4.3.

2 INTERNATIONAL MARKETING STRATEGY

MODULE 1: GLOBAL MARKETING – AN OVERVIEW 12 HOURS

International/Multinational/Multiregional/Global Marketing – Definition & Scope, Objectives of

International Marketing – Challenges and opportunities in International Marketing – Quality considerations
in International Marketing – Underlying forces of International Marketing – Major Participants in
International Marketing – Importance Of International Marketing – Review of Trade theories - Culture &
Social Factors – Culture & Its Impact On International Marketing - Political & Legal Forces – Negotiating
With International Customers, Partners & Regulators, Global marketing environment –Economic
Environment, Socio-cultural Environment –Legal and Statutory Framework.

MODULE 2: INFORMATION SYSTEM AND RESEARCH10 HOURS

Definition and Meaning of Global Marketing Information System, Process of Marketing Research,
Analyzing Global Opportunities: Screening International Marketing Opportunities – Criteria for Selecting
Target Countries – Grouping International Markets – Analyzing International Buyers/Business Markets &
Government Markets –International Marketing Research Process.

MODULE 3: MARKET SELECTION AND ENTRY STRATEGIES8 HOURS

Global Market Entry & Exit Strategies: Exporting – Licensing – Local Manufacturing Joint Ventures-
merger & Acquisition - Strategic Alliances – Preparing For Exit Strategy Analysis – Exit Strategies –
Analyzing Opportunities Using Trade Map

MODULE 4: GLOBAL MARKETING MIX8 HOURS

International Product & Promotion Strategy: Adjusting Quality to Global requirements, International &
Global Branding Decisions – Brand Name Selection Procedure – Global/Pan Regional Brands – Exploiting
Product Life Cycles In International Marketing – New Product Development in Global Markets – Global
Advertising – Creative Challenges – Media Planning and Analysis.

MODULE 5: PRICING AND DISTRIBUTION STRATEGY 8 HOURS:

selection of International Channels – Managing Distribution Systems- Global Trends in Distribution

systems- Pricing – Price Escalation – Dumping – Countertrade as a Pricing Tool – Intra-company Pricing.

MODULE 6: DOCUMENTATION AND EMERGING MARKETS 10HOURS:

Documentation and procedural complexities- Registration with various agencies– compulsory Quality
Control - Processing Export Orders. Newly Industrialized Countries– Developing Countries & Emerging
Markets – European Community – CIS – CEFTA –NAFTA-ASEAN – Africa – Middle East – BRICS-
Regional Trade Blocks & Impact on Marketing.

MODULE 1: GLOBAL MARKETING – AN OVERVIEW12 HOURS

1.1 International/Multinational/Multiregional/Global Marketing Introduction

Understand International Marketing:

Today, the marketing organisations are not restricted to their national borders. The entire world is
open for them. New markets are springing forth in emerging economies like – China, Indonesia,
India, Korea, Mexico, Chile, Brazil, Argentina, and many other economies all over the world. In
today’s global market opportunities are on a par with the expansion of economies, with the
increasing purchasing power, and with the changing consumer taste and preferences. 

Definition & Scope, Objectives of International Marketing

Define:

According to Kotler, "Global marketing is concerned with integrating and standardizing marketing
actions across a number of geographic markets."

According to Cateora, "International marketing is the performance of business activities that direct
the flow of goods and services to consumers and users in more than one nation."

According to Cateora and Graham, "International marketing is the performance of business

activities designed to plan, price, promote, and direct the flow of a company’s goods and services
to consumers or users in more than one nation for a profit."

According to Terpstra and Sorathy, “international marketing consists of finding and satisfying
global customer needs better than the competition, both domestic and international and of
coordinating marketing activities with in the constraints of the global environment.”

International marketing is different from domestic marketing not only in scope but also in nature.
Following are the nature and scope of international marketing.

Scope of International Marketing

Imports

Importing products for a brand works the same way like as it does for a whole country. Businesses
buy up the products so that they can resale it to potential customer base inland that they have
gathered with a lot of hard work and passing through tough times. But most of the times,
companies take help from imports for their own use – creation and improving their own production
line. They do so when they are pretty sure that using the product can let them achieve their
objective or can be helpful in putting up a unique solution.

Exports

Exporting is similar in terms of concept for a brand as it is for a country. Companies export their
finalized products to international markets or on to their other franchises in far off markets where
they can sell the products to their localities for generating huge revenues. Not just this, even semi-
finalized products are exported for getting an extra boost for the brand’s treasury. This revenue
generated through exports is then used for paying up the costs of imports, covering up the costs of
development as well as ripening profits. Both the imports and exports help in expanding the reach
of the companies.

Contractual Agreements

Whenever, business moves out to international level, its scope of international marketing exposes it
to greater chances of doing a lot more business. In fact, the fun part starts there when you see your
company making contractual agreements with many others. Those agreements can either be in
terms of licensing or co-production or even of technical assistance.

Licensing then moves further down the road and includes even more agreements in the form of
trademarks, patents, secrets of the brand and brand names, too, which those companies are allowed
to use only if the fee is paid. Well! The fee part surely scares some of the traders but it’s better to
give one-time sacrifice and once your business starts running normally, the fee for such licenses
can be automatically covered.

Joint Venturing

Joint Venture is the name of a collaborative association of two brands for a reasonable period of
time. This association then gives birth to an even new firm that works individually and pursues
goals other than parent companies. This new firm works under the banner of both the “venturing”
brands and the division of profits and losses takes places between both in a certain ratio.

Most of the time, joint venture comes into being when a local company is of great interest for an
investor out of the game field or sometimes, the case can go totally opposite. This technique is of
extreme value to companies are interested in doing business in the countries where outsiders are not
allowed to have their owned businesses and thus, raises the scope of international marketing.

Contract Manufacturing

Contract manufacturing is one of the most used tactics and is pretty awesome as well since it
reduced the costs of productions for the companies or better said the company takes off the
responsibility of assembling the products, itself. The other company, with which the contract is
made, assembles the product and keeps product marketing. This is what a manufacturing contract is
called. This process cuts half the both the price and risk while encouraging easy exit at the same
time.

Fully Owned Manufacturing

This aspect of the scope of international marketing comes into play when it is in the best interests
of the company to take full control over both the production and promotion in the target markets.
For the purpose, the company sets up its own facilities for the creation and assembling the product
(if possible). This lets the brand to work for long term interests instead of pursuing short term goals
and keeping the quality and prices under their own consideration without having to rely on others.

Well! There are many other factors also that would force the company to take charge of everything.
Such factors include trade barriers (and that, too, at their maximum extent), governmental policies
and cost differences.
Strategic Alliances

Gaining a long term competitive advantage over the competitors is not an easy task. But at that
point, it’s important for you to learn that what you can’t achieve alone, you can do so by making
some friends. It works just like the concept which says that enemy of your enemy can be your
friend. It’s capabilities of increasing the innovative flow while boosting up the flexibility for
making the responses back to the market and that’s what makes this thing to be included among the
important points of the scope of international marketing.

Management Contracts

There is yet another point that’s describable among the scope of international marketing and that’s
the existence of management contracts. These contracts are helpful in achieving a skilled labor
force for the brand from the brand with comparatively experienced workers. In this way, the
company can save itself from greater dangers easily with that skill-filled package supplied by the
supplier as the par contract.

1.2 Challenges and opportunities in International Marketing

American companies have identified huge markets internationally for their products and services. The
markets are huge in terms of population, in countries such as China and India. The purchasing power of
consumers and businesses in many countries is also significant enough for American firms to want to
compete in these markets. However, international marketing is not without pitfalls, and U.S. companies have
made costly mistakes by not adequately researching international markets before they commit resources
there.

American marketing executives can err by assuming that what people in other countries want or need
exactly matches the wants and needs of American consumers. It can be a long and expensive process to gain
the trust of consumers who have used their own local companies' products for years or even generations.
International marketing also has potential for miscommunication due to variations in language and culture.

Identifying a True Market Need:

A key to success in business is offering products and services for which customers have a compelling need.
The customer has a problem that needs to be solved, and the product or service provides the solution in such
an effective way that its benefits are not difficult to communicate. Identifying the true needs of large
numbers of people in a foreign country is not easy. Not having lived in their culture experiencing their day-
to-day lives, American marketing executives can err by assuming that what people in other countries want or
need exactly matches the wants and needs of American consumers.

Dilution of Brand-Name Power

Due to the Internet, movies and other forms of entertainment, American culture and the corporate symbols
of that culture – brand names – are well known across the globe. This does not mean the American
companies' products will be popular when introduced in other countries. Being aware of a brand name isn't
the same as preferring it. It can be a long and expensive process to gain the trust of consumers who have
used their own local companies' products for years or even generations. The American companies can be
perceived as attempting to take over the position long held by local companies, causing resentment.

Cultural Nuance Differences

Consumers are influenced to purchase products by marketing messages delivered through the media,
including print media such as magazines. Humor is often used in commercial messages to get the consumer
to pay attention. But what is considered extremely funny in one culture can be perceived as confusing or
insulting in another.
To produce effective advertising requires more than accurate translation of the message from one language
to another. It requires a deep understanding of the culture, customs, morals and even religious views that
predominate in that country. What motivates consumers to buy products varies from country to country.

Communication Style and Language Differences:

Business executives from different countries can encounter several barriers to effective communication
besides obvious language differences. The traditional pace of business negotiations can be different.
Americans sometimes want to hurry negotiations along, whereas in some other countries emphasis is
placed on building relationships before a business deal is seriously considered. Executives from other
countries may place a higher value on things such as facial expression instead of just the words that are
being said.

Distance and Time

Even with technologies such as video conferencing, executives in other countries may prefer to establish
relationships on a personal level. For a smaller American company, this can mean a significant
investment in travel costs and having key executives out of the office for extended periods. Time zone
differences can make it difficult to coordinate projects where collaboration is required. Executives on
the West Coast of the U.S. are just getting to work in the morning when their European counterparts are
winding down for the day.

Finding Reliable Partners

American firms often establish relationships with distributors located in the countries whose markets
they are seeking to enter. They hire sales reps based in those countries. They may engage local
marketing and public relations firms to assist them. Because the American firm might have no prior
experience in that country, finding people who are trustworthy and competent can be a challenge.

