CH-1 International Market.docx

International Market

1. DR.SHASHI KANT Page 1
CONCEPTS OF INTERNATIONAL MARKETING

CHAPTER 1
1.1 International Marketing (Definition and Distinctions)
International marketing encompasses a full range of cross-border exchanges of goods, services, or
resources between two or more nations. These exchanges can go beyond the exchange of money for
physical goods to include international transfers of other resources, such as people, intellectual property
(e.g., patents, copyrights, brand and trademarks), and contractual assets or liabilities (e.g., the right to use
some foreign asset, provide some future service to foreign customers, or execute a complex financial
instrument).
Here the national border are crossed by the enterprises to expand their marketing activities like
manufacturing, mining, construction, agriculture, banking, insurance, health, education, transportation,
communication and so on. A marketing enterprise who goes for international marketing has to take a very
wide and long view before making any decision, it has to refer to social, political, historical, cultural,
geographical, physical, ecological and economic aspects of the another country where it had to marketing.
International marketing is the process of focusing on the resources of the globe and objectives of the
organizations on global marketing opportunities and threats.
Home country: The country whose company wants to go for overseas marketing.
Host country: The country where the company wants to market its products.

Companies have to take the following decisions as they plan international marketing:
1. Countries they want to do marketing with.
2. The level of involvement they want to have with respect to financial, human, managerial and
technological inputs in the host country.
3. The marketing organization best suited to the host country.
4. Advertising and promotional plans.
5. Selection of the distribution channels.
6.Optimizing resource usage (human resources, finance, information and technology) with better
allocation and monitoring.

2. DR.SHASHI KANT Page 2
CONCEPTS OF INTERNATIONAL MARKETING

1.2 International Marketing VS Domestic Marketing
When marketing is confined to the geographical limits of a country, it is a domestic or national marketing.
In national marketing both the buyer and the seller are of the same countries and they enter into
marketing-agreements subject to the national laws, practices and customs of marketing. But International
or foreign marketing refers to the marketing between two countries. Purchaser and seller are citizens of
two different countries and are subject to International or bilateral laws of marketing and tariffs.
Technically, domestic marketing and international marketing are more or less identical and are based on
the same basic principles of marketing. There are certain similarities between domestic and international
marketing in terms of broad objectives and goals of the company, namely:
 –Generating revenue.
 –Corporate image and brand building.
 –Customer satisfaction and building loyalty as patronage buyers.
 –Carrying out their operations by respecting and adhering to local regulations.
 –Generation of employment opportunities.
But practically, there are certain differences between domestic and international marketing. It was on the
basis of these differences that the old classical economists propounded a separate theory for international
marketing. The main points of difference are as follows:
1. Environment: The economic, political, legal, socio-cultural, competitive and technology environments
are well known in case of domestic marketing due to the familiarity of geography and place of operations,
hence the organization can take the necessary precautions to assess its impact and adjust quickly to the
changes in the same. In international operations the various aspects of the macro external environment are
not fully known unless the marketing is established and created a place for itself in the market. Thus a
number of innumerable hidden environmental factors may emerge during the settlement period which
may pose problems. When fast food chain Mc Donald’s entered Asian countries in 2016 had to ensure
that it did not offer pork or beef items so as to gain acceptance locally. It also had to re-engineer its
operations to address the special requirements of vegetarians in Asian countries and introduce variations
in dishes that were not available at any Mc Donald’s outlet anywhere in the world.
2. Plan and Strategy: Plans and strategies are generally worked out for the short term. The short term
plans are linked together and carried forward into the long run. The inverse is also possible as domestic
marketing offers the flexibility to organizations. In case of international marketing only a well thought
out, proven, practical long term time-bound planning and strategy works.

