged in business overseas. Perspectives of U.S. Business OverseasU.S.A. greater impetus to overseas expansion cameafter World War 11. While the U.S. governmenthelped to reconstruct war-torn economic through theMarshall Plan by providing financial assistance toEurope countries, the postwar American economyemerged as the strongest in the world. Americans economic assistance programs, in theabsence of competition, stimulate extensive U.S.corporate interest overseas. 4. Foreign Investment of U.S.A. Essentially, there are two aspects of internationalbusiness: direct investment and trade. At end of 1993, according to a U.S. Department ofCommerce report, the U.S. direct investment abroad at$450 billion, up from $ 314.3 billion in 1987. Over 75% of U.S. investment overseas have traditionallybeen in developed countries. However, as many less-developed countries gained political freedom after thewar, their government sought U.S. help to modernize theireconomies and improve their living standards. Almost $344 billion of the $408 billion in the book value ofdirect foreign investment in the U.S. at the end of 1993(Netherland, UK, Canada, Japan and Switzerland) Companies like Bic Pen Corporation( Frenchcompany), BMW (Germany), Lever Brothers(Englishcompany), and Nestle ( Swiss company). 5. Why Go InternationalThere are several reasons for U.S. firms to seekbusiness opportunities elsewhere in the world. Market Saturation United State Trade Deficit Foreign Competition Emergence of New Markets Opportunities via Foreign Aid Programs 6. Other Reasons Why Go International In industries where economies of scale are feasible, alarge market is essential.International business provides a safety net duringbusiness downturns.In many industries, labor constitutes a major proportion ofcosts.Some nations offer tax incentives to attract foreignbusiness to their countries.Many companies find it more desirable to develop and/ortest new products outside the U.S.Many international markets are less competitive than theU.S. markets; several are still in an embryonic stage.Further, in some instances, government will givecompanies a monopoly or quasi-monopoly position if theyassemble and produce their products there.Finally, international presence provides expanded accessto advantages in technology, worldwide raw materials, anddiverse international economic groups. 7. International Marketing and Its GrowingImportance Stage of International InvolvementThe term international marketing refers to exchange across national boundaries for the satisfaction of human needs and wants. A firms overseas involvement may fall into one of several categories:1.Domestic: Operate exclusively within a single country.2.Regional exporter: Operate within a geographic defined region that national boundaries.3.Exporter: Run operations from a central office in the home region, exporting finished goods to a variety of countries.4.International: regional operations are somewhat autonomous, but key decision are made and coordinated from the central office in the home region.5.International to Global: Run independent and mainly self- sufficient subsidiaries in a range of countries6.Global: Highly decentralized organization operation across a broad range of countries. 8. Why Study International Marketing? Marketing is more significant, both for doing business abroad and for analyzing the impact of international happenings on business in the U.S., than other functions of a business- such as manufacturing, finance, and research and development-because market responds to the local culture and business multiple interrelationships with the local environment. 9. Domestic Versus International Marketing The basic nature of marketing does not changefrom domestic to international marketing, butmarketing outside national boundaries posesspecial problems. International marketing, unlike domesticmarketing, requires operating simultaneously inmore than one kind of environment, coordinatingthese operations , and using the experiencegained in one country for making decisions inanother country. 10. Domestic Versus International Marketing To successfully compete globally, rather than simplyoperate domestically, companies should emphasize:1. Global configuration of marketing activities(i.e. where activities such as new product development, advertising, sales promotion, channel section, marketing research, and other functions should be performed)2. global coordination of marketing activities ( i.e. how global marketing activities performed in different countries should be coordinated); and3. linkage of marketing activities (i.e. how marketing activities should be linked with other activities of the firm). 11. Domestic Versus International Marketing Further, marketing activities dispersed indifferent countries should be properly coordinatedto gain competitive advantage. Such coordinationcan be achieved by;1. performing market activities using similarmethods across countries2. transferring marketing know-how and skillsfrom country to country;3. sequencing marketing programs acrosscountries;4. integrating the efforts various marketing groupsin different countries. 12. Domestic Versus International Marketing Finally, a global view of international marketing permits linking marketing upstream and support activities of the firm, which could lead to advantages in various ways. For example, marketing can unlock economies of scale and learning in production and/or R&D by;1. supporting the development of universal products byproviding the information necessary to develop aphysical product design that can be sold worldwide;2. creating demand for more universal products even ifhistorical demand has been for more varied products indifferent countries;3. identifying and penetrating segments in many countriesto allow the sale of universal products;4. providing services and/or local accessories thateffectively tailor the standard physical product to thelocal needs. 13. Framework of International Marketing Typically, a firm should make domestic marketingdecisions only after considering internal andexternal environment. International environment factors primarilyrefers to corporate objectives, corporateorganization, and resource availability. External environment factors includecompetition, technological change, the economicclimate, political influences, social and culturalchanges, among marketing channels. 14. Decision and Environment of International Marketing Other types of Environment ( for example, competition, technological changes PerspectiveEconomic of firmsEnvironmentDomesticProdu PriceBusinessct InternationalInternationalCustomerEconomicCulturalInstitutionsEnvironment and Distribution Promotion AgreementsPolitical LegalEnvironment Environment 15. Multinational Corporation The multinational corporation (MNC) is theprincipal instrument in the expansion of businesson an international scale. The MNC plays a decisive role in the allocationand use of the worlds sources by conceiving newproducts and services, creating or stimulatingdemand for them, and by developing new modesof manufacturing and distribution. 