Source: https://smallbusiness.chron.com/challenges-firms-face-international-marketing-3356.html

Challenges -- Difference in environment, competition, national income etc.

give rise to formidable challenges in international marketing
* Political and Legal challenges – Generally political and legal framework
differs from country to country so marketing approach is required to be
tailored accordingly.
* Cultural Environment -- Behaviour pattern, liking and disliking of
customers differ from nation to nation, these are to be accounted in assorting
marketing mix elements.
* Economic Environment -- Marketing strategy at host country should be
designed keeping in mind host markets’ nature of economy, scenario and
other policies.
* Demographic and Technological Factors -- Population, its growth rate,
composition and level of technological advancement influences marketing
strategy in host nations.
 * Business Infrastructure -- Availability of suitable banking system, stock
exchanges, market research & advertising agencies, intermediaries are to be
viewed in advance.
* Money and Monetary System – Exchange rate of currencies, its perpetual
fluctuation offer major challenges in marketing planning.
* Logistic Support System -- Availability of transport, its cost, time,
warehousing , inventory management and their expenses are matters of
serious concern. 

Opportunities:
Business Opportunities in the International Markets
A strategy which acts as the basis for firms to sell its products and services beyond the domestic
market is called as an international strategy. The organisations try to follow this international
strategy because it can acquire potential market opportunities. Operating business in both
domestic and international markets maximizes revenues and it provides a scope for
international diversification to extend product life cycle. The industries such as clothing,
electronics, watch making, minerals and energy have extended its operations to foreign
countries with the intention of reducing costs. In the case of few industries, huge investment is
required to minimize the cost when compared to fulfilling the demand for the domestic market.

International business helps in introducing their culture and helps the

customers in becoming habituated to the familiar trends, by this the firms can
also gain huge market share and provides a scope for global communication.
The factors like currency fluctuations make the firms distribute its operations
in various countries which help in minimizing the risk involved in devaluation in
one country. Operations in abroad still facing a problem with culture, politics,
traditions etc, but it has the ability to carry out its operations abroad and its
government facilitates foreign direct investment so that it can have a strong
relationship with other countries.
Increased market size
The size of an international market has a significant influence on firms as they can invest in
research and development to gain competitive advantage. Organisations usually prefer to invest
in those countries which have scientific knowledge so that the firms can make optimum
utilization of research and development activities to gain competitive advantage. Firms
belonging to domestic markets having low growth opportunities always prefer international
strategy to expand their operations and to earn profits across the world.

Economies of scale
Expanding firms operations reduce the total cost of the product and integration of critical
resource functions results in optimal economies of scale. Organisations can gain core
competencies with the help of resources and knowledge sharing with other countries through
international markets. Knowledge sharing helps in expand its operations and to produce
efficient products and services at cost effectiveness.

Return on investment
Huge markets are crucial in acquiring returns especially for capital-intensive investments like
plant and capital equipment or research and development. The new technological changes and
new products sometimes cannot fulfill the customer’s need so the firm’s role is to maintain
investments in such a way to attract the prospective customers. Organisations always strive to
develop new technology and products but at the same time, they should adopt the strategies to
protect their intellectual property rights from their competitors. The international expansion
provides the scope for larger markets and enables the firms to enhance its operations efficiently
in terms of capital investments and large-scale research and development expenditures.

Factors that provide a basis for international business level strategy

The home country of operation is the critical aspect in international business level strategy and
serves the base for gaining competitive advantages. Resources which are well setup in home
country facilitate firms to carry out their strategies into markets which are located in other
countries. The factors which help in international business level strategy are firm’s strategy,
structure, factors of production, demand conditions, relating and supporting industries.
International expansion is achieved by exporting products, participating in
licensing arrangement, forming strategic alliances, making acquisitions and
establishing new wholly subsidiaries. Five modes of international expansion
are exporting, licensing, strategic alliances, acquisitions and new wholly
owned subsidiary.

Exporting
The process of producing goods in the home country or third country and
transporting those produced goods to other countries is termed as Exporting.
It is a very popular mode used to enter into the foreign markets because; it
is an easy, economical and less risky mode of entry. Apart from this exports
are used as strategic methods to overcome excess production.
 Exporting is not only applicable for big companies; even small companies also
gained advantages from exporting. The numbers of companies involving
themselves in the exporting activity across the world are increasing due to
the ease of this business. The number of export opportunities has increased
with the reduction in trade barriers and increase in regional economic
agreements like the European Union, North American free trade agreement. The
logistical problems concerning exporting are sorted out with new
communication and transportation technologies. Use of technology in exporting
has minimized the cost of exporting.

Licensing
Licensing is a method of market entry; a company can gain market presence
without any equity investment. A company assigns the right to a patent or a
trademark to another company for a fee or royalty is termed as licensing.
Licenses are signed for a variety of time periods. Depending on the
investment needed to enter the market, the foreign licenses may insist on a
longer licensing period to recover the initial investment. The license will
make all necessary, capital investments such as machinery, inventory and so
on.

Strategic Alliances
Strategic alliance refers to cooperation between two or more companies. These
alliance partners have the common goal and shared control to attain mutual
benefits. A strategic alliance can be defined as a cooperative strategy
because; companies integrate few of their resources, skills and capabilities
with an intention to build competitive advantage. The International strategic
alliance is an alliance form by a domestic company with the foreign company.

Nature of Strategic Alliance

Strategic alliance refers to cooperative agreements between the companies.
Companies which have entered into alliance or cooperative agreement share
technology carry out the research work together, make use of manufacturing
facilities together, market products produced by one another or assembled final
products jointly or make combined efforts to produce products or components.
Equity alliances, non-equity alliances and joined ventures are the three types of
strategic alliances.

Acquisition

Mergers and acquisition are used as a base for the domestic firms to enter into
the international business. For the purpose of entering into the international
business, domestic firms chose a foreign firm and merges with it. An alternative
approach adopted by the firms to enter into the international business involves
the purchase of foreign firm and the acquisition of the ownership and it is
controlled by the domestic firm. The entry strategy provides an immediate access
to the foreign production facility and marketing network.

New Wholly Owned Subsidiary

Many companies export directly to their own sales subsidiaries and assume the
role of the independent distributor by stocking the manufacturing products,
selling to the buyers and assuming the credit risk. The sales subsidiary offers the
manufacturers for the control of selling operations in a foreign market. This will be
mostly important if the company’s products require the use of special marketing
skills, such as advertising or selling. Exporter finds it possible to transfer or export
not only the product but also the entire marketing product that often makes the
product a success. The operation of a subsidiary adds a new dimension to a
company’s international marketing operation. It requires the commitment of
capital in a foreign country, primarily for the financing of accounts receivables and
inventory. The operation of a sales subsidiary entails a number of general
administrative expenses that are essentially fixed in nature.
Opportunities --
Firms go global broadly because of TWO reasons :
1. Pull Factors -- it comprises of proactive reasons that pull the firm to foreign transactions for
* Profit -- Generally international marketing is more profitable compared to domestic.
* Top-line Growth -- At times of domestic recession, foreign sales keeps company going. 
* Economy of Scale in operations. * Spreading of risks -- Foreign markets reduce dependence of
firm on domestic market, as China is thriving now on U. S. and Europe market.
* Uniqueness of product or service -- Unique attributes may offer enormous opportunity and very
less competition abroad, e. g. Indian herbal medicines, Chinese Tiger-balm etc.
* Stage in lifecycle
* Cheaper cost of factors of production -- like cheap raw material, labour, land etc. 

2. Push Factors -- drives the firm to explore opportunities like

* Home & Host Govt. Policies – Tax benefits, subsidies etc.
* Spin-off Benefits – Success in foreign markets boost company’s image in home market, also
helps in introducing newer products and services with enhanced brand image.
* Sharing of R&D costs -- MNCs can embark into ambitious R&D projects compared to single-
country companies as their research expenses are shared between various country markets
* Competition -- Intense competition in home markets push companies out to markets abroad. 

1.2 Quality considerations in International Marketing

Quality Considerations in International Business

Outsourcing is a strategic management option rather than just another way to cut costs. The
decision to outsource is often made in the interests of lowering costs, redirecting or conserving
energy directed at the competencies of a particular business, or to make more efficient use of labor,
capital, technology and resources. Its aim is to help companies achieve their business objectives
through operational excellence.

QUALITY CONSIDERATIONS IN INTERNATIONAL BUSINESS:

 
Outsourcing is a strategic management option rather than just another way to cut costs. The
decision to outsource is often made in the interests of lowering costs, redirecting or conserving
energy directed at the competencies of a particular business, or to make more efficient use of labor,
capital, technology and resources. Its aim is to help companies achieve their business objectives
through operational excellence.
 
One aspect of this is QA and testing. This can provide many benefits to companies, who are
seeking to improve the quality of their production applications, reduce business risk through
rigorous testing and augment and improve upon the incumbent testing teams and processes. Given
the increase in global IT outsourcing agreements, many companies will be looking at outsourcing
QA and testing as an independent validation and acceptance phase in order to ensure high quality
deliverables and gain competitive advantages.
 
To achieve these benefits, organizations select an outsourcing partner who will typically have local
and offshore test centers and capabilities as well as a strong onsite consultancy presence.
 
Some of the critical success factors for outsourcing QA and testing engagements include:
 
Ensuring that the business objectives agreed at the outset of the contract or business case are
managed through to successful completion
 
Ensuring that transition from the "testing today" to "tomorrow’s testing" is seamless in terms of
business impact and employee satisfaction
 
Noticeable and continuous improvements in the approach and methods used within your IT
organization (not just testing)
 
When taking on the challenge of outsourcing your testing, there are many things that should be
considered and accounted for before any contract is signed. This paper outlines 10 key
considerations that organizations should consider when outsourcing QA and testing services.
 
Incremental Outsourcing
 
Organizations can mitigate their risks of outsourcing by dividing the work into small, more
manageable projects that they outsource to service providers. Managers at the client organization
therefore have well defined deliverables, programs that work under an umbrella contract with
associated schedules. The location of the work is determined on a project by project basis.
 
Total Outsourcing - Onsite/Offshore
 
In this model, multiple projects and programs at the client organizations are outsourced to a service
provider, which also takes on the end-to-end program management and delivery on behalf of the
client. The service provider takes on the project, module or program from a client organization,
deploys a small team onsite that works with the client managers and teams and coordinates work
with the offshore team that does the bulk of the work. Typical models range from 20-30% onsite to
70-80% offsite.
 