3. DR.SHASHI KANT Page 3
CONCEPTS OF INTERNATIONAL MARKETING

3. Competition: The competitive forces operating in the domestic marketing environment are restricted
to a local boundary. The movement of competitive forces can thus be analyzed and understood more
clearly. In case of international marketing competitive forces are not restricted to a local boundary. They
extend over several countries, thereby making it difficult to analyze their motive and movement.
4. Difference in Currencies: Each country has its own monetary system which differs from others.
Exchange rates between the two currencies are fixed by the monetary authorities under the rules framed
by the International Monetary Fund. All payments for imports are to be made in the exporting country’s
currency which is not freely available in importers country. The scarcity of foreign currency may
sometimes limit the size of imports from other countries.
5. Tariffs and Quotas: The international business is directly and significantly influenced by the tariff
rates (import duties) imposed by various countries. Also they have to operate within the quotas (quantities
restrictions) of exports and imports imposed by different countries.
6. Research and Development: It is reasonable and relatively simpler to carry out marketing product
research, innovations, and demand analysis and customer survey in domestic marketing. Also the
reliability and success rate of their results are much higher. Research and development in international
marketing operations is expensive and difficult to conduct. Their reliability criteria depend on individual
countries and there is no uniformity in the result of their applications.
7. Human Resources: Due to past successes, proven track record and established systems, domestic
marketing can prosper even if the human resources have minimum skills and knowledge. The task of
human resources management is much simpler in domestic marketing. The international marketing
requires multi-lingual, multi-strategic and multi-cultural human resources to handle varied risks spread
over countries. Thus the task of human resource management is much more complex.
8. Organizational Vision and Objective: The organizational vision and objective in domestic marketing
is narrowed down to work in a single country with a steady growth objective. In case of international
marketing the organizational vision and objective is more broadened to cover many countries and
geographic and cultural diversity may influence the same.
9. Investment: Depending on the size of domestic marketing operations one can start with a minimum
investment. Involvement of regulatory bodies in respect of small local marketing enterprises is limited.
On the other hand all overseas operations except exports, call for huge investments to set up and expand

4. DR.SHASHI KANT Page 4
CONCEPTS OF INTERNATIONAL MARKETING

the marketing in many countries. Special regulatory bodies are involved in the process since foreign
currency is transacted.
10. Distribution: Domestic marketing houses can use at its discretion to select any distribution channel to
reach the customer. The choice of distribution channel in international marketing operations is governed
by the government or market practice of the nation where the marketing is operating.
11. Logistics: Domestic marketing may involve use of conventional logistical methods engaging
domestic players for procurement of raw materials and reaching of final products to the consumer.
International marketing engages international players involving advanced technology and systems for
effective logistical operations. For e.g. containerized transportation is the standard form of reaching the
goods to the required destination in most developed nations.
12. Advertising and Promotion: Advertising, personal selling and other promotional methods are
subject to the regulations prevailing in the domestic marketing operations. For e.g. advertisement and
promotion of pharmaceutical drugs is restricted in developing economies. In case of international
marketing different countries have different regulations with regard to advertisement and promotion.
13. Approach: Domestic marketing’s approach is ethnocentric. It means that domestic companies
formulate strategies, product design etc. towards national markets, customers and competitors.
International marketing’s approach can be polycentric, region-centric or geocentric. Under polycentric
approach international marketing enters foreign markets by establishing foreign subsidiaries. Under
region-centric approach, they export the product to the neighboring countries of the host country. Under
the geocentric approach, they treat the entire world as a single market for production, marketing,
investment and drawing various inputs.
14. Difference in Natural and Geographical Conditions: Natural resources differ widely from country
to country. On the basis of this specialty, countries specialize themselves in the production of certain
selected commodities and therefore they produce better quality of goods at lower rates and sell them in
the international market. It causes difference in domestic marketing and foreign marketing.
15. Different Legal Systems: The existence of different legal systems makes the task of international
marketing is more difficult as they have to follow legal provisions of the two countries as regards the
particular marketing.
16. Mobility of Factors of Production: However, with the advent of air transport, the mobility of labour
has increased manifold. Similarly mobility of capital has increased with the development of international

5. DR.SHASHI KANT Page 5
CONCEPTS OF INTERNATIONAL MARKETING

banking. Inspite of these developments, mobility of labour and capital is not as much as it is found within
the country itself.
17. Sovereign Political Entities: Each country is an independent sovereign political entity. Different
countries impose different types of restrictions on imports and exports in the national interest. The
importers and exporters shall have to observe such restrictions while entering into agreement.
1.3 INTERNATIONAL MARKETING CONCEPTS
Companies venturing into international marketing have to decide which of the following plans they want
to implement in the host country:
1.Ethnocentric
2.Polycentric
3.Region-centric
4.Geocentric
Ethnocentricplans take into account only the host country’s cultural ambience, while polycentric plans
consider the cultural values of both the host country and the home country. Region-centric plans consider
the culture only of the region in which the company is operating and a geocentric view takes the cultural
ethos of the geographic coverage the company plans to have.

Domestic marketing’s approach is ethnocentric. It means that domestic companies formulate strategies,
product design etc. towards national markets, customers and competitors.
International marketing’s approach can be polycentric, region-centric or geocentric. Under polycentric
approach international marketing enters foreign markets by establishing foreign subsidiaries. Under region-
centric approach, they export the product to the neighboring countries of the host country. Under the
geocentric approach, they treat the entire world as a single market for production, marketing, investment
and drawing various inputs.

