Notes & Exercises: DPM 50133 International Marketing (1st series_Chapter 1 - 4)

Every marketing decision is subject to
be affected by political and legal
factors

Governments have formulated a series
of legislations to regulate business
operations to restrict unfair trade
practices and protect consumer and
social interests

These laws may create new
opportunities or challenges for
businessmen

A manager must know business
philosophy and approach of the current
governments, and legal provisions that
he has to observe while dealing with
other parties

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SOME OF POLITICAL & LEGAL
FACTORS ARE:

1.Political philosophy
2.Political and legal reforms
3.Government approach to different

sectors
4.Political stability
5.Acts or legal provisions relating to

business operations & recent
amendments
6.Working of judiciary and
administrative machineries.

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EXAMPLE

When coke first stepped into the
Indian market, it acquired a
significant market share & was a
popular drink in the market. it
was forced to exit India in 1977
when the government at the time
demanded that Coca-Cola
reduce its stake in its wholly
owned Indian subsidiary to 40%.

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ECONOMIC

Economic environment consists of economic
forces that affect company’s costs, revenues,
profits, customers’ purchasing powers and
willingness to spend

Economic forces include a large number of
variables, such as:

Economic Growth Rate
Interest Rates
Inflation Rate
Functioning Of Stock Markets And Commodity
Markets
Industrial And Agricultural Policies
Fiscal And Monetary Policies
Export-import Policies
Liberalization
Globalization And Privatization Processes
Government’s Long-term Planning And Investment In
Infrastructural Facilities

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DURING THE PAST 2 DECADES, THE WORLD
ECONOMIC ENVIRONMENT HAS BECOME
INCREASINGLY DYNAMIC: CHANGE HAS BEEN
DRAMATIC & FAR-REACHING.

TO ACHIEVES SUCCESS, MARKETERS MUST TAKE INTO
ACCOUNT THE FOLLOWING:

1. CAPITAL MOVEMENT HAVE REPLACED TRADE AS
THE DRIVING FORCES OF THE WORLD ECONOMY

2. PRODUCTION HAS BECOME “UNCOUPLED” FROM
EMPLOYMENT

3. THE WORLD ECONOMY DOMINATES THE SCENES:
INDIVIDUAL COUNTRY ECONOMIES PLAY A
SUBORDINATES ROLE

4. THE STRUGGLE BETWEEN CAPITALISM & SOCIALISM
THAT BEGAN IN 1917 IS OVER.

5. THE GROWTH OF E-COMMERCE DIMINISHES THE
IMPORTANCE OF NATIONAL BARRIERS & FORCES
COMPANIES TO RE-EVALUATE THEIR BUSINESS
MODELS

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The 1st change is the increased volume
of capital movement. The dollar value
of world trade goods and services was
$25 trillion in 2009

However, the bank for international

settlements has calculated that foreign

exchange transaction worth

approximately $4 trillion are booked

every day

More than $1 quadrillion annually, a
figure that far surpasses the dollar
value of the world trade in goods and
services

Global capital movement is far
exceed the dollar volume of global
trade. (currency trading represents the
world’s largest market)

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The 2nd change concerns the relationship
between productivity & employment.
Economic growth, as measured by GDP,
reflects increases in a nation’s productivity.
Employment in manufacturing had
remained steady and declined where
productivity continued to grow
Manufacturing is not in decline – it is
employment in manufacturing that is in
decline
Creating new jobs is one of the important
task facing policymakers today

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The 3rd change is the emergence of
the world economy as the dominant
unit
Company executives and national
leaders who recognize this have the
greatest chance of success
for example, the real secret of the
economic success of Germany and
Japan is the fact that business leaders
and policymakers focus on world
market and their respective countries
competitive positions in the world
economy

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The 4th change is the end of the cold

war. The demise of communism as an

economic and political system can be

explained in a straightforward

manner:

1.Communism is not an effective

economic system (the

overwhelmingly superior

performance of the world’s market

economies has given leaders in

socialist countries little choice but to

renounce their ideology)