1. Engagement Models
 
Selecting an engagement model is a crucial aspect of developing the outsourcing plan. The process
involves several factors, including aspects of international business strategy, selecting the
geographical location, understanding the landscape and deciding on the outsourcing strategy. Some
of the engagement models are:

2. Service Level Agreements (SLAs)

 
The SLAs should detail the minimum level of service to be provided by the outsourcing vendor.
They should be objective and measurable and have no ambiguity. This helps both parties in the
long term. Some good examples of the type of SLAs that should be considered are:
 
On time delivery - dates must be agreed from the outset on all major deliverables with all efforts to
ensure they are met. Use change control processes if these dates need to be moved.
 
Client Satisfaction - periodic surveys should be conducted to make sure that the service provided
by the outsourcing company is satisfactory to customers.
 
Effectiveness - effectiveness metrics focus on lowering costs, improving profit, and adjusting
business transactions
 
Volume of Work - the volume of work sometimes is difficult to define. For example, projects that
are billed on a time-and-material basis may discuss volume in terms of number of resources, while
a fixed-price project usually specifies number of deliverables. This metric is an important part of
the SLA.
 
Sensitivity - sensitivity metrics measure the amount of time required for an outsource company to
handle a request.
 
System Downtime and Availability - in outsourcing, guaranteeing 100% availability of services
costs significantly more than guaranteeing 99% or 98%, and not every company or every
application needs 100% reliability. The SLA should request service availability to meet specific
business needs.
 
It is also good to ensure that SLAs are tied into the contract, sometimes on a risk/reward basis to
ensure that there is mutual interest in meeting them.
 
3. Mobilization
 
Once the contract is signed there will be a period of mobilization for both parties. This phase
generally includes setting up communication protocol with the client, defining work breakdown
structure, sharing standard templates (used for authoring test cases, reporting project status,
presenting the key metrics etc.) with the client, building test strategy etc. Some of the key elements
of this can be seen below:
 
People
 
The outsourcing providers maintain a pool of highly qualified and dedicated professionals
including QA engineers, QA leads, project managers and technical specialists. Many outsourcing
providers have unique centers of excellence to train their interns and employees on various testing
methodologies and tools that are required for seamless execution of the engagement. Ensuring the
most appropriate resources for your requirements are in place is critical for the success of the
engagement.
 
Knowledge Acquisition
 
Outsourcing providers follow various approaches to obtain adequate knowledge for the test
engineers to understand the core business requirements and also the critical functionality to be
tested. Test leads or managers will be sent onsite long/short term to meet various stakeholders in
the client organization to understand the product/system and its features. They will assume the
responsibility of training the offshore team on the product/system to be tested and all the features of
it that the client and the outsourcing vendor have agreed to be tested.
 
Infrastructure
 
Some applications require extensive compatibility testing in different environments and back-end
database systems. Other applications need to be tested in production-sized environments that
closely resemble the final production environment. Outsourcing providers, with their extensive test
labs, should stimulate the production environment for performing such complex levels of testing.
The cost for setting up this environment offshore would be negotiated with customers with a cost
effective solution being drawn in favor of both parties.
 
Processes
 
Outsourcing providers in this competitive industry are continuously working on raising their
standards with respect to adhering to CMMi Level 5 and other standard ISO processes to ensure
tangible benefits for their customers. These include low project risk, on time/on budget deliveries,
minimal error rate, high process visibility and enhanced customer satisfaction. Process
implementation not only suggests complying to standard guidelines and procedures but also gives
greater visibility to customers by delivering metrics (such as schedule/effort variance, productivity
etc.) that measure the quality of the product/system which is the ultimate aim for any outsourcing
provider.
 
4. Integration with other third party service providers
 
Independent QA and testing is becoming more and more common. One of the reasons for this is
that it provides objective rigor and thoroughness that might not be provided by a single vendor.
However, in this scenario, it is important that all the parties (client, testing vendor and development
vendor) work harmoniously to achieve the right result.
 
The testing provider should have a good understanding of the challenges involved in working with
multiple vendors spread across geographies and develop appropriate interfaces and best practices in
communication to ensure successful completion of engagements. Understanding other SDLC
methods is also imperative.
 
A clearly defined defect management and resolution process should be established as a high
priority and ensuring consistent reporting styles on progress will make it easier on all parties to
assess the readiness of any application throughout its lifecycle.
 
5. Communication:
 
Outsourcing providers facilitate seamless communication between the client and their stakeholders.
As communication is considered a key obstacle in outsourcing, providers maintain effective
channels and points of contact (POC) open to clients.
 
An effective model and plan (including methods) should be tailored to the needs of the client and
would help both parties in identifying and resolving issues promptly. A typical communication
flow model is shown below:

Escalation and Issue Resolution

 
There needs to be a clear and objective escalation and issue resolution process agreed from the
outset. Early identification should be built into the standard project risks and issues logs as well as
action plans for mitigation. Successful processes work best when there is a trusting relationship
between the vendor and the client.
 
Reporting
 
It is important that formal reporting is put in place and communicated by a regular set of reports
and deliverables updating the client on the engagement (at project/IT organization level). These
reports will be sent to the client on a daily, weekly, bi-weekly or on a monthly basis based on the
nature of the reports and the agreed plan. This should be in addition to the less formal reporting that
will become apparent through the personal relationships formed.
 

6. Flexibility and Scalability

 
QA and testing outsourcing agreements demand a degree of flexibility and scalability to help
ensure fluctuations in scope and timescales can be met. Some of the scenarios where flexibility is
required are:
 
New or enhanced systems require revised testing commitments More releases require more testing
phases
 
Increased levels of system or data integration require wider scope and coverage in testing
Regression test demands will grow as systems are developed
Performance and load test and other special tests may place demands on the service
The outsourcing provider must have an organization with infrastructure and resources
 
sufficiently sized so that the client demands are met. The correct scope and planning helps prevent
this but some eventualities are unavoidable. It is therefore important that clients have an
expectation that should the nature of the requirements change, there will be provision made within
the contract or through good change management processes.
 
7. Quality Improvement
 
The key objective of the client is often to gain a significant improvement in quality and this can be
achieved through outsourcing. In order to do this, there are some fundamental steps that need to be
taken.
 
The outsourcing provider needs to assess and map the client.s testing capability to understand how
the engagement is going to work. Identifying the "major gaps" in test processes from the outset and
implementing positive changes to address these will result in quality improvements. As the
relationship matures between the two parties, there should be a willingness to continually improve
process and working methods etc. This should not necessarily be restricted to just testing, but the
whole lifecycle if it improves the end product.
 
8. Configuration and Change Management
 
Many businesses have frequently changing requirements which if handled badly can have a
significant impact on time, quality and cost. To help clients overcome this, QA and testing
outsourcing organizations maintain a comprehensive change and configuration management
system.
 
A typical scenario would be that a Change Request is raised by a client and sent to the vendor. The
team then consolidates all Change Requests and performs an impact analysis on the Project
Schedule, resources, costs and assesses the technical feasibility of the changes. These are all taken
into account before the assessment is discussed with the client. Upon approval, an updated Project
Schedule will be laid out to execute that change request.
 
9. Intellectual Property Protection
 
Intellectual Property (IP) protection is one of the important considerations for customers when
outsourcing services. QA and testing outsourcing providers have to protect all Personally
Identifiable Information (PII) given by clients or otherwise obtained in the course of outsourcing
engagements and treat it as proprietary and/or trade secrets. Unauthorized use or disclosure by the
QA and testing services provider of any PII will be detrimental to the client.s competitive position
and on-going business operations. The QA and outsourcing provider.s staff should not duplicate,
distribute, disclose, convey or in any other manner make available to third parties any PII.
 
Most of the outsourcing providers have well established security standards and measures in place to
prevent unauthorized access to and misuse of PII. The IP protection policies of most of the
outsourcing service providers have the following:
 
Non-disclosure agreements signed with the client Project related IP protection
 
Employee Confidentiality contract

10. Security
 
All the major outsourcing providers have Information Security Policies, Information Security
Standards and Business Continuity Management policies in place, primarily to protect data.
 
The facilities of the outsourcing providers will have the controls and capability to prevent loss or
accidental release of data or proprietary functionality. In the event of a disaster they should have
the capacity to subsequently restore a service relevant to this.
 
The testing facilities of most of the outsourcing providers are assessed for BS7799 security
management standards. Security measures are implemented at various levels at the facilities of the
outsourcing provider that include physical security, infrastructure, network security and other ad
hoc security measures based on specific case/project.
 
Some of the physical security measures provided by outsourcing vendors include measures to
restrict the entry and exit of personnel, equipment and media from a designated area. These
controls address not only the area containing system hardware but also the locations of wiring,
supporting services, backup media and other elements required for the system’s operation.
 
