international marketing environment

Chapter 2

International Marketing Environment

International Marketing Chapter-2 International Marketing

Environment

Learning Objectives

What are the important environment factorsCommodity agreementsState tradingIntra-regional tradeEuropean UnionRole of GATT/WTOUruguay round and features


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Introduction

It is the differences in the marketing environment which may make the international business strategy different from the domestic oneBusiness environment is very important determinant of business strategy


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Economic Environment

The nations of the world are broadly classified as developing countries and developed countriesThe developing countries fall into two categories viz. low income countries and middle income countriesEconomic environment of different countries are not similar


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Social Environment

The social environment encompassing the religious aspects; language; customs, traditions and beliefs, tastes and preferences, social stratification, social institution , buying and consumption habits etc.Social environment of different markets differ vastly


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Demographic Environment

Size of population, population growth rates, age composition, family size, nature of the family, income levels etc have very significant implications for businessThe size of the population is an important determinant of demand for many products


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Political and Government Environment

The political environment includes the characteristics and policies of the political parties, the nature of the constitution and government system and policiesRegulation of the quality, prices, packaging labeling etc. is also very common


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International Trading Environment – Trade Barriers

The main objective of imposing trade barriers are to protect domestic industries from foreign competition.After the second world war, there was a progressive liberalization of trade by the developed countries.


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Tariffs

Tariffs in international trade refer to the duties or takes imposed on internationally trade goods when they cross the national bordersIndia has had one of the highest tariff walls in the world


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Non-Tariff Barriers

NTBs are new protection measuresThere are tow categories

Licensing, quota etc. are used by developing countriesDeveloped countries are using Voluntary Export Restrains


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Quotas

A quota on the export of a product from a country may be imposed if the government feels that exports in excess of that will affect interests of the domestic consumersThe aim of import quota, obliviously, is to restrict the quantity of imports


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Licensing

Quota regulations are generally administered by means of licensingUnder the import licensing system, the prospective importers are obliged to obtain a license from the licensing authorities: the possession of an import license is necessary to obtain the foreign exchange to pay for the imports


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Voluntary Export Restraints

VERs are bilateral arrangements instituted to restrain the rapid growth of exports of specific manufactured goodsThe exporting country voluntarily restrains the export of the specified product in order to either help the other country to reduce its trade deficit or to protect domestic industry


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Administered Protection

Administration protection encompasses a wide range of bureaucratic government actions, which have grown in absolute as well as relative importance over the last decade or moreMore recent VERs are in fact regarded as the outgrowth of administered protection actions


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Customs proceduresConsular formalitiesGovernment procurementState tradingMonetary controlEnvironmental protection lawsForeign exchange regulations


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Impact of NTBs

Affects many exporting countriesApparel exports is the most affected of the developing countries because of such barriersCauses diversion of production and exports


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NTBs and India’s Exports

NTBs prevent the industry from making full use of technological potential and economies of scale for garment firms in India.The problem for NTBs for Indian exports has increased recently


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Commodity Agreements

International Commodity Agreements are inter-governmental arrangements concerning the production of , and trade in, certain primary products with a view to stabilizing their prices.In its final act, the UNCTAD-I made a comprehensive statement on the functions international commodity agreements


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Quota Agreements

International quota agreements seek to prevent a fall in commodity prices by regulating their supplyQuota agreements have already been tried in case of coffee and sugar, and commodities like tea and bananas have been suggested as prospective candidates for new agreements


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Buffer Stock Agreements

International buffer stock agreements seek to stabilize commodity prices by maintaining the demand-supply balanceThe buffer pool method has already been tried in case of tin, cocoa, and sugar, and commodities like rubber, tea and copper has been suggested as prospective candidates for new agreements


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Bilateral/Multilateral Contracts

Bilateral contract to purchase and sell certain quantities of a commodity at agreed prices may be entered into between a major importer and exporter of the commodity.The best known example of this type of commodity agreement is the International Wheat Agreement


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Cartels

International cartels are agreements between producer located in different countries or between governments of countries to restrict competition.Examples include the Organization of Petroleum Exporting Countries (OPEC) and International Air Transport Association (IATA)


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State Trading

State trading means import and export transactions of a state owned or state controlled agency involving purchase of goods for commercial resale.Recently ,developing countries have significantly reduced the role of state trading


