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Pricing for International Markets

1. Discuss the causes of and solutions for parallel (grey markets) imports and their
effects on price.

Gray markets are markets that involve the sale of genuine trademarked products through
legal distribution channels unauthorized by the manufacturer or brand owner. It could be
Domestic or International (Anita et al., 2006). That is also to say, gray markets or parallel
imports occurs when authentic not counterfeited products are imported cheaply, without the
consent of the producer who has a Trade mark, Copyright, Patent or other intellectual property
right in these products, with the aim to compete with the producer’s own products, which he
himself had originally marketed abroad at a lower price. Thus, while parallel importers (local
resellers) are sourcing legitimate genuine product from overseas, they are bypassing the
authorized supply channels in the importing country. The practice of parallel importing occurs
because companies, either the manufacturer or the distributor, set differential prices for their
products in different markets. Parallel importers ordinarily purchase products in one country at a
price (P1) which is cheaper than the price at which they are sold in a second country (P2) import
the products into the second country, and sell the products in that country at a price which is
usually between P1 and P2. Examples of parallel imports are importation of computer games and
hardware from Asia to sell in Australian markets, importation of Colgate toothpaste from
Thailand into Hong Kong and importation of Mercedes Benz vehicles in Malaysia to sell in New
Zealand (http://jurisonline.in/2008/09/parallel-imports/).
Causes of Grey Markets: (http://www.scribd.com/doc/26122004/Gray-Market)
1. Price differentials that are large enough
2. Easy access from one market to another (Free trading)
3. Managerial incentive that is outcome-based
4. Attempt to cover costs or meet quotas
5. Excess inventory problems
6. Difficulty to differentiate between ordinary customer and a potential reseller
7. Poor or unstable financial health of network partner
8. Degree of product standardization
9. Consumers’ attitude towards quality-price inference and risk

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Solutions for Grey Markets (ibid)
1. Quick response to price-differentials due to currency fluctuations
2. Price cutting
3. Legal action
4. None or expensive after-sales service
5. Punishment – revoking of distributors rights legal dealer selling to unauthorized dealers
6. Private investigation/investigators
7. Join or form AGMA (Anti-Gray Market Alliance)
8. Educate Consumers
9. Toll-free hotline to encourage the public’s assistance
10. Coordinate distribution channel horizontally
11. Increased distributor communication
12. Centralize pricing decisions
13. Inventory Management
Effects of Grey Markets (ibid)
To Manufacturers:
1. Undermine companies' existing international price differentiation strategies and
marketing strategies
2. Erodes consumer’s confidence in Global companies
3. Loss of marketing control to manufacturers
4. Increased or decreased sales and profit
5. Eroding of brand equity, reputation and dilution of exclusivity
6. Strain on manufacturer-dealer relations
7. Legal liabilities and litigation costs
To Distributors or Resellers:
1. Forced to lower prices
2. Price-based competition
3. Increase or decrease in sales and customer base
4. Inability to justify investment in added-Services
To Consumers
1. Quality products at cheaper prices

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2. Price-quality inference confusion
3. Loss of after-sales services
2. Define the following terms:
a) Price Escalating: is the added costs incurred because of exporting products from one
country to another. Specifically the term relates to situation in which ultimate prices are
raised by shipping costs, insurance packing, tariffs, longer channels of distribution, larger
middlemen margins, special taxes, administrative costs, inflation, and exchange rate
fluctuations. The majority of those costs arose, as direct moving goods across borders
from one country to another and often combines to escalate the final price a level
considerably higher than in the domestic market (www.citeman.com/13112-price-
escalation/).
b) Dumping: this is the act of a manufacturer in one country exporting a product to another
country at a price which is either below the price it charges in its home market or if it can
be proven that there has been a substantial increase of a specific good; Dumping large
surpluses into a market will substantially lower the market price as will introducing lower
than market priced goods [en.wikipedia.org/wiki/Dumping_(pricing_policy)]. Example,
the sale of electronic products like computers from America (dell) to Tanzania at lower
prices.
c) Transfer Pricing: Transfer pricing is the charging for intracompany movement of goods
and services. Many purely domestic firms need to make transfer-pricing decisions when
goods are transferred from one domestic unit to another. While these transfer prices are
internal to the they are important externally because goods being transferred from one
country to another must have a value for cross-border taxation purposes. The objective of
the corporation in this situation is to ensure that the transfer price paid optimizes
corporate rather than divisional objectives. For profit centers to work effectively a price
must be set for everything that is transferred, be it working materials, components,
finished goods or services. A high transfer price for example, from the manufacturing
division to a foreign subsidiary-is reflected in an apparently poor performance by the
foreign subsidiary, whereas a low price would not be acceptable to the domestic division
providing the goods. This issue alone can be the cause of much mistrust between