1.3 Underlying or driving forces of International marketing :

Reasons to enter the international marketplace and how to

enjoy new export opportunities
1. Increase sales. If your business is succeeding in the U.S., expanding globally will
likely improve overall revenue. Approximately 96% of the world’s population lives
outside of the U.S. and 90% of the world’s population does not speak English – this
suggests customers are global and that if your company looks beyond the shores of
the domestic market, you have some real upside potential. If your company has a
unique product or technological advantage not available to international
competitors then this advantage should result in major business success abroad. For
example, if you run a software company and add a French and German language
version, you are extending your total market by nearly 200 million.
2. Improve profits. Many export markets are not as competitive as the U.S. and
therefore price pressures are far less – ever wonder why a Jaguar car made in
Coventry, England costs more in Coventry than California? It is common practice
10 Reasons to go International Richard P Biggs|Founder & CEO|Atlantric llc
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for U.S. products to be sold at a higher price (and margin) in many export markets
– software translated into German is much appreciated by users in Germany and
they will become loyal customers and pay a premium. A U.S. company will often
enjoy a far less competitive landscape if it goes to the trouble of localizing.
3. Short-term security. Your business will be less vulnerable to periodic
fluctuations and downturns in the U.S. economy and marketplace.
4. Long-term security. The U.S. is a large, mature market with intense
competition from domestic and foreign competitors. Additionally, the U.S.
currently has excess capacity so international business trade may become a
necessity if you want to keep up in an increasingly global marketplace and enjoy
the potential for cost savings.
5. Increase innovation. Extending your customer base internationally can help
you finance new product development.
6. Exclusivity. Your company’s management may have exclusive market
information about foreign customers/prospects, marketplaces or market situations
that are not known to others.
7. Economies of scale. Exporting is an excellent way to expand your business with
products that are more widely accepted around the world. In many manufacturing
industries, for example, internationalization can help companies achieve greater
scales of economy, especially for companies from smaller domestic markets. In
other cases, a company may seek to exploit a unique and differentiating
advantage (intellectual property), such as a brand, service model, or patented
product. The emphasis should be on “more of the same,” with relatively little
adjustment to local markets, which would undermine scale economies.
Although the fundamental reason for entering the Global Marketplace is to increase
potential demand, frequently other factors can drive international market investment
and performance measurement decisions. These include:
8. Education. Under certain circumstances, a company might undertake an
international market entry not solely for financial reasons, but to learn. For
example, the consumer products division of Koc, the Turkish conglomerate,
entered Germany, regarded as the world’s leading market for dishwashers,
refrigerators, freezers, and washing machines in terms of consumer sophistication
and product specification. In doing so, it recognized that its unknown brand would
10 Reasons to go International Richard P Biggs|Founder & CEO|Atlantric llc
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struggle to gain much market share in this fiercely competitive market. However,
Koc took the view that, as an aspiring global company, it would undoubtedly
benefit from participating in the world’s toughest market and that its own product
design and marketing would improve and enable it to perform better around the
world. In most sectors, participation in the “lead market” would be a prerequisite
for qualifying as a global leader, even if profits in that market were low. Lead
markets include:
United States for software, Japan for consumer electronics, Italy for fashion, Germany
for automobiles and so on. It should be noted that if a company is to maximize learning
from a lead market, it should probably participate with its own subsidiary. Learning
indirectly, via a local distributor or partner, is obviously less effective and will contribute
less to the company’s development as a global player.
9. Competitive Strike. Market entry can prompt not by the positive
characteristics of the country identified in a market assessment project, but as a
reaction to a competitors’ moves. A common scenario is market entry as a
follower move, where a company enters the market because a major competitor
has done so. This is obviously driven by the belief that the competitor would gain a
significant advantage if it were allowed to operate alone in that market.
Another frequent scenario is “offense as defense,” in which a company enters the
home market of a competitor—usually in retaliation for an earlier entry into its
own domestic market. In this case, the objective is also to force the competitor to
allocate increased resources to an intensified level of competition.
10.Government Incentives (i.e., cash). It is common for governments to
“incentivize” their country’s companies to export. This often results in many
companies entering markets they would otherwise not have tackled. The U.S.
government offers a wealth of help when a company decides to begin exporting.
Export assistance centers provide a one-stop resource and can be found in over
100 U.S. Cities. The Small Business Administration (SBA) offers Export Working
Capital Programs that include guaranteed loans of $50,000 to $100,000 to help
exporters grow their business.

1.4 Major Participants in International Marketing

FOUR MAJOR PARTICIPANTS IN INTERNATIONAL BUSINESS

 1. Focal firm – initiator of an international business transaction; e.g., MNEs and SMEs.

2. Distribution channel intermediary – a specialist firm that provides distribution, logistics, and
marketing services in the international value chain

3. Facilitator – a firm that provides special expertise in banking, the law, customs clearance, market
research, or other

4. Governments – active in international business as suppliers, buyers, and regulators.

Global Value Chain in the Automotive Industry

• Manufacture of the Chevrolet Malibu illustrates the national and geographic diversity of suppliers
in a truly global value chain.

• Suppliers are headquartered in Britain, France, Germany, Japan, the U.S., and elsewhere. The
components are typically manufactured in low-cost countries and shipped to the General Motors
plant in Fairfax, Kansas, USA.

Sample Suppliers of
Components for the Apple iPhone

Dell’s International Value Chain

The Multinational Enterprise (MNE)

• A large organization with a network

of production plants, marketing
subsidiaries, and regional
headquarters, in numerous countries.
E.g., Ford, Sony, Unilever, Citibank,
McDonald’s, Amazon.

• Historically the most important

type of focal firm

• In China, Russia, and other countries

that emphasize socialism, some
MNEs are state owned.

Multinational Enterprise,
Ranked by Industry Sector Size

Largest MNEs in the Fortune Global 500

Ethical Connections

• Many more MNEs invest in developing economies.

• MNE business activities can affect age-old customs and practices, threatening local traditions.

• Large-scale merchants such as Carrefour and Wal-Mart have changed retailing in many developing
economies, putting tiendas and other small shops out of business.

• Fast-food restaurants such as Dunkin’ Donuts and McDonald’s have altered traditional eating habits,
shifting preferences in some countries towards less healthy choices.

Small and Medium-Sized

Enterprise (SME) as a Focal Firm

• A relatively small player in its respective industry, usually defined as firms with 500 or fewer
employees.

• Constitutes the great majority of firms worldwide; SMEs usually create the most new jobs.

• Characterized by limited resources, which often prevents internationalizing via FDI. Instead, SMEs
usually internationalize via exporting.

• Many more SMEs do international business today than ever before.

The Born Global as a Focal Firm

• A relatively new breed of SME that undertakes early and substantial internationalization.

• Usually a niche player, they typically exhibit a high degree of innovativeness, entrepreneurial
orientation, and a ‘borderless’ mindset.

• Usually leverage information and communications technologies to internationalize early and

operate effectively in world markets.

• Make up the fastest growing segment of exporters in most countries.

The Born Global as a Focal Firm

Foreign Market Entry Strategies of Focal Firms

• Foreign direct investment (FDI): The transfer of assets to another country or the acquisition of
assets in that country.

• International collaborative venture: Partners pool their resources and share the costs and risks of
a new venture.

• Exporting: Sale of products or services to customers located abroad from a base in the home
country or a third country.

Entry Strategies of Focal Firms (cont’d)

• Importing or Sourcing: Focal firms procure numerous parts, components, and services from
suppliers around the world.

• Licensing: Granting the right to a foreign partner to use certain intellectual property in exchange
for royalties.
 • Franchising: Granting the right to a foreign partner to use an entire business system in exchange
for fees and royalties.

A Classification of International Entry Strategies

Distribution Channel Intermediary

• Specializes in physical distribution and marketing. Connects the focal firm with the end user in the
foreign market.

• Assists the focal firm by providing logistics services such as warehousing and customer support

• Especially critical to exporters

that do not engage in FDI

• Based either in the

foreign market or
in the home country

Intermediaries Based in the Foreign Market

Foreign Distributor

• Takes title to the exporter’s goods and performs marketing functions such as sales, promotion, and
after-sales service on the exporter’s behalf.

• Serves as the extension of the focal firm in the foreign market.

• Also arranges for local transportation and advises focal firms on how to function effectively in the
local market.

Intermediaries Based in Foreign Market (cont’d)

Agent

• Also known as a broker.

• Does not take title to the goods.

• Works on a commission basis to bring the buyer

and seller together.

Manufacturer’s Representative

• Works under contract by the exporter to represent and sell its merchandise in designated
territories.

• Acts as a contracted salesperson in a designated territory.

Contemporary Intermediaries
Intermediaries Based in Home Country

Trading Company

• An intermediary that handles imports and exports of various raw materials, parts, and finished
products.

• Large trading companies are typically high-volume, low-margin resellers.

• Many deal primarily in commodities such as grains, minerals, coal, and metals (e.g., Cargill in the
USA).

• In Japan, trading companies are key players in international trade. E.g., Mitsubishi, Marubeni,
Mitsui, Sumitomo – all firms in Fortune’s Global 500.

World’s Largest Trading Companies

Intermediaries Based in Home Country (cont’d)

Export Management Company (EMC)

• Common in the USA and numerous other countries.

• Acts as an export agent on behalf of the focal firm. Finds export customers, negotiates terms of
sale, and arranges for international shipping, typically for smaller exporters.

• Most specialize in specific industries and geographic areas.

Online Intermediaries

• ‘Disintermediation’ – bypassing traditional intermediaries – is made possible by the Internet.

• Examples include Amazon, Dell, eBay

• Traditional retailers such as Tesco and Wal-Mart have also established an online presence.

• One negative outcome is that

unscrupulous marketers
prey on unsuspecting
customers with fake products
(e.g., pharmaceuticals).

Facilitators

• Assist the focal firm with specialized services required in international transactions.

• Examples include logistics service providers (e.g., DHL, FedEx), banks, international trade lawyers,
freight forwarders, customs
brokers, consultants,
advertising agencies,
market researchers,
 insurance companies,
tax accountants

Governments

• Governments exist at the local, provincial, national, and supranational levels to make and enforce
laws and regulations and provide essential economic security by devising fiscal and monetary
policies.

• Central banks in each country issue currency and regulate national money supplies.

• Sovereign wealth funds are state-owned investment funds that undertake systematic, global
investment activities to generate income or to achieve policy objectives.

1.5 Importance Of International Marketing

Importance of International Marketing

1. Important to expand target market – Target market of a marketing organisation will be limited if
it just concentrate on domestic market. When an organisation thinks globally, it looks for overseas
opportunities to increase its market share and customer base.

2. Important to boost brand reputation – International marketing may give boost to a brand’s
reputation. Brand that sold internationally is perceived to be better than the brand that sold locally.
People like to purchase products that are widely available. Hence, international marketing is
important to boost brand reputation.

3. Important to connect business with the world – Expanding business into an international market
gives a business an advantage to connect with new customers and new business partners. Apple the
tech giant designs its iPhone in California; outsources its manufacturing jobs to different countries
like Mongolia, China, Korea, and Taiwan; and markets them across the world. Apple have not
restricted its business to a nation, rather expanded it to throughout the world. The opportunities for
networking internationally are limitless. The more "places" a business is, the more connections it can
make with the world.

4. Important to open door for future opportunities – International marketing can also open
door for future business opportunities. International marketing not only increases market share and
customer base, it also helps the business to connect to new vendors, a larger workforce and new
technologies and ways of doing business. For example – Americanorganisations investing in Japan
have found programs like – Six Sigma and
1.6 Review of Trade theories

THEORIS OF INTERNATIONAL BUSINESS

International trade is the purchase, sale or exchange of goods and services across national
border. International trade produces many benefits to countries both exporting and
importing products. For countries importing products, the benefits are that they get goods
or services they cannot produce enough of on their own. Likewise, for the exporter, one of
the benefits is though the trade they can also get either the goods or services they need or
the money in which to purchase these goods from another country or source. International
trade also helps the economic of the countries.

International trade encompasses many aspects in relation to various countries. There are
many theories regarding international trade. Some of these include mercantilism, absolute
advantage, comparative advantage, factor proportions theory, international product life
cycle, new trade theory and national competitive advantage.