6. DR.SHASHI KANT Page 6
CONCEPTS OF INTERNATIONAL MARKETING

1.4 Export Marketing and International Marketing
Exporting Marketing is the sale of products and services in foreign countries that are sourced or made in
the home country. Companies export because it’s the easiest way to participate in global marketing, it’s a
less costly investment than the other entry strategies, and it’s much easier to simply stop exporting than it
is to extricate oneself from the other entry modes. The benefits of exporting include access to new
markets and revenues as well as lower manufacturing costs due to higher manufacturing volumes.
Contractual forms of entry (i.e., licensing and franchising) have lower up-front costs than investment
modes do. It’s also easier for the company to extricate itself from the situation if the results aren’t
favorable. On the other hand, investment modes (joint ventures and wholly owned subsidiaries) may
bring the company higher returns and a deeper knowledge of the country.
Export Marketing is an effective entry strategy for companies that are just beginning to enter a new
foreign market. It’s a low-cost, low-risk option compared to the other strategies.
Specialized Entry Modes for Export Marketing
Licensing
Licensing is defined as the granting of permission by the licenser to the licensee to use intellectual
property rights, such as trademarks, patents, brand names, or technology, under defined conditions.
Franchising
Similar to a licensing agreement, under a franchising agreement, the multinational firm grants rights on its
intangible property, like technology or a brand name, to a foreign company for a specified period of time
and receives a royalty in return. The difference is that the franchiser provides a bundle of services and
products to the franchisee.
Joint Ventures
An equity joint venture is a contractual, strategic partnership between two or more separate marketing
entities to pursue a marketing opportunity together. The partners in an equity joint venture each contribute
capital and resources in exchange for an equity stake and share in any resulting profits.

7. DR.SHASHI KANT Page 7
CONCEPTS OF INTERNATIONAL MARKETING

1.5 STRATEGIC MARKETING
Strategic marketing is the key to present-day market planning for the following reasons:
1 .Firms has to make their selections based on various strategic options.
2. The marketing environment is constantly changing, calling for timely decisions.
3. A long-range view is required instead of fire-fighting plans.
4. Strategic analysis is needed to grasp the real issues facing the markets.
5. Resource allocation needs to be planned to ensure that unfruitful tasks are eliminated from the
allocations.
6. Both horizontal and vertical communication and control systems should be in place.
7. Strategic marketing should help in keeping marketing ahead of competition during the market change
phases.
International marketing firms keep introducing new products. Product variants and timing of the
introduction is of strategic importance, as wrong timing could result in a disastrous product launch.
Wrong selection of market segment, distribution channels or pricing could lead to launch failures.
Differentiation in strategic marketing can also be made on the basis of the nature of competition as
follows:
 Monopoly—where there is only one manufacturer of the product.
 Oligopoly—where there are only a limited number of manufacturers, say four to six, of the
product.
 Fragmented market—in which case there are a large number of manufacturers of the product.
 Structured fragmented—for several products like computers and air conditioners, there are two
categories of manufacturers, the branded ones and the unbranded ones in the unrecognized or
small-scale sector, with several players in each group.
Marketing strategy should be made taking into account the actual ground situation, considering the types
of manufacturing units that are in competition and their actual numbers. The strategic marketing

8. DR.SHASHI KANT Page 8
CONCEPTS OF INTERNATIONAL MARKETING

environment can be categorized as general marketing environment and competitive marketing
environment. It is necessary to understand the marketing environment and the competitive situations for
developing right strategies. The basic step is to analyze the situation before planning the marketing
strategies. Both external and internal analyses need to be done.
Thus, strategic marketing is all about gaining competitive advantage on a continuous basis and finding out
the strategies that will give you such a competitive advantage. Let us call it strategic competitive
advantage.
Once the firm gets the answers to these questions it is ready to take the following strategic decisions:
 Who should be considered the firm’s main competitors?
 Where should the firm compete? In which markets, geographic areas and niche markets?
 How should the firm compete? On the basis of price? Or quality? Superior service? Availability
of genuine spare parts?
 What are the areas in which information is lacking and is needed? Is a one-time market research
required or should there be a continuous flow of information?
 Multiple uses of the product should be exploited. Bundling of products can help in selling slow-
moving products at least to a degree.
 Firms should plan the marketing scenario for the next three to five years taking into consideration
its competitors’ plans and possible likely changes in the marketing environment.
Strategic marketing decisions discussion:
1. With international players coming to Developing economies, technology is going to change rapidly.
Developing economies firms would do well to either invest in research and development or purchase the
latest state-of-the-art technology to keep abreast of the competition or even forge ahead of them.
2. If the product is in the maturity stage of its life cycle and the demand growth has stagnated, it may be
necessary to go for penetrating pricing to maintain its market share or build its brand equity to the extent
that it can ask for and get a higher price than the competition. Price sensitivity of the market needs to be
understood and decisions on pricing taken accordingly.