16. Nondomestic Earnings, Sales, andAssets of Selected U.S. Firms(1993) Percent of Percent of Percent of netSalesAssets EarningsAmerican Std64 50 18Avon52 45 34Coca-cola 56 46 34Colgate-55 62 34PalmoliveGillette68 68 70Hewlett 52 58 27PackardIBM 65 58 27Johnson & 42 43 41JohnsonXerox 35 39 27 17. Multinationals from the ThirdWorld The strength of the Third World MNCs comesfrom their special experience with manufacturingfor small home markets. Using low technologyand local raw material, running job-shop kinds ofplants, and making effective use of semiskilledlabor, they are able to custom-design productsbest suited to host countries. While, small-scale manufacturing remains theirunique strength, these companies also aremoving in other areas that are particularly suitedto local conditions. The rapid growth of Third World multinationalprovides both a threat and an opportunity to themultinationals from the advance countries. 18. Entry Strategies Four different modes of business offer acompany entry into foreign markets:1. exporting2. contractual agreement3. joint venture4. manufacturing 19. Entry StrategiesExporting A company may minimize the risk of dealing internationally byexporting domestically manufactured products either by minimalresponse to inquiries or by systematic development of demand inforeign markets.Contractual Agreement There are several types of contractual agreements:patent licensing agreement This is based on either a fixed-fee or a royalty and includes managerial training.Turnkey Operation This is based on a fixed fee or cost-plusarrangement and includes plant construction, personnel training, and initial production runs.Coproduction Agreement This is most common in the socialistcountries, where plants are built and then paid for with part of theoutput.Management Contract Currently widely used in the MiddleEast, this requires that a multinational corporation provides keypersonnel to operate the foreign enterprise for a fee until localpeople acquire the ability to manage the business independently. 20. Entry Strategies Licensing This works as a viable alternatives in somecontractualagreement situations where risk of expropriationand resistanceto foreign investments create uncertainty. Licensing encompasses a variety of contractualagreements whereby by a multinational marketermakes available intangible assets such aspatents, trade secrets, know-how, trademarks,and company name to foreign companies inreturn for royalties or other forms of payment. Transfer of these assets usually is accompaniedby technical services to ensure proper use. 21. Some of the advantages of licensingare as follows:1.Licensing requires little capital and serves as a quick and easy entry to foreign markets.2.In some countries licensing is the only way to tap the market.3.Licensing provides life extension for products in the maturity stage of their life cycles.4.Licensing is a good alternative to foreign production and marketing in an environment where there is worldwide inflation, skilled-labor shortages, increasing domestic and foreign governmental regulation and restriction, and tough international competition.5.Licensing royalties are guaranteed and periodic, whereas shared income from investment fluctuates is risky. 22. Some of the advantages of licensingare as follows:6. Domestically based firms can benefit from productdevelopment abroad without research expense through technicalfeedback arrangements.7. When exports no longer are profitable because ofintense competition, licensing provide an alternative.8. Licensing can overcome high transportation costs,which make some exports noncompetitive in the target markets.9. Licensing is immune to expropriation10. In some countries, manufacturers of militaryequipment or any product deemed critical to thenational interest( including communicationequipment) may compelled to enter licensing 23. Some disadvantages of licensing areas follows:1.To attract licensees, a firm must possess distinctive technology, a trademark, and a company of brand name that is attractive to potential foreign users.2.The licensor has no control over production and marketing by the licensee.3.Licensing royalties are negligible compared with equity investment potential. Royalty rates seldom exceed 5 percent of gross sales because of host government restrictions.4.The licensee may lose interest in renewing the contract unless the licensor holds interest through innovation and new technology.5.There is a danger of creating competition in third, or even home, markets if the licensee violates territorial agreements. Going to court in these situations is expensive and time consuming and no 24. Joint Venture Joint venture provide a mutually beneficialopportunity for domestic and foreign business tojoin forces. For both parties, the ventures are ameans to share both capital and risk and makeuse of each others technical strength. Joint venture, however, are not an unmixedblessing. The major problem in managing jointventure stems from one cause; there is more thanone partner and one must play the key, dominantrole to steer the business to success. Joint venture should be designed to supplementeach partners shortcomings, and not to exploiteach others strength and weaknesses. 25. Widespread interest in joint ventures is relatedto :1.Seeking market opportunities. Companies in mature industries in the U.S. find joint venture a desirable entry mode to attractive new markets overseas.2.Dealing with rising economic nationalism. Often host government are more receptive to or require joint ventures.3.Preempting raw materials. Countries with raw materials such as petroleum or extractable material usually do not allow foreign firms to be active there other than through joint venture.4.Sharing risk. Rather than taking the entire risk, a joint venture allows the risk to be shared with a partner, which can be especially sensitive areas.5.Developing an export base. In areas where economics blocs play a significant role, joint venture with a local firm smoothes the entry into the entire region, such entry into the EC market through a joint venture with an English company.6.Selling technology. Selling technology to developing 26. Manufacturing A manufacturing corporation may also establishitself in an overseas markets by direct investmentin a manufacturing and/or assembly subsidiary.Because of the volatility of worldwide economic,social , and political conditions, this form ofinvolvements is most risky. It is suggested that MNCs should notmanufacture overseas where the risk of a mishapmay jeopardize the survival of the wholecompany.