Merchantilism
Mercantilism the first theory of international trade, is an economic concept
for the purpose of building a wealthy and powerful state, which believes that
the wealth of a nation could only be achieved through government controls
and regulation of trade, commerce and economic activities. It involves wealth
accumulation, establishment of favorable trade with other countries, and
development of internal resources in the manufacturing and agriculture
sectors. The economic policies that pursued by the Mercantilists, such as
Governmental control of the use and exchange of precious metals, which is
often referred to as Bullionism.
DEFINITION OF MERCANTILISM

Mercantilism is an economic theory and practice common in Europe from the 16th to the
18th century that promoted governmental regulation of a nation’s economy for the
purpose of augmenting state power at the expense of rival national powers. In particular, it
demands a positive balance of trade. It was the economic counterpart of political
absolutism.

The main goal was to increase a nation's wealth by imposing government regulation
concerning all of the nation's commercial interests. It was believed that national strength
could be maximized by limiting imports via tariffs and maximizing exports.Mercantilism
was a cause of frequent European wars in that time and motivated colonial expansion.

ORIGIN OF MERCANTALISM

Most of the European economists who wrote between 1500 and 1750 are today generally
considered mercantilists; originally the Standard English term was "mercantile system".
English merchant Thomas Mun (1571–1641) as a major creator of the mercantile system,
especially for his Treasure by Foreign Trade (1664) and Perhaps the last major
mercantilist work was James Steuart’s Principles of Political Economy published in 1767.

POLICIES OF MERCANTILISM

High tariffs, especially on manufactured goods, are an almost universal feature of

mercantilist policy. Other policies have included:

• Building a network of overseas colonies;

• Forbidding colonies to trade with other nations;
• Banning the export of gold and silver, even for payments;
• Forbidding trade to be carried in foreign ships;
• Export subsidies;
• Promoting manufacturing with research or direct subsidies;
• Maximizing the use of domestic resources;
• Restricting domestic consumption with non-tariff barriers to trade.

Mercantilism in its simplest form was bullionism, but mercantilist writers emphasized the
circulation of money and rejected hoarding. Their emphasis on monetary metals accords
with current ideas regarding the money supply, such as the simulative effect of a growing
money supply.

CRITICISMS OF MERCANTILISM
Adam Smith and David Hume were the founding fathers of anti-mercantilist thought. A
number of scholars found important flaws with mercantilism long before Adam Smith
developed an ideology that could fully replace it. Critics like Hume, Dudley North, and
John Locke undermined much of mercantilism, and it steadily lost favor during the 18th
century.

Mercantilism contained many interlocking principles. Precious metals, such as gold and
silver, were deemed indispensable to a nation’s wealth. If a nation did not possess mines
or have access to them, precious metals should be obtained by trade. It was believed that
trade balances must be “favorable,” meaning an excess of exports over imports.

Later, mercantilism was severely criticized. Advocates of laissez-faire argued that there
was really no difference between domestic and foreign trade and that all trade was
beneficial both to the trader and to the public. They also maintained that the amount of
money or treasure that a state needed would be automatically adjusted and that money,
like any other commodity, could exist in excess. They denied the idea that a nation could
grow rich only at the expense of another and argued that trade was in reality a two-way
street. Laissez-faire, like mercantilism, was challenged by other economic ideas. Compare
laissez-faire.

1.7.2 Theory of absolute advantage

DEFINITION OF 'ABSOLUTE ADVANTAGE'

The ability of a country, individual, company or region to produce a good or service at a

lower cost per unit than the cost at which any other entity produces that good or service.

Entities with absolute advantages can produce something using a smaller number of
inputs than another party producing the same product. As such, absolute advantage can
reduce costs and boost profits.

In economics, the principle of absolute advantage refers to the ability of a party (an
individual, or firm, or country) to produce more of a good or service than competitors,
using the same amount of resources. Adam Smith first described the principle of absolute
advantage in the context of international trade, using labor as the only input.

Since absolute advantage is determined by a simple comparison of labor

productivities, it is possible for a party to have no absolute advantage in anything; in that
case, according to the theory of absolute advantage, no trade will occur with the other
party. It can be contrasted with the concept of comparative advantage which refers to the
ability to produce a particular good at a lower opportunity cost.

ORIGIN OF THE THEORY

The main concept of absolute advantage is generally attributed to Adam Smith for his 1776
publication An Inquiry into the Nature and Causes of the Wealth of Nations in which he
countered mercantilist ideas. Smith argued that it was impossible for all nations to become
rich simultaneously by following mercantilism because the export of one nation is another
nation’s import and instead stated that all nations would gain simultaneously if they
practiced free trade and specialized in accordance with their absolute advantage. Smith
also stated that the wealth of nations depends upon the goods and services available to
their citizens, rather than their gold reserves. While there are possible gains from trade
with absolute advantage, the gains may not be mutually beneficial. Comparative advantage
focuses on the range of possible mutually beneficial exchanges.

1.7.3 Theory of comparative advantage

DEFINITION OF COMPARATIVE ADVANTAGE

Comparative advantage refers to the ability of a party to produce a particular good or

service at a lower marginal and opportunity cost over another. Even if one country is more
efficient in the production of all goods (absolute advantage in all goods) than the other,
both countries will still gain by trading with each other, as long as they have different
relative efficiencies.

For example, if, using machinery, a worker in one country can produce both shoes and
shirts at 6 per hour, and a worker in a country with less machinery can produce either 2
shoes or 4 shirts in an hour, each country can gain from trade because their internal trade-
offs between shoes and shirts are different. The less-efficient country has a comparative
advantage in shirts, so it finds it more efficient to produce shirts and trade them to the
more-efficient country for shoes. The net benefits to each country are called the gains from
trade.

ORIGINS OF THE THEORY

The idea of comparative advantage has been first mentioned in Adam Smith's Book The
Wealth of Nations: "If a foreign country can supply us with a commodity cheaper than we
ourselves can make it, better buy it of them with some part of the produce of our own
industry, employed in a way in which we have some advantage." But the law of
comparative advantages has been formulated by David Ricardo who investigated in detail
advantages and alternative or relative opportunity in his 1817 book On the Principles of
Political Economy and Taxation in an example involving England and Portugal.
EFFECTS ON THE ECONOMY

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Conditions that maximize comparative advantage do not automatically resolve trade

deficits. In fact, many real world examples where comparative advantage is attainable may
require a trade deficit. For example, the amount of goods produced can be maximized, yet
it may involve a net transfer of wealth from one country to the other, often because
economic agents have widely different rates of saving.

CONSIDERATIONS OF THE THEORY

Development Economics

The theory of comparative advantage, and the corollary that nations should specialize, is
criticized on pragmatic grounds within the import substitution industrialization theory of
development economics, on empirical grounds by the Singer–Prebisch thesis which states
that terms of trade between primary producers and manufactured goods deteriorate over
time, and on theoretical grounds of infant industry and Keynesian economics. In older
economic terms, comparative advantage has been opposed by mercantilism and economic
nationalism. These argue instead that while a country may initially be comparatively
disadvantaged in a given industry (such as Japanese cars in the 1950s), countries should
shelter and invest in industries until they become globally competitive.

Free mobility of capital in a globalized world

Ricardo explicitly bases his argument on an assumed immobility of capital:" ... if capital
freely flowed towards those countries where it could be most profitably employed, there
could be no difference in the rate of profit, and no other difference in the real or labor
price of commodities, than the additional quantity of labor required to convey them to the
various markets where they were to be sold."

CRITICISMS OF THE THEORY

Economist Ha-Joon Chang criticized the comparative advantage principle, contending

that it may have helped developed countries maintain relatively advanced technology and
industry compared to developing countries. In his book Kicking Away the Ladder, Chang
argued that all major developed countries, including the United States and United
Kingdom, used interventionist, protectionist economic policies in order to get rich and
then tried to forbid other countries from doing the same. For example, according to the
comparative advantage principle, developing countries with a comparative advantage in
agriculture should continue to specialize in agriculture and import high-technology
widgets from developed countries with a comparative advantage in high technology.

1.7.4 Heckcher-ohlin model theory

DEFINITION OF HECHCHER-OHLIN MODEL THEORY

The Heckscher–Ohlin model (H–O model) is a general equilibrium mathematical model of

international trade, developed by Eli Heckscher and Bertil Ohlin at the Stockholm School
of Economics. It builds on David Ricardo's theory of comparative advantage by predicting
patterns of commerce and production based on the factor endowments of a trading region.
The model essentially says that countries will export products that use their abundant and
cheap factor(s) of production and import products that use the countries' scarce factor(s).

FEATURES OF THE MODEL

Relative endowments of the factors of production (land, labor, and capital) determine a
country's comparative advantage. Countries have comparative advantages in those goods
for which the required factors of production are relatively abundant locally. This is because
the profitability of goods is determined by input costs. Goods that require inputs that are
locally abundant will be cheaper to produce than those goods that require inputs that are
locally scarce.

For example, a country where capital and land are abundant but labor is scarce will have
comparative advantage in goods that require lots of capital and land, but little labor —
grains. If capital and land are abundant, their prices will be low. As they are the main
factors used in the production of grain, the price of grain will also be low—and thus
attractive for both local consumption and export. Labor intensive goods on the other hand
will be very expensive to produce since labor is scarce and its price is high. Therefore, the
country is better off importing those goods.

THEORETICAL DEVELOPMENT OF THE MODEL

The Ricardian model of comparative advantage has trade ultimately motivated by

differences in labour productivity using different technologies. Heckscher and Ohlin didn't
require production technology to vary between countries, so (in the interests of simplicity)
the H-O model has identical production technology everywhere. Ricardo considered a
single factor of production (labour) and would not have been able to produce comparative
advantage without technological differences between countries (all nations would become
autarkic at various stages of growth, with no reason to trade with each other). The H-O
model removed technology variations but introduced variable capital endowments,
recreating endogenously the inter-country variation of labour productivity that Ricardo
had imposed exogenously. With international variations in the capital endowment (i.e.
infrastructure) and goods requiring different factor proportions, Ricardo's comparative
advantage emerges as a profit-maximizing solution of capitalist's choices from within the
model's equations

ASSUMPTIONS OF THE THEORY

The original, 2x2x2 model was derived with restrictive assumptions, partly for the sake of
mathematical simplicity. Some of these have been relaxed for the sake of development.
These assumptions and developments are listed here.

Both countries have identical production technology

This assumption means that producing the same output of either commodity could be
done with the same level of capital and labour in either country. Actually, it would be
inefficient to use the same balance in either country (because of the relative availability of
either input factor) but, in principle this would be possible.

Production output must have constant return to scale

Both of the countries in the simple HO model produced both commodities, and both
technologies have constant returns to scale (CRS). (CRS production has twice the output if
both capital and labour inputs are doubled, so the two production functions must be
'homogeneous of degree 1').