9. DR.SHASHI KANT Page 9
CONCEPTS OF INTERNATIONAL MARKETING

3. If new entrants are likely to enter the market with a better product, technology and brand image, it is
necessary to invest in the product and the market by giving extra discounts, increasing coverage and, if
possible, joining hands with a technology leader dealing with that product.
4. The customers of tomorrow are looking for products that give improved performance, have technical
superiority, are easily available and offer financial assistance in the form of a lease.
5. Firms should have correct idea about the benefits the customers are seeking from the product. It is
important to keep in mind the fact that a customer does not buy a product, he buys only the benefits that
he derives from the product.
What Are the Different International Marketing Theories?
International marketing is the concept of this exchange between people or entities in two different
countries. While a simplistic definition, the factors that impact marketing are complex, and economists
throughout the centuries have attempted to interpret trends and factors through the evolution of marketing
theories.
Classical or Country-Based Marketing Theories
1.6 Absolute Advantage Theory:-
In 1776, Adam Smith questioned the leading mercantile theory of the time in The Wealth of Nations
Smith offered a new marketing theory called absolute advantage, which focused on the ability of country
to produce a good more efficiently than another nation. Smith reasoned that marketing between countries
shouldn’t be regulated or restricted by government policy or intervention. He stated that marketing should
flow naturally according to market forces. In a hypothetical two-country world, if Country A could
produce a good cheaper or faster (or both) than Country B, then Country A had the advantage and could
focus on specializing on producing that good. Similarly, if Country B was better at producing another
good, it could focus on specialization as well. By specialization, countries would generate efficiencies,
because their labor force would become more skilled by doing the same tasks. Production would also
become more efficient, because there would be an incentive to create faster and better production methods
to increase the specialization. Smith’s theory reasoned that with increased efficiencies, people in both
countries would benefit and marketing should be encouraged. His theory stated that a nation’s wealth
shouldn’t be judged by how much gold and silver it had but rather by the living standards of its people.

10. DR.SHASHI KANT Page 10
CONCEPTS OF INTERNATIONAL MARKETING

1.7 Comparative Advantage Theory:-
The challenge to the absolute advantage theory was that some countries may be better at producing both
goods and specialized marketing, therefore, have an advantage in many areas. In contrast, another country
may not have any useful absolute advantages. To answer this challenge, David Ricardo, an English
economist, introduced the theory of comparative advantage in 1817. Ricardo reasoned that even if
Country A had the absolute advantage in the production of both products, specialization and marketing
could still occur between two countries.
Comparative advantage occurs when a country cannot produce a product more efficiently than the other
country; however, it can produce that product better and more efficiently than it does other goods.
Comparative advantage focuses on the relative productivity differences, whereas absolute advantage
looks at the absolute productivity.
1.7.1 Leontief Paradox
In the early 1950s, Russian-born American economist Wassily W. Leontief studied the US economy
closely and noted that the United States was abundant in capital and, therefore, should export more
capital-intensive goods. However, his research using actual data showed the opposite: the United States
was importing more capital-intensive goods. According to the factor proportions theory, the United States
should have been importing labor-intensive goods, but instead it was actually exporting them. His
analysis became known as the Leontief Paradox because it was the reverse of what was expected by the
factor proportions theory. In subsequent years, economists have noted historically at that point in time,
labor in the United States was both available in steady supply and more productive than in many other
countries; hence it made sense to export labor-intensive goods. Over the decades, many economists have
used theories and data to explain and minimize the impact of the paradox. However, what remains clear is
that international marketing is complex and is impacted by numerous and often-changing factors.
Marketing cannot be explained neatly by one single theory, and more importantly, our understanding of
international marketing theories continues to evolve.
1.8 OPPORTUNITIES OF INTERNATIONAL MARKETING
1. High Living Standards: Comparative cost theory indicates that the countries which have the
advantages of raw materials, human resources, natural resources and climatic conditions in producing
particular goods can produce the products at low cost and also of high quality.