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State Trading in India –Objectives

To help reduce the difficulties experienced in expanding trade with centrally planned countriesTo help maintain quantitative regulations of imports and some equilibrium in the prices of commodities and indigenous productsTo provide developmental finance for organized production and boost exports of small scale sectorInternational Marketing

Chapter-2 International Marketing Environment

Canalisation

Canalisation means established of state monopoly in foreign tradeMost of the objectives of state trading mentioned earlier are also the objectives canalisation


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Trading Blocs and Growing Intra-Regional Trade

An important trend in international trade has been the growth of intra-regional tradeRegional integration schemes tend to increase intra-regional tradeThere is a worldwide trend towards forming new regional arrangements and to strengthen the existing ones


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Forms of Economic Integration

Free Trade AreaCustoms UnionCommon MarketEconomic UnionEconomic Integration


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European Union

EU is the most successful of the regional economic integration schemesTHE EEC which originally comprised sex nations, namely, Belgium, France, Federal Republic of Germany, Italy, Luxembourg and Netherlands was brought into being on 1st January, 1958,by the Treaty of Rome, 1957


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The Treaty of Rome required every member country to

Eliminate tariffs, quotas and other barrier on intra-community tradeDevise a common internal tariff on imports from rest of the worldAll the free movement of factors of production within the communityHarmonize their taxation and monetary policies and social security policies Adopt a common policy on agriculture, transport, and competition in Industry


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The Euro

Euro, the common currency of the EU, was launched by 11 members of the Union, on January 1, 1999.The Monetary policy decisions for the Euro are made by the European Central Bank(ECB), which along with National Central Banks(NCBs) of all EU members.


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Implications of Euro for India

The Euro land accounts for about one-fifth of India’s foreign tradeIndian businessmen benefit, like their counterparts in other countries , form the benefits of a single currency instead of manyLarge opportunities are emerging in the computer software field.


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Indo-EU Trade

The EC, taken as a single unit, is India’s largest partner.The EEC accounts for more than a one-fifth of India’s total foreign tradeThe EC is a very potential market and India should pay sufficient attention to taking advantage of this enlarging market


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Other Regional Groupings

The European Free Trade Association(EFTA),brought into being by the Stockholm Convention , 1960Latin American Free Trade Area-LAFTAThe Australia New Zealand Closer Economic Relations Trade AgreementNorth American Free Trade Agreement


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Other Regional Groupings

Central American Common Market –CACMGulf Cooperation CouncilPreferential Trade AreaThe Economic Community of Central African States- CEEACThe Association of South East Asian Nations-ASEANInternational Marketing


SAARC

South Asian Association for Regional CooperationSAARC involves seven countries namely , India, Bangladesh, Pakistan, Nepal , Bhutan, Sri Lanka and Maldives.


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SAPTA

SAARC Preferential Trading AgreementBasic Principles

Overall reciprocity and mutuality of advantagesStep-by-step negotiations and extension of PTAInclusions of all types of productsSpecial and favorable treatment to Least Development Countries


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Indo-Lanka Free Trade Agreements

India has offered to permit as much as 1000 items of zero duty from Sri Lanka and Sri Lanka will allow duty free imports of 900 items from IndiaAs India is a very large market, the FTA is likely to benefit Sri Lanka a lot an the benefits to India


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GATT/WTO and Trade Liberalization

The desire of nations to liberalize trade resulted in the establishment of the General Agreement on Tariffs and TradeAs a result of Uruguay Round the GATT was transformed into a World Trade Organization (WTO) with effect from January , 1995


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India is one of the founder members of the IMF, World Bank, GATT and the WTOThe primary objective of GATT was to expand international trade by liberalizing trade so as to bring about all-round economic prosperity.