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subsidiaries. There are three basic approaches to transfer pricing and they are transfer at
cost, transfer at arm’s length and transfer at cost plus (Hollensen, 2007).
d) Administered Pricing: administered pricing is an attempt to establish prices for an entire
market. Such prices may be arranged through the cooperation of competitors, through
national, state or local government or by international agreement. The legality of
administered pricing arrangements of various kinds differs from country to country and
from time to time. A country may condone price fixing for foreign markets but condemn
it for the domestic market, for instance.
In general, the end goal of all administered pricing activities is to reduce the impact of
price competition or eliminate it. Price fixing by business is not viewed as a acceptable
practice (at least in the domestic markets) but when government enter the field of price
administration they presume to do it for the general welfare to lessen the effects of
destructive competition. (http://www.citeman.com/13467-administered-pricing/)
e) Cartel: a cartel is formed when various companies producing similar products or services
work together to control markets for the types of goods and services they produce. The
cartel association may use formal agreements to set prices, establish levels of production
and sales for the participating companies allocate market territories and even redistribute
profits. In some instances, the cartel organizations itself takes over the entire selling
function sells the good of all producers and distribute the profits. The Organization of
Petroleum Exporting Countries (OPEC) is an example of a cartel that controls the global
distribution of petroleum products including its supply and profits.
(http://www.citeman.com/13467-administered-pricing/)
3. What are the major causes of international price escalation? Suggest possible
courses of action to deal with this problem.
Price escalation is defined as changes in the cost or price of specific goods or services in a
given economy over a period of time. In international marketing, price escalation is caused
by:
• Cost of exporting: Excess profits exist in some international markets, but generally the
cause of the disproportionate difference in price between the exporting country and
the importing country, here termed price escalation is the added costs incurred as a
result of exporting products from one country to another. Specifically the term relates
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to situation in which ultimate prices are raised by shipping costs, insurance packing,
tariffs, longer channels of distribution, larger middlemen margins, special taxes,
administrative costs, and exchange rate fluctuations. The majority of those costs
arose, as direct moving goods across borders from one country to another and often
combine to escalate the final price a level considerably higher than in the domestic
market (www.citeman.com/13112-price-escalation/)
• Taxes, tariffs and administrative Costs: Taxes and tariffs affect the ultimate consumer
price for a product in most instances; the consumer bears the burden of both.
Sometimes however, consumers benefit with manufacturers selling goods in foreign
countries, reduce their net return in order to gain access to a foreign market. Absorbed
or passed on taxes, at tariffs must be considered by the international businessperson
(ibid)
• Inflation: Inflation causes consumer prices to escalate and the consumer is faced with
ever rising prices that eventually exclude many consumers from the market (ibid)
• Varying Currency Values (Cateora and Graham, 2005)
• Exchange Rates Fluctuations (ibid)
• Middleman and Transportation Costs (ibid)
Courses of Action to Deal with Price Escalation
• Lowering the cost of goods: If the costs of goods produced are lowered, the whole
chain that the goods pass through will be affected and thus, ensure the offering of a
low priced good, which is intended to reduce price escalation. The techniques used to
reduce costs could be employing cheaper labor force, devaluing currency and so on
(Cateora and Graham, 2005). Dumping can also fall into this category.
• Lowering Tariffs: Large percent of price escalation is triggered by tariffs. By them
being lowered, they can reduce price escalation. Companies use various methods to
get low tariffs with one of them being requesting their products to be reclassified into
a different and lower customs classification (ibid).
• Lowering Distribution Costs: This method aims at reducing price escalation by
lowering the costs of distributing the products abroad by reducing the number of
intermediaries in the chain and if necessary look for alternative channels that are costs
effective (ibid).
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• Using foreign trade zones: The introduction of free trade zones might help reduce
price escalation through the removal of barriers such as tariffs and taxes that
influence much price escalation to be high (ibid)
4. What is the difference between skimming and penetration pricing?
Skimming is a pricing approach whose objective is to reach a segment of the market that
is relatively price insensitive and thus willing to pay a premium price for the value perceived
(Cateora and Graham, 2005). That is to also say that skimming pricing is used to when a
business has a competitive advantage of a certain product in the market in terms of quality,
scarcity in supply, performance, etc to mention a few. When other businesses enter the same
market and start to compete, skimming pricing is dropped and other pricing approaches are
employed to sustain the business and try again to attain competitive advantage.
Penetration pricing on the other hand is a pricing approach used to stimulate market and
sales growth by deliberately offering products at low prices. That is, for market penetration,
this pricing strategy involves setting a low initial price in the attempt of penetrating the
market on a quick yet productive basis in order to win a large chunk of the market share. In
contrast to market skimming, market penetration works when the market of the respective
product is highly price sensitive or the production and distribution costs share an inverse
relationship with the sales volume. Another suitable situation for market penetration would
be when low price plays a prime role in defeating and keeping out the competition. Once the
market is penetrated, price is increased (http://www.blurtit.com/q173647.html).
5. What is the difference between pricing objectives and pricing constraints?