These conditions are required to produce a mathematical equilibrium. With increasing

returns to scale it would likely be more efficient for countries to specialize, but
specialization is not possible with the Heckscher-Ohlin assumptions.

The technologies used to produce the two commodities differ

The CRS production functions must differ to make trade worthwhile in this model. For
instance if the functions are Cobb-Douglas technologies the parameters applied to the
inputs must vary. An example would be:

Arable industry: A = {{K}^{1/3}}{{L}^{2/3}}

Fishing industry: F = {{K}^{1/2}} {{L}^{1/2}}

Where A is the output in arable production, F is the output in fish production, and K, L are
capital and labour in both cases.

Labor mobility within countries

Within countries, capital and labor can be reinvested and re-employed to produce
different outputs. Like the comparative advantage argument of Ricardo, this is assumed to
happen costlessly.

Capital mobility within countries

It is further assumed that capital can shift easily into either technology, so that the
industrial mix can change without adjustment costs between the two types of production.

CRITICISM AGAINST THE HECKSCHER–OHLIN MODEL

Although H-O model is normally thought to be basic for international trade theory, there
are many points of criticism against the model.

Poor predictive power

The original Heckscher–Ohlin model and extended model such as the Vanek model
performs poorly, as it is shown in the section "Econometric testing of H-O model
theorems". Daniel Trefler and Susan Chun Zhu summarises their paper that "It is hard to
believe that factor endowments theory [editor's note: in other words, Heckscher–Ohlin–
Vanek Model] could offer an adequate explanation of international trade patterns."[6].

Factor equalization theorem

Heckscher–Ohlin theory is badly adapted to the analyze South-North trade problems. The
assumptions of HO are unrealistic with respect to North-South trade. Income differences
between North and South is the concern that third world cares most. The factor price
equalization theorem has not shown a sign of realization, even for a long time lag of a half
century.[10]

Identical production function

The standard Heckscher–Ohlin model assumes that the production functions are identical
for all countries concerned. This means that all countries are in the same level of
production and have the same technology. This is highly unrealistic. Technological gap
between developed and developing countries is the main concern for the development of
poor countries.

Capital as endowment
In the modern production system, machines and apparatuses play an important role.
What is named capital is nothing other than these machines and apparatuses, together
with materials and intermediate products which will be consumed in the production
process. Capital is the most important of factors, or one should say as important as labor.
By the help of machines and apparatuses, the human being got a tremendous production
capability..

No room for firms

Standard Heckscher–Ohlin theory assumes the same production function for all countries.
This implies that all firms are identical. The theoretical consequence is that there is no
room for firms in the HO model. By contrast, the New Trade Theory emphasizes that firms
are heterogeneous.

Political background for HO-Model

From the middle of the 19th century to 1930s, giant flow of immigration took place from
Europe to North America. It is estimated that more than 60 million people crossed the
Atlantic Ocean. Some politicians worried if these immigrants may cause various troubles
(including cultural conflicts). For those politicians HO-theory provided a good reason “in
support of both restrictions on labor migration and free trade in goods.”

1.7.5 Porter’s diamond theory of national advantage or National Competitive

advanrage.

ME PORTER’S DIAMOND THEORY

The diamond model is an economical model developed by Michael Porter in his book The
Competitive Advantage of Nations, where he published his theory of why particular
industries become competitive in particular locations. Afterwards, this model has been
expanded by other scholars.

The Diamond Model of Michael Porter for the competitive advantage of Nations offers
a model that can help understand the comparative position of a nation in global
competition. The model can also be used for major geographic regions.

Porter's diamond model suggests that there are inherent reasons why some nations,
and industries within nations, are more competitive than others on a global scale. The
argument is that the national home base of an organization provides organizations with
specific factors, which will potentially create competitive advantages on a global scale.

TRADITIONAL COUNTRY ADVANTAGES

Traditionally, economic theory mentions the following factors for comparative advantage
for regions or countries:

1. Land
2. Location
3. Natural resources (minerals, energy)
4. Labor, and
5. Local population size.
Because these 5 factors can hardly be influenced, this fits in a rather passive (inherited)
view regarding national economic opportunity.

FOUR DETERMINANTS OF NATIONAL

ADVANTAGE:

Factor Conditions

Factor conditions include those factors that can be exploited by companies in a given
nation. Factor conditions can be seen as advantageous factors found within a country that
are subsequently build upon by companies to more advanced factors of competition.
Factors not normally seen as advantageous, such as workforce shortage, can also be seen
as a factor potentially strengthening competitiveness, because this factor may heighten
companies' focus on automation and zero defects.

Demand conditions

If the local market for a product is larger and more demanding at home than in foreign
markets, local firms potentially put more emphasis on improvements than foreign
companies. This will potentially increase the global competitiveness of local exporting
companies.
 A more demanding home market can thus be seen as a driver of growth, innovation and
quality improvements. For instance, Japanese consumers have historically been more
demanding of electrical and electronic equipment than western consumers. This has partly
founded the success of Japanese manufacturers within this sector.

A more demanding local market leads to national advantage. A strong trend setting local
market helps local firms anticipate global trends.

Related and Supporting Industries

When local supporting industries and suppliers are competitive, home country companies
will potentially get more cost efficient and receive more innovative parts and products.
This will potentially lead to greater competitiveness for national firms.

Local competition creates innovations and cost effectiveness. This also puts pressure on
local suppliers to lift their game.

Firm Strategy, Structure, and Rivalry

The structure and management systems of firms in different countries can potentially
affect competitiveness. By using Porter's diamond, business leaders may analyze which
competitive factors may reside in their company's home country, and which of these
factors may be exploited to gain global competitive advantages. Business leaders can also
use the Porter's diamond model during a phase of internationalization, in which leaders
may use the model to analyze whether or not the home market factors support the process
of internationalization, and whether or not the conditions found in the home country are
able to create competitive advantages on a global scale.

Finally, business leaders may use this model to asses in which counties to invest and to
assess which countries are most likely to be able to sustain growth and development.

THE ROLE OF THE GOVERNMENT IN THIS MODEL

 To encourage
 To stimulate
 To help to create growth in industries

CRITICISMS OF PORTER’S DIAMOND MODEL

In his famous book, The Competitive Advantage of Nations, Porter studied eight developed
countries and two newly industrialized countries (NICs). The latter two are Korea and
Singapore. Porter is quite optimistic about the future of the Korean economy. He argues
that Korea may well reach true advanced status in the next decade (p. 383). In contrast,
Porter is less optimistic about Singapore.
 Porter has used the diamond model when consulting with the governments of Canada
and New Zealand. While the variables of Porter's diamond model are useful terms of
reference when analyzing a nation's competitiveness, a weakness of Porter's work is his
exclusive focus on the 'home base' concept. In the case of Canada, Porter did not
adequately consider the nature of multinational activities. In the case of New Zealand, the
Porter model could not explain the success of export-dependent and resource-based
industries. Therefore, applications of Porter's home-based diamond require careful
consideration and appropriate modification.

ocal suppliers and complementary industries, and (4) local firm characteristics.

1.7 Culture & Social Factors ,Culture & Its Impact On International Marketing

Cultural Environment

Introduction

Culture is the social behavior and norms found in human societies. Culture is considered a central
concept in anthropology, encompassing the range of phenomena that are transmitted through social
learning in human societies. Some aspects of human behavior, social practices such as culture, and
expressive forms such as art, music, dance, ritual, religion, and technologies such as tool usage,
cooking, shelter, and clothing are said to be cultural universals, found in all human societies. The
concept of material culture covers the physical expressions of culture, such as technology,
architecture and art, whereas the immaterial aspects of culture such as principles of social organization
(including practices of political organization and social institutions), mythology, philosophy, literature
(both written and oral), and science comprise the intangible cultural heritage of a society.

Elements and Origins of Culture

Culture is a central concept in anthropology, encompassing the range of human phenomena that cannot
be attributed to genetic inheritance. Culture (Latin: cultura, lit. “Cultivation”) is a modern concept based
on a term first used in classical antiquity by the Roman orator, Cicero: “cultura animi. ” The term
“culture” appeared first in its current sense in Europe in the 18th and 19th centuries, to connote a
process of cultivation or improvement, as in agriculture or horticulture.

Simply stated, humans make adaptations to changing environments through innovation. Individuals
learn culture from social institutions through socialization (growing up) and acculturation (adjusting to a
new culture). Individuals also

absorb culture through role modeling, or imitation of their peers. Finally, people make decisions
about consumption and production through application of their cultural-based knowledge. More
details are provided below.

Geography
In the previous chapter, we described the immediate effects of geography on consumer choice. But
geography exercises a more profound influence than just affecting the sort of jacket you buy. Indeed,
geography (broadly defined here to

2
include climate, topography, flora, fauna, and microbiology) has influenced history, technology,
economics, our social institutions, and, yes, our ways of thinking Geographical influences manifest
themselves in our deepest cultural values developed through the millennia, and as geography
changes, humans can adapt almost immediately. One sees the latter happening in the new interaction
rituals evolving from the HIV/AIDS disaster or more recently the SARS outbreak in China. The
ongoing cultural divides across the English Channel or the Taiwan Strati are also representative of
geography’s historical salience in human affairs.

History

The impact of specific events in history can be seen reflected in technology, social institutions, cultural
values, and even consumer behavior. Diamond’s book is filled with examples. For instance, much of
American trade policy has depended on the happenstance of tobacco (i.e., the technology of a new
cash crop) being the original source of the Virginia colony’s economic survival in the 1600s. In a like
manner, the Declaration of Independence, and thereby Americans’ values and institutions, was
fundamentally influenced by the coincident 1776 publication of Adam Smith’s The Wealth of Nations.
Notice too that the military conflicts in the Middle East in 2003 bred new cola brands—Mecca Cola,
Muslim Up, Arab Cola, and Cola Turka.

The Political Economy

For most of the 20th century, four approaches to governance competed for world dominance:
colonialism, fascism, communism, and democracy/free enterprise. Fascism fell in 1945. Colonialism
was also a casualty of World War II, though its

death throes lasted well into the second half of the century. Communism crumbled in the 1990s.One
pundit even declared the “end of history.”Unfortunately, we have September 11 and the conflicts in the
Middle East to keep the list of bad things growing. Much more detail is included in Chapters 6 and 7 on
the influences of politics and the legal environment on the culture of commerce and consumption, so we
will leave this important topic until then. The main point here is for you to appreciate the influence of the
political economy on social institutions and cultural values and ways of thinking.