2.A key policy change in such

countries has been the

abandonment of futile attempts to

manage national economies with a

single central plan

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the 5th change is the personal
computer revolution & the advent of

the internet era have in some ways
diminished the importance of national
boundaries.

estimated 1 billion people use personal
computers. barriers of time & place
have been subverted by a transnational
cyber world that function “24/7”.
Amazon.com, eBay, Facebook, Google,
Groupon, iTunes, Priceline, Twitter &
YouTube are just a few of the companies
that are pushing the envelope of this
brave new world

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EXAMPLE

High oil prices are causing pain for
carmakers in America as people
there are sacrificing their fancy for
pick up trucks and sport utility
vehicles for more frugal small
vehicles. In May 2008, General
Motors announced a 30% fall in
car sales compared with 2007

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SOCIAL CULTURE

Marketers must study & understand
the country cultures in which they
will be doing business. They must
incorporate this understanding into
the marketing planning process
Strategies and marketing programme
will have to be adapted
Marketers should also take
advantage of shared cultural
characteristics and avoid unneeded
and costly adaptations of the
marketing mix

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Social and cultural factors affect
consumers’ tastes and preferences.
People buy or favour those products
which suit or complement their social
and cultural norms, values, traditions,
and habits

Knowing these factors of the target
market, a manager can effectively design
product- mix and promotional programme.

Social-cultural environment is ever-
changing and requires the manager to
undergo adjustment and readjustment in his
marketing mix to balance between what
consumers want and what company offers.
Ignoring or underestimating this
environment can harm severely the
company’s interest

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Socio-cultural variables are:

1.Cultural norms, values, beliefs and
rituals

2.Castes, creeds and racial aspects
3.Social traditions, customs, habits,

and superstitions
4.Family and reference groups
5.Age and life-cycle stage
6.Role of women
7.Social classes
8.Religious events and festivals.

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EXAMPLE

Bratz dolls have taken the united states &
Europe market by storm. The global sales
for the dolls in 2004 is $2.5 million as
compared to barbie’s dolls. In Asia,
however, the Bratz dolls is completely
different as Asian mothers prefer barbie
dolls. Asian mothers believed the funky
image of Bratz dolls might be
inappropriate for their daughter.

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TECHNOLOGICAL

Technological factors affect the
firm’s production process, product
quality, cost effectiveness and
hence, competitive ability

A wise manager must know the
latest technology in the relevant
field

Technology has released wonders

in fields of business transactions,

communication, entertainment,

medical science, agriculture and

manufacturing systems

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At the same time, it has released
horrors in fields of hydrogen bombs,
horrible chemical weapons, crime
styles, deterioration of ecological
environment, and so forth.
Every new technology is a force for
creative destruction. New technology
compels old one to exit. New
technology brings superior products
having more capacity to satisfy
consumer needs

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Following technological factors
are important:

1.Suitability and availability of
technology

2.Pace of technological change
3.Replacement costs
4.Opportunities for innovation
5.Research and development (R & D)

budget
6.Government role in developing

and/or importing new technology
7.Regulations affecting technological

change/reforms
8.Technological transfer among

nations.

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EXAMPLE

Worldwide culture is creating world
market for consumer goods. Signs of
a global market are already visible.
It is now easy to find, a McDonald's
restaurant in Tokyo as it is in New
York, to buy a Sony Walkman in
Mumbai as it is in berlin and to buy
Lewis’s jeans in Paris as it is in San
Francisco

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COMPETITIVE

To plan effectively international
marketing strategies, the international
marketer should be well-informed
about the competitive situation in the
international markets

By competitive environment we mean the
following variables:
(A) nature of competition
(B) players in the competition
(C) strategical weapons used by the

participants
(D) competition regulation

Entering an international market is similar
to doing so in a domestic market, in that
a firm seeks to gain a differential
advantage by investing resources in that
market

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Japanese marketers have developed
an approach to managing product
costs that has given them a competitive
advantage over US competitors
A typical American company will
design a new product, calculate the
cost & then ask whether the product
can be sold at a profitable price. If
the estimated cost is too high, the
product will be taken back to the
drawing board