Pricing objectives are expectations that specify the role of price in an organization's
marketing and strategic plans. Five broad objectives an organization may pursue, which tie in
directly to the organization's pricing policies, include the following:

1. Profit, objectives such as managing long-run profits, maximizing current profits, and
target return objectives are usually measured in terms of return on investment or return on
assets.
2. Sales, a firm's pricing objectives may be to increase either sales revenue or unit sales.
3. Market share is the ratio of the firm's sales revenue or unit sales to those of the industry.
4. Unit volume increases by dramatic cost cutting can cause reduced profit.
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5. Survival can be a more important objective than profits, sales, and market share.
6. Social responsibility objective may cause a firm to forego higher profits or sales because
of corresponding pricing objectives.

Pricing constraints on the other hand, are those factors, which limit the latitude of
acceptance for prices a firm may set for a given product. A Low Price Anchor bound the Latitude
of Acceptance and a High Price Anchor, the Low price anchor is the lowest acceptable price for
a product and maximizes the number of people who would consider purchasing the product. The
high price anchor is the highest acceptable price for a product and establishes the quality gestalt.
Violating either anchor (too low or too high a price) results in precipitous loss of sales. Other
factors that constrain the firm's ability to affect this perceptual latitude of acceptance include:

1. Level of Demand for the product class, product, and brand


2. Newness of the product: stage in the product life cycle
3. Single product versus a product line (price lining).
4. Cost of producing and marketing the product.
5. Cost of changing prices and time they apply.
6. Type of competitive markets: pure monopoly, oligopoly, monopolistic competition, pure
competition
7. Competitors' prices

Source: (http://jurisonline.in/2008/09/parral-import)

6. Describe the three steps taken in setting a final price


The steps are:
1. Cost: Price is set according to cost in the sense that, the managers have to consider all the
costs incurred from the start to the finish including transport costs and taxes so as not to
make losses.
2. Demand: The price in this case should be viewed in terms of demand. If the demand is
high, price may be increased for rationing and getting more profit and if low, the price
should be lowered to stimulate purchases, but not below the cost price for it will lead to
losses

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3. Competition: The degree of competition is also a determining factor of price because if
the competition is low, it is fair to set a high price for supply will be low and demand
high. On the contrary, if competition is high it means supply that pulls down price.
Usually, when setting price, the factors above are very crucial for not matter what the company
produces, certain factors must be without doubt considered.
Source: (Kotler, 2001)

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International market Entry Strategies
1. Identify the ways to reach foreign markets by making a domestic sale.
Reaching foreign a market by making domestic sales is done by companies. Companies
usually sale and conduct all their marketing activities to suit their domestic markets. When
certain situations occur like over production or supply a product more than what is actually
demanded, the surplus products are then attempted to sold elsewhere, to foreign markets.
Entering foreign markets by such companies does not necessary make them form a different
entry strategy, but rather view the foreign markets like their own domestic market. So, the
strategies and everything else are the same. That is, nothing changes in terms of price (may
increments due to added transport costs), promotion, and so on to mention a few.
All in all, when striving to reach foreign markets by making domestic sale involves
entering new markets using the same techniques and strategies and it is mainly due to over
production that tempts companies to go abroad (Cateora, et al, 2005).
2. What is the difference between direct and indirect exporting?

