786 a brief overview of international marketing by:m.iqbal mehdi (freelance manager marketing and...

786

A Brief OverviewOf

International MarketingBy:M.Iqbal Mehdi

(Freelance Manager Marketing and Sourcing

Consultant)

What is a Market

• Market is a place where buyers and sellers gather for transactions which involves the exchange of goods and services.

What is Marketing?

• A Philosophy

• An Attitude

• A Perspective

• A Management Orientation

Plus

• A Set of Activities, including:

-Products

-Pricing

-Promotion

-Place (Distribution)

Marketing Objectives

• Increase sales volume• Increase growth rate• Increase market share• Increase market penetration• Maximize Return on Investment• Promote positive company image• Promote social responsibility

Definition of International Marketing

At its simplest level, international marketing involves the firm in making one or more marketing mix decisions across national boundaries.

At its most complex level, it involves the firm in establishing manufacturing facilities overseas and coordinating marketing strategies across the globe.

International vs Domestic Marketing

• Difference from domestic marketing is as much as exchange takes place beyond the frontiers.

• Involves different marketing and consumers who might have different needs, wants & behavioural attributes.

• Existence of more than one market necessarily complicates the marketing process.

• Since the countries are sovereign and dependent, the respective Governments enact legislations for the control of foreign trade.

• International marketing, is essentially similar to domestic marketing.

International vs Domestic Marketing – cont’d

• Marketing can be conceived as an integral part of two processes:

- Technical - Social

• Technically both international and domestic markets are identical. (Technical includes non-human factors such as Product, Price, Cost, Brands etc.)

• Social aspect is unique in any given stratum (level), because it involves human element namely the behaviour pattern of consumers and the given characteristics of a society, such as customs, attitudes, values etc. Hence it is obvious that marketing to the extent it is visualized as a social process, will be different from domestic marketing.

International vs Domestic Marketing – cont’d

• The barriers imposed by Govt are both visible and invisible. So it is important to make trade, free from those barriers.

• Even if there is complete free trade, logistic may create problems totally different from those experienced in domestic operations.

• Foreign Exchange Regulation which does not effect domestic sales, have considerable impact on financing of overseas Sales and Operations.

• As human needs and wants have different attributes in foreign markets, perception of those needs will require an overall appreciation of the environment, and the social & individual value systems.

Scope of International Marketing

• Different Legal Systems:Different Legal systems in different countries make the businessman task more difficult as they are not sure as to which particular system will apply to their transactions:– Uniformity is being saught for– Incoterms Uniform Customs and Practice of documentary credit

developed by the international chamber of commerce is one such example.

• Different Monetary Systems:– Each country has it’s own monetary system and their exchange value

differ– Exchange rates keep fluctuating and are determined by forces of

supply & demand– Some also operate on multiple exchange rates and each exchange

rate is applicable on certain set of transactions.

Scope of International Marketing - contd

• Lower Mobility of Factors of Productions:

- Factors of productions are less mobile between nations than in the country itself.

- However due to advent of Air transport, mobility of labour is nowincreasing.

- Due to development of international banking and removal of restrictions on capital movements, capital has also become more mobile.

• Difference in market characteristics:Each country is a separate market having its own- Demand pattern- Channels of distributions- Methods of promotionsThese difference are accentuated due to the existence of Governmentcontrol and regulations.

• Difference in Procedures and Documentation

Scope of International Marketing - contd

• Greater degree of risks involved in Int’l marketing due to:

- Larger volumes of transactions and the higher values of these transactions.- Longer period involved in these transaction due to longer time in transit and long credit period involved.- Comparatively less knowledge about the parties’ reputation and credibility, and- Exchange fluctuation risks.

• Cultural Dimensions of International Marketing: - Cross cultural environment - Makes marketing task more

complex. - Culture though very commonly used term, is not, however, easy

to define.

Impact of Global Issues on International Marketing

The economic, political and social changes that have occurred over the

last decade have dramatically altered the landscape of global business.

Consider the present and future impact of the following:

• The ever present threat of global terrorism after 9/11 attack.• Major armed conflicts in sub-Sahara Africa and the Middle East.• The emerging markets in Eastern Europe, Asia and Latin America,

where more than 75 % of the growth in world trade over the next 20 years is expected to occur.

• The reunification of Hong Kong, Macau and China which finally puts all of Asia under the control of Asians for the first time in over a century.

• The European Monetary Union and the successful switch from local country currencies to one monetary unit for Europe, the Euro.