11. DR.SHASHI KANT Page 11
CONCEPTS OF INTERNATIONAL MARKETING

2. Increased Socio-Economic Welfare: International marketing enhances consumption level, and
economic welfare of the people of the trading countries. For example the people of Ethiopia are now
enjoying a variety of products of various countries like Coca-Cola, Bajaj range of products, electronic
products of China.
3. Wider Market: International marketing widens the market and increases the market size. Therefore,
the companies need not depend on the demand for the product in a single country or customer’s tastes and
preferences of a single country. Due to the enhanced market Ethiopian Airline, now, mostly depends on
the demand for air travel of the customers from countries other than Ethiopia.
4. Reduced Effects of Marketing Cycles: The stages of marketing cycles vary from country to country.
Therefore, MNCs shift from the country experiencing a recession to the country experiencing ‘boom’
conditions. This enables international firms to escape recessionary conditions.
5. Reduced Risks: Both commercial and political risks are reduced for the companies engaged in
international marketing due to spread in different countries.
6. Large-scale Economies: Multinational companies due to wider and larger markets produce larger
quantities, which provide the benefits of large-scale economies like reduced cost of production,
availability of expertise, quality etc.
7. Potential Untapped Markets: International marketing provides the chance of exploring and exploiting
the potential markets which are untapped so far. These markets provide the opportunity of selling the
product at a higher price than in domestic markets.
8. Provides the Opportunity to Domestic Marketing: These opportunities include technology,
management expertise, market intelligence, product developments etc. For example Japanese firms like
Honda, Yamaha, Suzuki and Kawasaki have combined to form Joint Ventures with developingeconomies
companies to form Hero Honda, Birla Yamaha, Maruti-Suzuki and Kawasaki Bajaj to share technology
and product development expertise.
9. Division of Labour and Specialisation: International marketing leads to division of labour and
specialization. For example: Ethiopia specializes in coffee, Kenya in tea, Japan in automobiles and
electronics.
10. Economic Growth of the World at large: Specialization, division of labour, enhancement of
productivity, posing challenges, development to meet them, innovations and creations to meet the

12. DR.SHASHI KANT Page 12
CONCEPTS OF INTERNATIONAL MARKETING

competition lead to overall economic growth of the world nations. International marketing particularly
helped the Asian countries like Japan, Taiwan, Korea, Philippines, Singapore, Malaysia and the United
Arab Emirates.
11. Optimum and Proper Utilization of World Resources: International marketing provides for the
flow of raw materials, natural resources and human resources from the countries where they are in excess
supply to those countries where they are in short supply or need most.
12. Cultural Transformation: International marketing benefits are not purely economic or commercial;
they are even social and cultural. These days, we observe that the West is slowly tending towards the East
and vice-versa. It does mean that the good cultural factors and values of the East are acquired by the West
and vice-versa. Thus there is a close cultural transformation and integration.
1.8.1 Challenges in International Marketing
 Historical demand of the product in the local market.
 Competition from the countries’ own marketing enterprises.
 Management myopia may be another restraining force. Firms may have short-sighted managers
who consider that the profit from the country’s market should be enough impetus and going
global would be a waste of time and money.
 A firm’s Organisational culture can at times restrict operations overseas. Many large Developing
economies companies did not want to go overseas as a personal philosophy.
 International barriers are also restraining forces. Some countries do not encourage outsiders to
come to their country and do marketing there.
1.9 INTERNATIONAL PRODUCT LIFE CYCLE (PLC) : With a lot of effort going into new product
development in international marketing, firms have the benefit of introducing new products at some point
of time. It is important that care is taken in managing the introduction of the new product to ensure profits
and volume marketing in international marketing.
Later, during the growth, maturity and decline stages of the product life cycle (PLC), proper management
is required. Figure 1 gives the different stages of the PLC in international marketing.

13. DR.SHASHI KANT Page 13
CONCEPTS OF INTERNATIONAL MARKETING








Introduction Growth Maturity Decline
Fig 1: Different Stages of International Product Life Cycle
Introduction Stage Marketing Strategies: Introduction Stage

 Low sales
 High cost per customer acquired
 Negative profits
 Innovators are targeted
 Little competition
• Product – Offer a basic product
• Price – Use cost-plus basis to set
• Distribution – Build selective distribution
• Advertising – Build awareness among early
adopters and dealers/resellers
• Sales Promotion – Heavy expenditures to
create trial

14. DR.SHASHI KANT Page 14
CONCEPTS OF INTERNATIONAL MARKETING

GROWTH STAGE Marketing Strategies: Growth Stage

 Rapidly rising sales
 Average cost per customer
 Rising profits
 Early adopters are targeted
 Growing competition