Direct exporting involves selling directly to your target customer in market. This could be
from Tanzania through the internet and regular trade visits, or by setting up a branch, office or
company in the target country. Selling directly to customers prevents other businesses taking
parts of your margin. However, this approach requires a large commitment of financial and
human resources. It takes time to make contacts and build relationships, negotiate deals,
understand the market and carry out marketing.

Indirect exporting is selling to or through an intermediary is a relatively cheap and


straightforward way to enter a new market. Intermediaries are typically agents or distributors
based in your target export market who sell your products or services to end users. A good
intermediary will have in-market experience, reputation and contacts. Using them can be a
quick way to get your products and services to the end user. They will generally require a
level of support in the overseas marketing and selling of your product. Some intermediaries
are based in Tanzania, for example. Using a Tanzania based intermediary means you will not
have to contend with international freighting and customs issues.

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Source: (http://www.experts123.com/q/what-is-the-difference-between-indirect-and-direct-
exporting.html)

3. Identify the factors to consider when choosing a market entry strategy

Market entry strategies are plans, layouts and means that an organization formulates and
implements in order to enter a market either domestically, internationally or both. The factors to
consider when choosing a market entry strategy are:

1. Time constraints: rapid deployment is crucial to avoid rise in market share cost and to
deliver predicted financial results
2. Resource limitations: core launch teams are often rapidly assembled, and specialist
expansion is done gradually, creating a large resource gap during the implementation
phase
3. Financial pressure: as financial targets and expectations have been set prior to launch, any
unpredicted market activity and launch delays will disturb initial customer take-up and
revenue generation
4. Market data: in many instances organisations lack in-depth understanding of market
drivers or have limited access to market data
5. Competition: competitors will plan pre-emptive, disruptive action to improve their own
positions and secure their customer base prior to new entry
6. internal assets/technology: analysis of all internal assets including technology, brand,
partnerships will be done to clarify which sustainable competitive advantages the
company holds
7. legislation and regulatory framework: description of limitations or possibilities within the
current regulatory environment that affect market and segment growth
8. macro-economic outlook: analysis of relevant macroeconomic data determine market and
segment growth

Source: http://www.analysysmason.com/PageFiles/3652/Market_entry_strategy.ppt

4. Mention market entry modes you have learnt in international marketing course.

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A mode of entry into an international market is the channel, which your organization employs to
gain entry to a new international market. Modes of entry into international markets are:

1. The Internet: The Internet is a new channel for some organizations and the sole channel
for a large number of innovative new organizations. The e-marketing space consists of
new internet companies that have emerged as the internet has developed, as well as those
pre-existing companies that now employ e-marketing approaches as part of their overall
marketing plan. For some companies the Internet is an additional channel that enhances
or replaces their traditional channel(s). For others the Internet has provided the
opportunity for a new online company (http://www.marketingteacher.com/lesson-
store/lesson-international-modes-of-entry.html).
2. Exporting: There are direct and indirect approaches to exporting to other nations. Direct
exporting is straightforward. Essentially the organization makes a commitment to market
overseas on its own behalf. This gives it greater control over its brand and operations
overseas, over and above indirect exporting. On the other hand, if an organization were to
employ a home country agency (i.e. an exporting company from your country - which
handles exporting on your behalf) to get products into an overseas market then the
organization would be exporting indirectly. Examples of indirect exporting include (ibid):
a. Piggybacking: whereby your new product uses the existing distribution and
logistics of another business.
b. Export Management Houses (EMHs): that act as a bolt on export department for
your company. They offer a whole range of bespoke or a la carte services to
exporting organizations.
c. Consortia: these are groups of small or medium-sized organizations that group
together to market related or sometimes unrelated products in international
markets.
d. Trading companies: these were started when some nations decided that they
wished to have overseas colonies. They date back to an imperialist past that some
nations might prefer to forget e.g. the British, French, Spanish and Portuguese
colonies. Today they exist as mainstream businesses that use traditional business
relationships as part of their competitive advantage (ibid).