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EXAMPLE

Japanese companies like NEC,
Nissan, Sharp and Toyota, a team
charged with bringing a product
idea to market estimates the price
at which the product is most likely
to appeal to the market

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TUTORIAL EXERCISES

1. Explain international marketing environment
. (5 marks)

2. Discuss FIVE (5) factors that influence firms
in the international marketing environment.
(10 marks)

3. ABC corporation is market leader in food
industry in Malaysia. In order to expand
their company growth and profit, Miss
Janelle the company Marketing Manager
decide to enter Turkey market. As an
Export Manager for ABC corporation, you
need to advise Miss Janelle about the FIVE
(5) factors that will influence the firm
international marketing environment.
(15 marks)

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TUTORIAL EXERCISES

4. International Marketing environment refers
to the controllable (internal) and
uncontrollable (external) forces that
influence upon the marketing decision
making of a firm globally. With an
appropriate example, explain any TWO
(2) factors that influence the firm
international marketing environment.
( 10 marks)

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CHAPTER 3:
INTERNATIONAL

DISTRIBUTION
STRATEGIES

CHAPTER 3:
INTERNATIONAL DISTRIBUTION

STRATEGIES

3.1 Organize the types of international distribution strategies
3.1.1 Identify the types of international distribution
strategies
a. Direct distribution
b. Indirect distribution

3.2 Organize the strategies of entry modes
3.2.1 Organize the strategies of entry modes
a. Contract manufacturing
b. Licensing
c. Franchising
d. Management Contracting

INTRODUCTION

Definitions of International Distribution
Channels

According to Philip Kotler, “every
producer seeks to link together the set of
marketing intermediaries that best fulfil
the firm’s objectives. This set of marketing
intermediaries is called the marketing
channel.”
According to Richard Buskirk,
“distribution channels are the systems of
economic institutions through which a
producer of goods delivers them into the
hands of their users.”

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In every country and in every market,
urban or rural, rich or poor, all
consumer and industrial products
eventually go through a distribution
process

The distribution process includes the
physical handling and distribution of
goods, the passage of ownership
(title) and most important from
standpoint of marketing strategy – the
buying and selling negotiations
between producers and middlemen
and between middlemen and
customer

Each country market has a distribution
structure through which goods pass from
producer to user

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TYPES OF INTERNATIONAL DISTRIBUTION
STRATEGIES

Choosing between indirect and direct
distribution ultimately relies on the
wants and need of the target
consumer. As a whole, people
currently favour online shopping over
retail shopping
However, specialty items or luxury
brands generally require a more
interactive experience with hands-on
assistance. On the other hand, online
shopping allows for increased
transparency, which is a huge factor
for consumers looking to compare
reviews or search for the lowest price

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TYPES OF
INTERNATIONAL
DISTRIBUTION STRATEGIES

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DIRECT DISTRIBUTION

Manufacturer Consumer

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DIRECT DISTRIBUTION

Direct channels allow the customer
to buy goods directly from the
manufacturer
This relationship-driven model gives
companies complete control of the
overall consumer process
They control the consumer
experience, the brand image as
well as have the added benefit of
direct interaction and relationship
building with the70consumer

This control also eliminates
intermediaries, thus reducing outside
fees like commissions, broker fees, and
reduces allowances such as advertising
and promotional expenses
In a direct distribution setting, the
company bears 100 percent of the
financial risks
Selling directly to consumers requires
impeccable documentation and tax
records due to the increased likelihood
of an audit

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INDIRECT DISTRIBUTION

Manufacturer Intermediaries Consumer

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INDIRECT DISTRIBUTION

Process of moving the product
through other distribution channels to
get to the consumer
With indirect distribution, companies
gain a significant competitive
advantage. They gain access to an
increased consumer base without the
challenge of getting the customer
through the door

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This grants them more time to
focus on their product, their
customer base and increasing the
range of their target consumer