Technology
Sit back for a moment and consider what technological innovation has had the greatest impact on
institutions and cultural values in the past 50 years in the United States. Seriously, stop reading, look
out your window, and for a moment consider the question.

There are many good answers, but only one best one. Certainly jet aircraft, air conditioning, televisions,
computers, and the Internet all make the list. But the best answer is most likely the pill. That is, the birth
control pill, or more broadly birth control techniques, has had a huge effect on everyday life for most
Americans. Mainly, it has freed women to have careers and freed men to spend more time with kids.
Before the advent of the pill, men’s and women’s roles were prescribed by reproductive responsibilities
and roles. Now half the marketing majors in the United States are women.

Social Institutions

Social institutions including family, religion, school, the media, government, and corporations all
affect the ways in which people relate to one another, organize

heir activities to live in harmony with one another, teach acceptable behavior to succeeding
generations, and govern themselves. The positions of men and women in society, the family, social
classes, group behavior, age groups, and how societies define decency and civility are interpreted
differently within every culture. In cultures in which the social organizations result in close-knit family
units, for example, a promotion campaign aimed at the family unit is usually more effective t.han one
aimed at individual family members. Travel advertising in culturally divided Canada has pictured a wife
alone for the English-speaking market segment but a man and wife together for the French-speaking
segments of the population, because the latter are traditionally more closely bound by family ties.

Family
Family forms and functions vary substantially around the world, even around the country. For example,
whereas nepotism is seen as a problem in American organizations, it is more often seen as an
organizing principle in Chinese and Mexican firms. Or consider the Dutch executive who lives with his
mother, wife, and kids in a home in Maastricht that his family has owned for the last 300 years. Then
there’s the common practice of the high-income folks in Cairo buying an apartment house and filling it
up with the extended family—grandparents, married siblings, cousins, and kids. And there’s the
American family in California—both parents work to support their cars, closets, and kids in college, all
the while worrying about aging grandparents halfway across the country in Texas.

Religion
In most cultures, the first social institution infants are exposed to outside the home takes the form of a
church, mosque, shrine, or synagogue. The impact of religion on the value systems of a society and
the effect of value systems on marketing

5
must not be underestimated. For example, Protestants believe that one’s relationship with God is a
personal one, and confessions are made directly through prayer. Alternatively, Roman Catholics confess
to priests, setting up a hierarchy within the Church. Thus some scholars reason that Protestantism
engenders egalitarian thinking. But no matter the details, religion clearly affects people’s habits, their
outlook on life, the products they buy, the way they buy them, and even the newspapers they read.

School
Education, one of the most important social institutions, affects all aspects of the culture, from economic
development to consumer behavior. The literacy rate of a country is a potent force in economic
development. Numerous studies indicate a direct link between the literacy rate of a country and its
capability for rapid economic growth. According to the World Bank, no country has been successful
economically with less than 50 percent literacy, but when countries have invested in education the
economic rewards have been substantial. Literacy has a profound effect on marketing. Communicating
with a literate market is much easier than communicating with one in which the marketer must depend
on symbols and pictures. Increasingly, schools are seen as leading to positive cultural changes and
progress across the planet.

The Media

The four social institutions that most strongly influence values and culture are schools, churches,
families, and, most recently, the media. In the United States during the past 30 years, women have
joined the workforce in growing numbers,

substantially reducing the influence of family on American culture. Media time (TV and increasingly
the Internet) has replaced family time—much to the detriment of American culture, some argue. At
this time, it is hard to gauge the long-term effects of the hours spent with Bart Simpson or an Ever
Quest cleric- class character. Indeed, the British Prime Minister’s cameo on The Simpsons reflects its
prominence around the world.

In the United States, kids attend school 180 days per year; in China, they attend 251 days— that’s
six days a week. There’s a great thirst for the written word in China—here children read books rented
from a street vendor. (© Gary Wolinsky)

Government
compared with the early (during childhood) and direct influences of family, religion, school, and the
media, governments hold relatively little sway. Cultural values and thought patterns are pretty much set
before and during adolescence.

Most often governments try to influence the thinking and behaviors of adult citizens for the citizens’
“own good.” For example, the French government has been urging citizens to procreate since the
time of Napoleon. Now the government is offering a new “birth bonus” of $800, given to women in their
seventh month of pregnancy—despite France having the second highest fertility rate in the EU
behind only Ireland (see Exhibit 4.1). Or notice the most recent French and British government-allowed
bans of hijabs (head scarves worn by Muslim schoolgirls) or the Dutch government initiative to ban
burkas in that country (full-body coverings warn by Muslim women). Also, major changes in
governments, such as the dissolution of the Soviet Union, can have noticeable impacts on personal
beliefs and other aspects of culture.
Corporations
Of course, corporations get a grip on us early through the media. But more important, most innovations
are introduced to societies by companies, many times multinational companies. Indeed, merchants and
traders have throughout history been the primary conduit for the diffusion of innovations, whether it be
over the Silk Road or via today’s air freight and/or the Internet.39 Multinational firms have access to
ideas from around the world. Through the efficient distribution of new products and services based on
these new ideas, cultures are changed, and new ways of thinking are stimulated. The crucial role of
companies as change agents is discussed in detail in the last section of this chapter.

Elements of Culture

Previously culture was defined by listing its five elements: values, rituals, symbols, beliefs, and thought
processes. International marketers must design products,

distribution systems, and promotional programs with due consideration of each of the five.

Cultural Values Underlying the cultural diversity that exists among countries are fundamental
differences in cultural values. The most useful information on how cultural values influence various
types of business and market behavior comes from seminal work by Geert Hofstede. Studying more
than 90,000 people in 66 countries, he found that the cultures of the nations studied differed along four
primary dimensions. Subsequently, he and hundreds of other researchers have determined that a wide
variety of business and consumer behavior patterns are associated with three of those four dimensions.
which focuses on risk orientation; and the Masculinity/Femininity Index (MAS), which focuses on
assertiveness and achievement. The Individualism/Collectivism dimension has proven the most useful
of the four dimensions, justifying entire books on the subject. Because the MAS have proven least
useful, we will not consider it further here.

Cultural Knowledge There are two kinds of knowledge about cultures. One is factual knowledge
about a culture; it is usually obvious and must be learned. Different meanings of colors, different tastes,
and other traits indigenous to a culture are facts that a marketer can anticipate, study, and absorb.
The other is interpretive knowledge—an ability to understand and to appreciate fully the nuances of
different cultural traits and patterns. For example, the meaning of time, attitudes toward other people
and certain objects, the understanding of one’s role in society, and the meanings of life can differ
considerably from one culture to another and may require more than factual knowledge to be fully
appreciated. In this case, interpretive knowledge is also necessary.

Individualism/Collectivism Index
The Individualism/Collective Index refers to the preference for behavior that promotes one’s self-
interest. Cultures that score high in IDV reflect an “I” mentality and tend to reward and accept
individual initiative, whereas those low in individualism reflect a “we” mentality and generally subjugate
the individual to the group. This distinction does not mean that individuals fail to identify with groups
when a culture scores high on IDV but rather that personal initiative and independence are accepted
and endorsed. Individualism pertains to societies in which the ties between individuals are loose;
everyone is expected to look after him- or herself and his or her immediate family. Collectivism, as it’s
opposite, pertains to societies in which people from birth onward are integrated into strong, cohesive
groups, which throughout people’s lifetimes continue to protect them in exchange for unquestioning
loyalty.

Power Distance Index

The Power Distance Index measures the tolerance of social inequality, that is, power inequality
between superiors and subordinates within a social system. Cultures with high PDI scores tend to be
hierarchical, with members citing social roles, manipulation, and inheritance as sources of power and
social status. Those with low scores, in contrast, tend to value equality and cite knowledge and
respect as sources of power. Thus, people from cultures with high PDI scores are more likely to have
a general distrust of others (not those in their groups) because power is seen to rest with individuals
and is coercive rather than legitimate. High PDI scores tend to indicate a perception of differences
between superior and subordinate and a belief that those who hold power are entitled to privileges. A
low PDI score reflects more egalitarian views.

Uncertainty Avoidance Index

The Uncertainty Avoidance Index measures the tolerance of uncertainty and ambiguity among
members of a society. Cultures with high UAI scores are highly intolerant of ambiguity and as a result
tend to be distrustful of new ideas or behaviors. They tend to have a high level of anxiety and stress
and a concern with security and rule following. Accordingly, they dogmatically stick to historically tested
patterns of behavior, which in the extreme become inviolable rules. Those with very high UAI scores
thus accord a high level of authority to rules as a means of avoiding risk. Cultures scoring low in
uncertainty avoidance are associated with a low level of anxiety and stress, a tolerance of deviance
and dissent, and a willingness to take risks. Thus, those cultures low in UAI take a more empirical
approach to understanding and knowledge, whereas those high in UAI seek absolute truth.

Rituals
Life is filled with rituals, that is, patterns of behavior and interaction that are learned and repeated.
The most obvious ones are associated with major events in life. Marriage ceremonies and funerals are
good examples. Perhaps the one most important to most readers of this book is the hopefully
proximate graduation ritual— Pomp and Circumstance, funny hats, long speeches, and all. Very often
these rituals differ across cultures. Indeed, there is an entire genre of foreign films about weddings.
Perhaps the best is Monsoon Wedding. Grooms on white horses and edible flowers are apparently
part of the ceremony for high income folks in New Delhi. Life is also filled with little rituals, such as
dinner at a restaurant or a visit to a department store or even grooming before heading off to work or
class in

the morning. In a nice restaurant in Madrid, dessert may precede the entrée, but dinner often starts at
about midnight, and the entire process can be a three-hour affair. Walking into a department store in
the United States often yields a search for an employee to answer questions. Not so in Japan, where
the help bows at the door as you walk in. Visit a doctor in the States and a 15-minute wait in a cold
exam room with nothing on but a paper gown is typical. In Spain the exams are often done in the
doctor’s office.

Symbols
Anthropologist Edward T. Hall tells us that culture is communication. In his seminal article about
cultural differences in business settings, he talks about the “languages” of time, space, things,
friendships, and agreements. Indeed, learning to interpret correctly the symbols that surround us is a
key part of socialization. And this learning begins immediately after birth, as we begin to hear the
language spoken and see the facial expressions and feel the touch and taste the milk of our mothers.
We begin our discussion of symbolic systems with language, the most obvious part and the part that
most often involves conscious communication.