• Product – Offer product extensions, service,
warranty
• Price – Penetration pricing
• Distribution – Build intensive distribution
• Advertising – Build awareness and interest in
the mass market
• Sales Promotion – Reduce expenditures to
take advantage of consumer demand

MATURITY STAGE: Marketing Strategies: Maturity Stage

 Sales peak
 Low cost per customer
 High profits
 Middle majority are targeted
 Competition begins to decline


• Product – Diversify brand and models
• Price – Set to match or beat competition
• Distribution – Build more intensive distribution
• Advertising – Stress brand differences and
benefits
• Sales Promotion – Increase to encourage brand
switching

15. DR.SHASHI KANT Page 15
CONCEPTS OF INTERNATIONAL MARKETING

DECLINE STAGE:- Marketing Strategies: Decline Stage

 Declining sales
 Low cost per customer
 Declining profits
 Laggards are targeted
 Declining competition
• Product – Skimming
• Price – Cut price
• Distribution – Use selective distribution:
phase out unprofitable outlets( Harvesting).
• Advertising – Reduce to level needed to
retain hard-core loyalists
• Sales Promotion – Reduce to minimal level
PRODUCT LIFE CYCLE —GROWTH STAGE STRATEGY
Early growth involves large increases in volumes and an increasing number of competitors as market
players use advertising to build brand equity to elevate their market share and position. The following
changes take place:
1. Sales volumes increase rapidly.
2. Competition rises.
3. Product design and specifications get standardized.
4. Firms plan their advertising and sales efforts to gain brand superiority.
5. Prices may start their downward slide.
6. Distribution network gets into place and power over customers begins to move towards manufacturers
from the channel members.
7. Demand shifts from primary demand, say for a PC or a car to secondary demand, for example, a Wipro
PC or a Honda City car, as people/customers become brand conscious.
8. At times, the pioneer who started the sale of the product and did the initial concept selling, loses his
superiority in the growth stage to other players

16. DR.SHASHI KANT Page 16
CONCEPTS OF INTERNATIONAL MARKETING

Growth stage means increase in demand and the manufacturers have to meet the demand. Their strategic
options depend on the position they enjoy in the market as can be seen next:
Let us take the firm’s position to be that of the market leader or that of market follower.
Options Position as market leader
Fight …………………… maintain ……………… or enhance
Flight ………………… …exit ……………………or fortify
STRATEGIES FOR THE MATURITY STAGE OF THE PRODUCT LIFE CYCLE
When the products reach the maturity stage, their demand growth stops—it reaches a plateau. Firms need
to manage the sales in this stage either for cash or they should plan product differentiation or geographic
extension of the markets in the country or through exports. However, if opportunity costs exceed present
value benefits, it is better to exit from the product sales.
Mature markets are known for sophisticated buyers, well-organized segments, reduced differences in
products offered by competitors and stable sales volumes.
The maturity stage has the following main characteristics:
 Constant sales volumes year to year.
 Product differentiation vanishes as the competition also makes ‘me too’ products.
It is, however, not necessary that in a product ranges all the models may be in the same stage of the PLC.
For example, in cars, one model may have reached maturity and another may be in the introductory stage.
Sustainable competitive advantage (SCA) can be achieved by differentiating one or more of the following
in the maturity stage:
 Service.
 Distribution.
 Advertising of intangible benefits like brand equity and service.
 Product differentiation does not make much of an impact in the maturity stage.
 Pricing takes a toll and it has to be competitive. In developing economies, with new car models
coming to the market, Toyota had to reduce its price.