• The growth of middle income households the world over.

Impact of Global Issues on International Marketing – cont’d

• The continued strengthening and creation of regional market groups such as the European Eunion (EU), the North American Free Trade Area (NAFTA), ASEAN Free Trade Area (AFTA), the Asian Pacific Economic Cooperation (APEC).

• General Agreement on Tariff and Trade (GATT) and creation of the World Trade Organization (WTO) with China and Taiwan as new members.

• The restructuring, reorganizing and refocusing of companies in telecom, entertainment and biotechnology.

• The continuing integration of the internet into all aaspects of the companies’ operations and consumers’ lives.

These are not simply news. These changes affect the businesses world-

wide, and they mean that companies will have to constantly examine the

way they do business and remain flexible enough to react rapidly tochanging global trends to be competitive.

International MarketingEnvironment

• Economic – stage of development• Socio-Cultural – customs, tastes,

preferences• Demographic – size, age, households,

income• Political – parties, platforms, control• Government – nature, policies• Technological – breakthroughs, diffusion

Reasons for GoingInternational

• Profit• Growth Opportunities• Domestic Market Constraints• Competition• Government Policies and Regulations

• Monopoly Power• Spin-Off Benefits• Strategic Vision• Globalization• Capacity Surplus

Reasons for GoingInternational cont’d

• Profit: - Increase Sales - Reduce Costs – cheap labor, free trade agreements - Increase Profit Margins

• Growth Opportunities: - Short-Term Growth – Developed market base in Foreign

Market – US, Singapore, EU, UK. - Future Growth Potential – emerging markets

• Domestic Market Constraints: - Insufficient Economies of Scale – stable market share in

domestic market. - Recession in Domestic Market – reduce economic risk,


• Competition: - Economic Liberalization – reduction in domestic protection

and trade barriers. - Counter International Competition – change in business strategy.

• Government Policies and Regulations: - Export Promotion Policies - incentives - Foreign Direct Investment Policies – restrictions eliminated - Environmental Regulations – may be less stringent - Trade Agreements – EU, NAFTA, SAARC


• Monopoly Power:- Patents- Technology Advantage- High Market Share – few competitors- Product Differentiation- Raw Material Resources

• Spin-Off Benefits:-Branding – build identity and image-Foreign Exchange – easier imports-Government Incentives – export incentives-Product Development – product improvements-New Products/Technologies – foreign R&D


• Strategic Vision: - Future Growth – long-range plan - Retain Competitive Edge – survival - To Diversify – acquire new businesses - Reduce Economic Risk – build a business portfolio

• Globalization: - Global Corporation – become one Resource Globally – materials,

components, manufacturing, advertising, financing, management - Changing Business Environment – stay ahead

• Capacity Surplus: - When the local market is saturated, exploring the international market is the next choice.


Export Incentives:

• Export incentives are a widely employed strategy of export promotion.

• The objective is to increase the profitability of export business by encouraging exports.

• Types of Incentives:-Duty Exemption/Drawback-Income Tax Concession-Cash Compensatory Support-International Price Reimbursement Scheme-Interest Subsidies-Freight Subsidies, etc.

Financial Transactions • The international market is generally very competitive and

sensitive, and the credit facilities made available to the buyers are one of the important determinants of export business.

• The extent to which credit must be extended to the importer depends on the sale terms.

• If the exporter gets cash in advance, there is no issue of financing; but this is not common.

• It, therefore, becomes necessary to make institutional credit available to the export sector to meet pre-shipment and post-shipment financial requirements

• Such credit facilities will enable the exporter to extend reasonable credit facilities to foreign buyers

Pre-Shipment Finance

• Exporter’s Pre-Shipment Financing Requirements:1. Purchase of Raw Materials and Components2. Processing3. Packaging4. Packing5. Marking6. Transactions, Others7. Warehousing

Purpose:• Pre-shipment finance, also known as packing credit, refers to the credit extended

to the exporter prior to the shipment of goods to meet working-capital requirements

• Is short-term finance• Also advanced against export incentives

Providers:• Local and foreign commercial banks which are members of the Foreign Exchange

Dealers’ Association

Pre-Shipment Finance – cont’d

• Advances by Commercial Banks are governed by the Credit Scheme of the State Bank.