Cultural Sensitivity and Tolerance

Successful foreign marketing begins with cultural sensitivity —being attuned to the nuances of
culture so that a new culture can be viewed objectively, evaluated, and appreciated. Cultural
sensitivity, or cultural empathy, must be carefully cultivated. That is, for every amusing, annoying,
peculiar, or repulsive cultural trait we find in a country, others see a similarly amusing, annoying, or
repulsive trait in our culture. For example, we bathe, perfume, and deodorize our bodies in a daily ritual
that is seen in many cultures as compulsive, while we often become annoyed with those cultures less
concerned with natural body odor. Just because a culture is different does not make it wrong.

Cultural Change
Culture is dynamic in nature; it is a living process. But the fact that cultural change is constant seems
paradoxical, because another important attribute of culture is that it is conservative and resists change.
The dynamic character of culture is significant in assessing new markets even though changes face
resistance. Societies change in a variety of ways. Some have change thrust upon them by war (for
example, the changes in Japan after World War II) or by natural disaster. More frequently, change is a
result of a society seeking ways to solve the problems created by changes in its environment. One
view is that culture is the accumulation of a series of the best solutions to problems faced in common
by members of a given society. In other words, culture is the means used in adjusting to the
environmental and historical components of human existence. Accidents have provided solutions to
some problems; invention has solved many others. Usually, however, societies have found answers
by looking to other cultures from which they can borrow ideas. Cultural borrowing is common to all
cultures. Although each society has a few unique situations facing it (such as stomach cancer in
Japan), most problems confronting societies are similar in nature

Cultural Borrowing

Cultural borrowing is a responsible effort to learn from others’ cultural ways in the quest for better
solutions to a society’s particular problems. Thus cultures unique in their own right are the result, in part,
of imitating a diversity of others. Some cultures grow closer together and some further apart with
contact. Consider, for example, American (U.S.) culture and a typical U.S. citizen, who begins breakfast
with an orange from the eastern Mediterranean, a cantaloupe from Persia, or perhaps a piece of
African watermelon. After her fruit and first coffee, she goes on

13
to waffles, cakes made by a Scandinavian technique from wheat domesticated in Asia Minor.

Resistance to Change
A characteristic of human culture is that change occurs. That people’s habits, tastes, styles, behavior,
and values are not constant but are continually changing can be verified by reading 20-year-old
magazines. However, this gradual cultural growth does not occur without some resistance; new
methods, ideas, and products are held to be suspect before they are accepted, if ever. Moreover,
research shows that consumers in different cultures display differing resistance. The degree of
resistance to new patterns varies. In some situations, new elements are accepted completely and
rapidly; in others, resistance is so strong that acceptance is never forthcoming. Studies show that the
most important factors in determining what kind and how much of an innovation will be accepted is
the degree of interest in the particular subject, as well as how drastically the new will change the old
—that is, how disruptive the innovation will be to presently acceptable values and behavior patterns.
Observations indicate that those innovations most readily accepted are those holding the greatest
interest within the society and those least disruptive. For example, rapid industrialization in parts of
Europe has changed many long-honored attitudes involving time and working women. Today, there
is an interest in ways to save time and make life more productive; the leisurely continental life is rapidly
disappearing. With this time consciousness has come the very rapid acceptance of many innovations
that might have been resisted by most just a few years ago. Instant foods, labor-saving devices, and
fast-food establishments, all supportive of a changing attitude toward work and time, are rapidly gaining
acceptance. An n understanding of the process of acceptance of innovations is of crucial importance
to the marketer. The marketer cannot wait centuries or even decades for acceptance but must gain
acceptance within the limits of financial resources and projected portability periods. Possible
methods and insights are offered by social scientists who are concerned with the concepts of planned
social change. Historically, most cultural borrowing and the resulting change has occurred without a
deliberate plan, but increasingly, changes are occurring in societies as a result of purposeful attempts
by some acceptable institution to bring about change, that is, planned change.

Planned and Unplanned Cultural Change

The first step in bringing about planned change in a society is to determine which cultural factors
conflict with an innovation, thus creating resistance to its acceptance. The next step is an effort to
change those factors from obstacles to acceptance into stimulants for change. The same deliberate
approaches used by the social planner to gain acceptance for hybrid grains, better sanitation methods,
improved farming techniques, or protein-rich diets among the peoples of underdeveloped societies can
be adopted by marketers to achieve marketing goals. Marketers have two options when introducing an
innovation to a culture: They can wait for changes to occur, or they can spur change. The former
requires hopeful waiting for eventual cultural changes that prove their innovations of value to the culture;
the latter involves introducing an idea or product and deliberately setting about to overcome resistance
and to cause change that accelerates the rate of acceptance. The folks at Fidelity Investments in
JapanHowever, as mentioned previously, the changes have not happened fast enough for most
foreign firms targeting this business and similar financial service. Obviously not all marketing efforts
require change to be accepted. In fact, much successful and highly competitive marketing is
accomplished by a strategy of cultural congruence.

Consequences of Innovation
When product diffusion (acceptance) occurs, a process of social change may also occur. One issue
frequently raised concerns the consequences of the changes that happen within a social system as a
result of acceptance of an innovation. The marketer seeking product diffusion and adoption may
inadvertently bring about change that affects the very fabric of a social system. Consequences of
diffusion of an innovation may be functional or dysfunctional, depending on whether the effects on
the social system are desirable or undesirable. In most instances, the marketer’s concern is with
perceived functional consequences —the positive benefits of product use. Indeed, in most situations,
innovative products for which the marketer purposely sets out to gain cultural acceptance have
minimal, if any, dysfunctional consequences, but that cannot be taken for granted.

Cultural knowledge

Cultural knowledge is all we know that characterize a particular culture. It can include descriptions such
as those known as cultural dimensions. There are many different culture models available for us and
empirically proven. Each has different cultural variables and a theory behind. The more theoretical
models we know the better equipped we are to do business internationally and to relate with people
from other cultures. Cultural knowledge can also include other information that can serve to explain
why people are and behave in certain way. Getting familiar with economical, political, societal and
historical information of a particular culture will help us understand the reasons behind people´s
behavior.
Why Culture Matters in International Business

Effective handling of the cross-cultural interface is a critical source of a firm’s competitive advantage.
Managers need to develop not only empathy and tolerance toward cultural differences, but also
acquire a sufficient degree of factual knowledge about the beliefs and values of foreign
counterparts. Cross-cultural proficiency is paramount in many managerial tasks, including:

• Developing products and services

• Communicating and interacting with foreign business partners
• Screening and selecting foreign distributors and other partners
• Negotiating and structuring international business ventures
• Interacting with current and potential customers from abroad
• Preparing for overseas trade fairs and exhibitions

• Preparing advertising and promotional materials

Let’s consider specific examples of how cross-cultural differences may complicate workplace
issues.

Teamwork
Cooperating to achieve common organizational goals is critical to business success. But what
should managers do if foreign and domestic nationals don’t get along with each other? Try to
sensitize each group to differences and develop an appreciation for them? Rally the groups around
common goals? Explicitly reward joint work?

Lifetime employment
Workers in some Asian countries enjoy a paternalistic relationship with their employers and work for
the same firm all their lives. The expectations that arise from such devoted relationships can
complicate dealings with outside firms. Western managers struggle with motivating employees who
expect they will always have the same job regardless of the quality of their work.

Pay-for-performance system
In some countries, merit is often not the primary basis for promoting employees. In China and Japan,
a person’s age is the most important determinant in promoting workers. But how do such workers
perform when Western firms evaluate them using performance-based measures?

Organizational structure
Some companies prefer to delegate authority to country managers, creating a decentralized
organizational structure. Others are characterized by autocratic structures with power concentrated
at regional or corporate headquarters. Firms may be entrepreneurial or bureaucratic. But how can
you get a bureaucratic supplier to be responsive about demands for timely delivery and
performance?

Union-Management relationships
In Germany, union bosses hold the same status as top-level managers and are required to sit on
corporate boards. In general, European firms have evolved a business culture in which workers enjoy
a more equal status with managers. This approach can reduce the flexibility of company operations if
union representatives resist change.

Attitudes toward ambiguity

In each country, nationals possess a unique capacity to tolerate ambiguity. For example, some
bosses give exact and detailed instructions on work to be performed, whereas others give
ambiguous and incomplete instructions. If you are not comfortable working with minimum guidance
or taking independent action, then you may have difficulty fitting into some cultures.

To gain a more practical perspective on culture’s role in business, let’s take the example of doing
business in Japan. In the West, “the customer is king,” but in Japan, “the customer is God.”
Whenever customers enter retail stores in Japan, they are greeted with vigorous cries of
“Welcome” and several choruses of “Thank you very much” when they leave. In some department
stores, executives and clerks line up to bow to customers at the beginning of the business day. If
customers have to wait in line—which is rare—they receive a sincere apology from store
personnel.

Conclusion
A complete and thorough appreciation of the origins (geography, history, political economy,
technology, and social institutions) and elements (cultural values, rituals, symbols, beliefs, and ways
of thinking) of culture may well be the single most important gain for a foreign marketer in the
preparation of marketing plans and strategies. Marketers can control the product offered to a market
—its promotion, price, and eventual distribution methods—but they have only limited control over
the cultural environment within which these plans must be implemented. Because they cannot
control all the influences on their marketing plans, they must attempt to anticipate the eventual
effect of the uncontrollable elements and plan in such a way that these elements do not preclude
the achievement of marketing objectives. They can also set about to effect changes that lead to
quicker acceptance of their products or marketing programs.

Planning marketing strategy in terms of the uncontrollable elements of a market is necessary in a

domestic market as well, but when a company is operating internationally, each new environment
that is influenced by elements unfamiliar and sometimes unrecognizable to the marketer
complicates the task. For these reasons, special effort and study are needed to absorb enough
understanding of the foreign culture to cope with the uncontrollable features. Perhaps it is safe to
generalize that of all the tools the foreign marketer must have; those that help generate empathy for
another culture are the most valuable. Each of the cultural elements is explored in depth in
subsequent chapters. Specific attention is given to business customs, political culture, and legal
culture in the following chapters.

1.8 Political & Legal Forces

1.9 Negotiating With International Customers, Partners & Regulators, Global marketing
environment
1.10 Economic Environment, Socio-cultural Environment
1.11 Legal and Statutory Framework.

https://www.enotesmba.com/2015/02/differences-between-international-marketing-
and-domestic-marketing.html

Assignment:

Can we sell the same product the same way every where?