17. DR.SHASHI KANT Page 17
CONCEPTS OF INTERNATIONAL MARKETING

 Buyers are knowledgeable. They know about firms and competitive products. They are discerning
and have bargaining power.
 There are relatively few new buyers. Firms, when they want to increase sales, either take
customers from the competition or they fight for the small number of new buyers. In most cases,
some old buyers quit the field and new ones replace them.
In maturity stage, leaders and followers have different international marketing strategic options available
to them. Leaders may mature products as cash cows or they may harvest for profits. Followers may try to
keep the market share at the existing level, grow or even exit as per the following plan:
 Leaders: Manage for cash or harvest, that is, reduce market share by going for a niche market.
 Followers: Maintain the market share, grow or exit.
MARKET STRATEGIES IN THE DECLINE STAGE OF THE PRODUCT LIFE CYCLE
The decline stage in the PLC is characterized by decrease in sales volume as a result of product demand,
demographic changes and technological changes over a period of time. Cheaper substitute products and
changes in customers’ tastes also account for the decline stage.
Key factors that are present in the decline stage are:
 Over-capacity in production.
 Severe price competition.
 Several competitors exit.
For covering, at least, the fixed cost, sales are made with low profit margins, as it is not easy to reduce
production. However, if fixed costs are low, then the firm can plan to downsize the production. If variable
costs are high, exiting is easy. However, on high variable cost it is difficult to exit the marketing. Success
in the maturity stage through fixed costs help firms survive in the decline stage as well.
1.10 Concept of foreign exchange and Balance of Payment
An exchange rate is defined as the rate at which the market converts one currency into another. Any
company operating globally must deal in foreign currencies. It has to pay suppliers in other countries with
a currency different from its home country’s currency. The home country is where a company is
headquartered. The firm is likely to be paid or have profits in a different currency and will want to

18. DR.SHASHI KANT Page 18
CONCEPTS OF INTERNATIONAL MARKETING

exchange it for its home currency. Even if a company expects to be paid in its own currency, it must
assess the risk that the buyer may not be able to pay the full amount due to currency fluctuations.
The foreign exchange market (or FX market) is the mechanism in which currencies can be bought and
sold. A key component of this mechanism is pricing or, more specifically, the rate at which a currency is
bought or sold.
Currency Hedging Currency hedging refers to the technique of protecting against the potential losses
that result from adverse changes in exchange rates. International companies use hedging as a way to
protect themselves if there is a time lag between when they bill and receive payment from a customer.
Currency Arbitrage Arbitrage is the simultaneous and instantaneous purchase and sale of a currency
for a profit. Advances in technology have enabled trading systems to capture slight differences in price
and execute a transaction, all within seconds.
Understand How to Determine Exchange Rates: How to Quote a Currency
There are several ways to quote currency, but let’s keep it simple. In general, when we quote currencies,
we are indicating how much of one currency it takes to buy another currency. This quote requires two
components: thebase currency and the quoted currency. The quoted currency is the currency with which
another currency is to be purchased. In an exchange rate quote, the quoted currency is typically the
numerator. The base currency is the currency that is to be purchased with another currency, and it is noted
in the denominator. For example, if we are quoting the number of Hong Kong dollars required to
purchase 1 US dollar, then we note HKD 8 / USD 1.
Direct Currency Quote and Indirect Currency Quote
These two methods, which are also known as direct and indirect quotes, are opposite based on each
reference point. Let’s understand what this means exactly.
In Direct currency quote approach, foreign exchange rates are expressed in terms of how many US dollars
can be exchanged or one unit of another currency (the non-US currency is the base currency). For
example, a dollar-pound quote in American terms is USD/GBP (US$/£) equals 1.56. This is read as “1.56
US dollars are required to buy 1 pound sterling. This is called a direct quote, which states the domestic
currency price of one unit of foreign currency.
In Indirect currency quote approach, foreign exchange rates are expressed in terms of how many currency
units can be exchanged for a US dollar (the US dollar is the base currency). A direct and an indirect quote

19. DR.SHASHI KANT Page 19
CONCEPTS OF INTERNATIONAL MARKETING

are simply reverse quotes of each other. If you have either one, you can easily calculate the other using
this simple formula:
Direct quote = 1 / Indirect quote.

Spot Rates Exchange rates that require immediate settlement with delivery of the traded currency.
“Immediate” usually means within two marketing days, but it implies an “on the spot” exchange of the
currencies, hence the term spot rate. The spot exchange rate is the exchange rate transacted at a particular
moment by the buyer and seller of a currency.
Cross Rates This is the exchange rate between two currencies, neither of which is the official currency in
the country in which the quote is provided. For example, if an exchange rate between the euro and the yen
were quoted by an American bank on US soil, the rate would be a cross rate.
Forward Rates The forward exchange rate is the exchange rate at which a buyer and a seller agree to
transact a currency at some date in the future. Forward rates are really a reflection of the market’s
expectation of the future spot rate for a currency. The forward market is the currency market for
transactions at forward rates. In the forward markets, foreign exchange is always quoted against the US
dollar. This means that pricing is done in terms of how many US dollars are needed to buy one unit of the
other currency.
1.10.1 Balance of Payment
When countries marketing, financial transactions among businesses or consumers of different nations
occur. Products and services are exported and imported, monetary gifts are exchanged, investments are
made, cash payments are made and cash receipts received, and vacation and foreign travel occur. In short,
over a period of time, there is a constant flow of money into and out of a country. The system of accounts
that records a nation’s international financial transactions is called its balance of payments A nation’s
balance-of-payments statement records all financial transactions between its residents and those of the rest
of the world during a given period of time—usually one year. Because the balance-of-payments record is
maintained on a double-entry bookkeeping system, it must always be in balance. Each of the nation’s
financial transactions with other countries is reflected in its balance of payments.
A nation’s balance-of-payments statement presents an overall view of its international economic position
and is an important economic measure used by treasuries, central banks, and other government agencies
whose responsibility is to maintain external and internal economic stability. A balance of payments