The start-up cost will be lower,
and the relationship generally
makes the process much simpler
for the distributer. Additionally,
since sales tax is only required to
be paid once, selling to third-
party distributers will likely lead
to an exemption of sales tax
under the resale exemption

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While having access to a third-party’s
logistics and system planning has its
benefits, utilizing a retailer or
wholesaler has its price
Outside costs like commissions, broker
fees and allowances can greatly affect
the bottom line
There is also a constraint on the
company’s freedom to set prices.
Companies need to factor in these
costs and ultimately weight them with
the benefits

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STRATEGIES OF ENTRY MODES

Malaysia CONTRACT
MANUFACTURIN

G

LICENSING

FRANCHISING

MANAGEMENT GO
CONTRACTING INTERNATIONAL

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CONTRACT
MANUFACTURING

Also known as outsourcing
The company arranges with a local
firm to manufacture or assemble part
of the product even the entire product.
The marketing of the products is still
responsibility of the firm

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FOR EXAMPLE

Flextronics, headquartered in
Singapore, is one of the leading
contract manufacturers with fy08
revenues of more than $33.6
million. Its clients list such as Sony
Ericsson, Microsoft, Hewlett-
Packard & Nortel

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Advantages

The licensing firm can specialize in
product design and marketing, while
transferring responsibility for
ownership of manufacturing facilities
to contractors and subcontractors
Limited commitment of financial and
managerial resources and quick entry
into target countries especially when
the target market is too small to justify
significant investment

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Disadvantages

Contract manufacturers often make
products under their own brand, which
usually leads to a conflict of interest
with their customers
Less flexibility to respond to sudden
market demand changes
For example; Sony Ericsson mobile
communications, which heavily relies on
contracting for the manufacturing of its
cellular phones, lost potential sales
when its first color screen model
quickly sold out in Europe

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LICENSING

Is a contractual arrangement
whereby one company (the licensor)
makes a legally protected asset
available to another company (the
licensee) in exchange for royalties,
license fee or some other form of
compensation
The licenses asset may be a brand
name, company name, patent,
trade secret or product formulation
Widely used in fashion industry

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Advantages

The licensee is typically a local
business that will produce and market
the goods on a local or regional basis
Licensing enables companies to
circumvent tariffs, quotas or similar
export barriers
When appropriate, licensee are
granted considerable autonomy and
are free to adapt the licensed goods
to local tastes

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Disadvantages

Licensing agreements offer limited
market control
The licensor does not involves in the
licensee’s marketing program,
potential returns from marketing
may lost
The agreement may have a short
life if the licensee develop its own
know-how and begins to innovate in
the licensed product or technologies

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FRANCHISING

Is another variation of licensing
strategy
Is a contract between a parent
company-franchisor and franchisee
that allows the franchisee to operate a
business developed by the franchisor
in return for a fee and adherence to
franchise-wide policies and practices
for a specific time period, normally 10
years
Has great appeal to local
entrepreneurs anxious to learn and
apply western-style marketing
techniques

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Advantages

Companies can capitalize on a wining
business formula by expanding
overseas with minimum of investment
Political risks for the right owner are
very limited
Franchisor can also capitalize on the
local franchisee’s knowledge of the
local market place (they have much
better understanding of local customs
and laws)

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Disadvantages

The franchisor’s income stream is
only a fraction of what it would be if
the company held an equity stake in
the foreign ventures
Firms with little or no name
recognition typically face a major
challenge finding interested partners
in the foreign market
Lack of control over the franchisee’s
operation

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MANAGEMENT
CONTRACTING

A business or an organization will hire
a management company to perform
specific tasks. The management
company will receive a compensation
for the work
Therefore, management contracting is
defined as an arrangement under which
operational control of an enterprise is
vested by contract in a separate
enterprise which performs the necessary
managerial functions in return for a fee

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Management contracts involve not just
selling a method of doing things (as
with franchising or licensing) but involve
actually doing them
A management contract can involve a
wide range of functions, such as
technical operation of a production
facility, management of personnel,
accounting, marketing services and
training.

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