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GATT-Principles

1. Non-discrimination2. Prohibition of Quantitative Restrictions3. Consultation


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8th Uruguay Round

1. Reducing specific trade barriers and improving market access

2. Strengthening GATT disciplines3. Problems of liberalization of trade in

services, trade related aspects of intellectual property rights(TRIPS) and trade related investment measures(TRIMs)


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Differences between GATT and WTOGATT

Ad hoc and provisionContracting partiesAllowed existing domestic legislation to continue even if it violated a GATT agreementLess powerful, dispute settlement system was slow and less efficient, it ruling could be easily blocked

Agreements are permanentHas membersDoes not permit this

More powerful , dispute settlement mechanism is faster and more efficient, very difficult to block the rulings


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WTO

Functions of WTO

The WTO facilitate the implementation, administration and operation and the objectives of the Multilateral Trade Agreements Forum for negotiations among its members concerning their multilateral trade relations


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Understanding on rules and procedures governing the settlement of disputesAdministration of the ‘Trade Review Mechanism’


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Salient Features of UR Agreements

Tariff BarriersExpansion of tariff bindingsReduction in the tariff ratesExpansion of duty-free access

Agricultural tradeTarifficationTariff bindingTariff cutsReduction in subsidies and domestic support


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General Agreement on Trade in Services-GATS

Extends multilateral rules and disciplines to services is regarded as landmark achievement of the URThe GATS defines services as the supply of services


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Coverage of GATS

Cross-border supplyCommercial presenceConsumption abroadMovement of personnel


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Trade Related Investment Measures(TRIMS)

TRIMS refers to certain conditions or restrictions imposed by a government in respect of foreign investment in the country.

Local content requirementTrade balancing requirementTrade and foreign exchange requirementsDomestic sales requirements


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Trade Related Aspects of Intellectual Property Rights(TRIPS)

Intellectual Property Rights may be defined as “ information with a commercial value”IPRs may be legally protected by patents, copy rights, industrial designs, geographical indications, and trade marks.


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Coverage of TRIPS

Copyright and related rightsTrade markGeographical indicationsIndustrial designsPatentsLayout designsUndisclosed information


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Indian Patent Law and UR Agreement

There are significant differences between the UR agreement on patents and the Indian Patent Act, 1970Under the Indian act, patentability of inventions relating to substances intended for use as food, drug or medicines, or substance produced by chemical processes is limited to the methods or processes of manufacture only.While as per UR requires both product and process patents


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Anti-dumping MeasuresA product is regarded as dumped when its export price is less that the normal price in the exporting country or its cost of production plus a reasonable amount for administrative , selling and any other costs and for profitsAnti-dumping measure can be employed only if dumped imports are shown to cause serious damage to the domestic industry in the importing country


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Safeguard ActionsMembers may take safeguard actions, i.e. import restrictions to protect a domestic industry from the negative effect of an un unforeseen import surge, if a domestic industry is threatened with serious injurySafeguard measures would not be applicable to developing countries where their share in the member country's imports of the product concerned is relatively small


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Implementation Issues

The developing countries are virtually deceived in several cases as the UR Agreement have not been implemented in letter and spirit by the developed countries .They have resorted to covert measures to deny the developing countries the legitimate benefits of the proposed liberalizations.


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Doha Declaration

The Doha Declaration –comprising of a main Declaration on TRIPS, Public Health and a decision on implementation of related issues and concerns-launches the future work program me of the WTO and includes elaboration and timetables for the current negotiations in agriculture and services in a range of other issuesInternational Marketing


United Nations Conference on Trade and Development

To promote international tradeTo formulate principles of and policies on international trade and related problems of economic developmentTo negotiate multinational trade agreementsTo make proposals for putting its principles and policies into effect.International Marketing


United Nations Industrial Development Organization-UNIDO

Direct technical assistance to industries and in-plant training programmeswhereby groups of technicians and engineers from developing countries facing a common industrial problem are brought together to consider, how industry in the more advanced countries avoid or solves similar problems


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International Trade Centre

ITC can advise developing countries on their overall approach to marketing communications , as well as on individual information and publicity activitiesITC in brief assistances in marketing areas to member countries


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International Legal Environment

The legal systems that exist in different countries can be classified into three categories, viz, common law, civil law and theocratic law


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Settlement of Disputes

Disputes are not uncommon in international trade. Disputes of certain nature are settled by the WTO or in accordance WTO principlesIn other cases there are two avenues

Judicial dispute settlementExtra-judicial dispute settlement


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Laws of Foreign Countries

Regulations related productsPacking and labeling regulationsRegulation of priceRegulation of promotionRegulation of trade practices


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Summary

The environmental factors which affect international business involved economic , social, demographic, political , government and technological environmentsTrade barriers , blocks and agreements plays vital role in international trade


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international marketing environment

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