20. DR.SHASHI KANT Page 20
CONCEPTS OF INTERNATIONAL MARKETING

represents the difference between receipts from foreign countries on one side and payments to them on
the other.
A balance-of-payments statement includes three accounts: the current account, a record of all
merchandise exports, imports, and services plus unilateral transfers of funds; the capital account, a
record of direct investment, portfolio investment, and short-term capital movements to and from
countries; and the official reserves account, a record of exports and imports of gold, increases or
decreases in foreign exchange, and increases or decreases in liabilities to foreign central banks. Of the
three, the current account is of primary interest to international marketing.
The current account is important because it includes all international merchandise marketing and service
accounts, that is, accounts for the value of all merchandise and services imported and exported and all
receipts and payments from investments and overseas employment.
1.11 Barriers to International Marketing
To encourage development of domestic industry and protect existing industry, governments may establish
such barriers to marketing as tariffs and a variety of nontariff barriers including, quotas, boycotts,
monetary barriers, and market barriers.
Tariffs. A tariff, simply defined, is a tax imposed by a government on goods entering at its borders.
Tariffs may be used as revenue-generating taxes or to discourage the importation of goods, or for both
reasons. Tariff rates are based on value or quantity or are classified as follows:
(1) Ad valorem duties, which are based on a percentage of the determined value of the imported goods;
(2) Specific duties, a stipulated amount per unit weight or some other measure of quantity; and
(3) A compound duty, which combines both specific and ad valorem taxes on a particular item, that is, a
tax per pound plus a percentage of value. Because tariffs frequently change, published tariff schedules for
every country are available to the exporter on a current basis.
Quotas and Import Licenses .A quota is a specific unit limit applied to a particular type of good. As a
means of regulating the flow of exchange and the quantity of a particular imported commodity, countries
often require import licenses. The fundamental difference between quotas and import licenses as a means
of controlling imports is the greater flexibility of import licenses over quotas. Quotas permit importing
until the quota is filled; licensing limits quantities on a case-by-case basis.

21. DR.SHASHI KANT Page 21
CONCEPTS OF INTERNATIONAL MARKETING

Voluntary Export Restraints. Similar to quotas are the voluntary export restraints (VERs) or orderly
market agreements (OMAs). Common in textiles, clothing, steel, agriculture, and automobiles, the VER is
an agreement between the importing country and the exporting country for a restriction on the volume of
exports. A VER is called voluntary because the exporting country sets the limits; however, it is generally
imposed under the threat of stiffer quotas and tariffs being set by the importing country if a VER is not
established.
Boycotts and Embargoes. A government boycott is an absolute restriction against the purchase and
importation of certain goods and/or services from other countries. The United States uses boycotts and
embargoes against countries with which it has a dispute. For example, Cuba and Iran still have sanctions
imposed by the United States.
Monetary Barriers. A government can effectively regulate its international marketing position by
various forms of exchange-control restrictions. A government may enact such restrictions to preserve its
balance-of-payments position or specifically for the advantage or encouragement of particular industries.
Two such barriers are blocked currency and government approval requirements for securing foreign
exchange.
Standards. Nontariff barriers of this category include standards to protect health, safety, and product
quality. The standards are sometimes used in an unduly stringent or discriminating way to restrict
marketing, but the sheer volume of regulations in this category is a problem in itself.
Antidumping Penalties. Historically, tariffs and nontariff marketing barriers have impeded free
marketing, but over the years, they have been eliminated or lowered through the efforts of the GATT and
WTO. Now there is a new nontariff barrier: antidumping laws that have emerged as a way of keeping
foreign goods out of a market. Antidumping laws were designed to prevent foreign producers from
“predatory pricing,”a practice whereby a foreign producer intentionally sells its products in the United
States for less than the cost of production to undermine the competition and take control of the market.
Domestic Subsidies and Economic Stimuli. Developing countries complained that such subsidies of
domestic industries gave companies in those countries unfair advantages in the global marketplace.
Smaller countries defended themselves with a variety of tactics.