• The Features are: - The loan is advanced only on receipt of an export order. - The exporter should deliver either a L/C or a confirmed

export order. - Advances must be repaid from the proceeds of the relative export bill. - Packing credits are eligible for interest subsidy. - Available against incentives. - Concessional rates of interest. - Sub-supplier must submit documents from Export House or Merchant Exporter.

Post-Shipment Finance

• Exporter’s Post-shipment Financing Requirements: -To cover period between the shipment of the goods and the receipt of payment.

• Supplier’s Credit: - Credit extended to Overseas Buyer to pay for goods imported from Exporter. Generally, advanced for capital goods.

• Providers: - Local and foreign commercial banks which are members of the

Foreign Exchange Dealers’ Association

Other Finances

• Short-term Finance: - Provided by commercial banks under L/C, by

purchasing D/P and D/A bills, against export bills, export incentives,

etc.

• Medium and Long-Term Finance: - By commercial banks. - Industrial Development Banks

• Note: - Some of these institutions also provide suppliers’ credit, including line of credit to promote exports. - Export credits generally carry concessional interest

rates.

Foreign Exchange

• Foreign exchange is released for undertaking approved market development activities such as:

- Participation in trade fairs and exhibitions.

- Foreign travel for export promotion. - Advertising abroad. - Market research. - Procurement of samples and technical

information

Payment Terms

• Payment Terms Involves export financing methods and process

1. Cash in Advance2. Open Account3. Consignment Sale4. Document Against Payment – D/P5. Document on Acceptance – D/A6. Letter of Credit

Payment Terms – cont’d

1. Cash in Advance:

- Most Advantages for Seller. Required with Order or Before

Shipment in the form of Draft, Check, Electronic Transfer.

- Seldom Acceptable to Buyer.- Generally used for Customized Manufacture, on

specifications of the buyers i.e. made to order.

- Necessary when Buyer is Unknown to Seller.- Buyer’s Creditworthiness is Doubtful.- Seller’s Monopoly Exists.

- Sellers Market Condition Exists.

Fortunately, the International Market is Inherently very Competitive.


2. Open Account: -Exporter Ships Goods with no Financial Documents,

Only Commercial Invoice. -Seller Carries Financial Risk. -Restricted to Intra-Company Transactions. -Seller and Buyer have Established Relationship. -Local exporters are allowed to sell on the Open Account basis only with special permission from the State Bank. -This permission is given only to foreign companies

operating in our country.


3. Consignment Sale:-Exporter consigns to Agent or Rep in the foreign

market.-Agent or Rep arranges Sale and Pays to the Exporter.-Exporter retains the Title until the Sale.

-No Bill of Exchange is Involved. -Seller is Exposed to Default Risk. -Exchange Risk exists if Consignee is Inefficient or

Dishonest. -An exporter selling goods on consignment basis must

furnish a declaration regarding the full export value of the

goods.


4. Document Against Payment – D/P: -Same as C.A.D.

-Exporter Ships Goods to Foreign Buyer. -Documents giving Title is handed over through Bank only on Payment. -Until Payment ownership of Goods remains with Seller. -Exporter can obtain Finance from the Bank against the D/P

Bill. -If the bank is satisfied, it may finance the exporter by purchasing the D/P Bill, usually on a ‘with recourse’ basis. -In the event of non-payment by the buyer, the bank has recourse to the drawer.


5. Documents on Acceptance: - Buyer Accepts the Bill of Exchange by Signing it. - Documents and Title to the Goods are handed over by

the Bank. - Exporter extends 30, 60, 90 days credit to the Importer. - Bank may extend finance to Exporter by purchasing the D/A Bill ‘with recourse’. - The exporter relies on the honesty and creditworthiness of the buyer, and the D/A is extended only to parties with integrity, financial stability, and reputation.


6. Letter of Credit:

- Letter of Credit is used most often Globally.

- Importer arranges L/C with a Bank.- Document gives Bank Guarantee.- Draft is Drawn on Importer’s Bank.- Bank will Honor the Draft when submitted by

Exporter. - L/C Eliminates Risk for Exporter. - Exporter must fulfill obligation of Shipment. - Immediately after shipment of the goods the exporter

can present the Bill of Exchange and other documents

specified in the L/C to obtain payment through exporters own

Bank.


There are different terms of Letters of Credit:

1. Documentary L/c.2. Transferable L/c.3. Non-transferable L/c.

4. Cash L/c – payment in cash.5. Acceptance L/c – bank merely ‘accepts’, exporter then

sells draft to bank. 6. Revocable L/c – can be cancelled.

7. Irrevocable L/c – cannot be revoked8. Confirmed L/c – a bank in exporter’s country confirms the

L/c. 9. Back-to-Back L/c – original L/C is used for secondary credit.

10. Revolving L/c – for similar transactions.


Irrevocable Letter of Credit• It is generally used in international

transactions.• It cannot be revoked, amended, or modified

by the issuing bank without express consent of all the parties.

• Is a definite undertaking provided shipment terms and conditions are complied with.


Example Of Irrevocable Letter of Credit• US Buyer, Overseas Seller.• Overseas Exporter requests US Importer to arrange for an

Irrevocable Letter of Credit.• US Importer applies to it’s own bank in the US to issue an L/C.• In the application the US Importer will indicate the terms of the

sale and the documents to accompany.• If the US Bank is prepared to issue the L/C, the US Importer will

sign the L/C Contract agreeing to reimburse the bank.• The US Bank will now notify the Overseas Exporter’s bank in his

Country, mentioned in the L/C, and to confirm the L/C to the Overseas Exporter.

• The notifying Sellers Bank will now confirm to the Exporter that an irrecoverable L/C has been arranged, and will describe the terms under which the shipment must be made before the Exporter’s payment draft will be honored.


Example Of Irrevocable Letter of Credit – cont’d

• This makes the contract binding on both the issuing US Bank and the confirming Sellers Bank.

• The Exporter will now ship the goods to the US Buyer, and draw a time draft on the issuing US Bank with documents, and present it to the confirming sellers Bank.

• The Seller may sell the draft and documents to the confirming Seller’s Bank.

• The confirming Sellers Bank will send the draft and documents to its own corresponding bank in the US, which will present it to the issuing or drawer US Bank, of the US Buyer, for acceptance.

• The accepting/issuing US Bank will deliver the draft and documents to the US Importer/Buyer, with a Trust Receipt, an instrument under which the bank retains title to the merchandize.

• The US Importer/Buyer is expected to make full payment when the draft matures.

Exchange Control Regulations

• The Export-Import Policy (Exim Policy) reflects the foreign trade policy of home country.

• It is implemented under the framework of the Foreign Trade and Foreign Exchange Regulation Act.

Problems in InternationalMarketing

Special Problems due to Differences:1. Political and Legal – complex, regional within2. Cultural – significant compared to domestic3. Economic – free or freer market economy4. Currency – exchange rate fluctuations, monetary policy5. Language – can be managed easily.6. Infrastructure – developed, developing

7. Marketing – advertising media 8. Trade Policies – restrictions, import controls 9. Logistics – transportation, insurance 10. Trade Practices – customs clearance, duty

Export Promotion

• The Government should promote exports as Export development is important to the Firm and the Economy.

• Benefits of Export:-Economies-of-Scale-Surplus Supply of Commodities-Export-Led Growth-Counter Domestic Recession-Earn Foreign Exchange-Reduce Trade Deficits-Compete in the Global Market

Export Promotion – cont’d

• Government’s Role & Responsibility: - Establish and Sponsor Organizations. - Ministry of Commerce. - Establish Autonomous Bodies: 1. Commodity Boards. 2. Export Inspection Council. 3. Institute of Foreign Trade. 4. Institute of Packaging. 5. Export Promotion Councils.

6. Federation of Export Organizations. 7. Council of Arbitration.

8. Marine Products Export Development Authority. 9. Agricultural and Processed Food Products Export

Development Authority. 10. Trade Promotion Organization.

Export Promotion Bureau

Functions: - Develop and promote exports, imports, and upgrade

technology through fairs locally and abroad. - Compile and disseminate trade related information. - Publicity. - Organize visits of foreign buyers and traders. - Send and receive Foreign delegations. - Assist local companies in trade development. - Assist with Marketing Surveys and Research. - Provide Marketing Information. - Organise International Trade Fairs and Exhibitions. - Help in arranging Credit and Insurance Facilities.

Export Documents

• Form ‘E’• Commercial Invoice• Packing List• Visa• Country of Origin• Bill of Lading / Airway Bill• Bill of Exchange

Balance of Payments.

• As economists we need an overall view of our money transactions with the rest of the world.

• The government system for analysing this is the Balance of Payments.

• It is made up of three separate accounts. Together it measures all of the economic transactions that one country has with the rest of the world in one year.

1. Current Account2. Capital Account3. Financial Account

See You Again

Jazak-allah Khair