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3. Licensing: licensing includes franchising, Turnkey contracts and contract manufacturing.
They are explained separately below as follows (ibid):
a. Licensing: this is where your own organization charges a fee and/or royalty for
the use of its technology, brand and/or expertise.
b. Franchising: This involves the organization (franchiser) providing branding,
concepts, expertise, and in fact most facets that are needed to operate in an
overseas market, to the franchisee. Management tends to be controlled by the
franchiser. Examples include Dominos Pizza, Coffee Republic, McDonald's
Restaurants, Coca Cola drinks, and Steers Restaurants to mention a few.
c. Turnkey contracts: These are major strategies to build large plants. They often
include a the training and development of key employees where skills are sparse -
for example, Toyota's car plant in Adapazari, Turkey. You would not own the
plant once it is handed over (ibid).
4. International Agents and International Distributors: Agents are often an early step into
international marketing. Put simply, agents are individuals or organizations that are
contracted to a business, and market on the company’s behalf in a particular country.
They rarely take ownership of products, and more commonly take a commission on
goods sold. Agents usually represent more than one organization. Agents are a low-cost,
but low-control option. If a company intends to globalize, they should ensure that the
contract allows it to regain direct control of product. Of course, the company needs to set
targets since it is never known about the level of commitment of the company’s agent.
Agents might also represent the company’s competitors - so it is vital to beware of
conflicts of interest. They tend to be expensive to recruit, retain and train. Distributors are
similar to agents, with the main difference that distributors take ownership of the goods.
Therefore, they have an incentive to market products and to make a profit from them.
Otherwise, pros and cons are similar to those of international agents (ibid).
5. Strategic Alliances (SA): A strategic alliance is a term that describes a whole series of
different relationships between companies that market internationally. Sometimes the
relationships are between competitors. There are many examples including (ibid):
a. Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a
Peugeot.

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b. Research and Development (R&D) arrangements.
c. Distribution alliances e.g. iPhone was initially marketed by O2 in the United
Kingdom.
d. Marketing agreements (ibid).

Essentially, Strategic Alliances are non-equity based agreements i.e. companies remain
independent and separate (ibid).

6. Joint Ventures (JV): Joint Ventures tend to be equity-based i.e. a new company is set up
with parties owning a proportion of the new business. There are many reasons why
companies set up Joint Ventures to assist them to enter a new international market (ibid):
a. Access to technology, core competences or management skills. For example,
Honda's relationship with Rover in the 1980's.
b. To gain entry to a foreign market. For example, any business wishing to enter
China needs to source local Chinese partners.
c. Access to distribution channels, manufacturing and R&D are most common forms
of Joint Venture (ibid).
7. Overseas Manufacture or International Sales Subsidiary: A business may decide that
none of the other options are as viable as actually owning an overseas manufacturing
plant i.e. the organization invests in plant, machinery and labor in the overseas market.
This is also known as Foreign Direct Investment (FDI). This can be a new-build, or the
company might acquire a current business that has suitable plant etc. The company could
assemble products in the new plant, and simply export components from the home market
(or another country). The key benefit is that the business becomes localized – the
company manufacture for customers in the market in which it is trading. The company
also will gain local market knowledge and be able to adapt products and services to the
needs of local consumers. The downside is that the company can take on the risk
associated with the local domestic market. An International Sales Subsidiary would be
similar, reducing the element of risk, and have the same key benefit of course. However,
it acts more like a distributor that is owned by the company (ibid).

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5. What are the approaches to entering international markets would you recommend to a
new company?

The International Marketing Entry Evaluation Process is a five stage process, whose
purpose is to help companies to gauge which international market or markets offer the best
opportunities for our products or services to succeed (http://www.marketingteacher.com/lesson-
store/lesson-international-marketing-entry-evaluation-process.html). These processes are:

1. Country Identification: the world is a company’s oyster. It can choose any country to go
into. So a company should conduct country identification - which means that it
undertakes a general overview of potential new markets. There might be a simple match -
for example, two countries might share a similar heritage e.g. the United Kingdom and
Australia, a similar language e.g. the United States and Australia, or even a similar
culture, political ideology or religion e.g. China and Cuba. Often selection at this stage is
more straightforward. For example, a country is nearby e.g. Canada and the United
States. Alternatively, the company’s export market is in the same trading zone e.g. the
European Union. Again at this point, it is very early days and potential export markets
could be included or discarded for any number of reasons
(http://www.marketingteacher.com/lesson-store/lesson-international-marketing-entry-
evaluation-process.html).
2. Preliminary Screening: At this second stage, one takes a more serious look at those
countries remaining after undergoing preliminary screening. Now the company begins to
score, weight and rank nations based upon macro-economic factors such as currency
stability, exchange rates, level of domestic consumption and so on. Now the company
will have the basis to start calculating the nature of market entry costs. Some countries
such as China require that some fraction of the company entering the market is owned
domestically - this would need to be taken into account. There are some nations that are
experiencing political instability and any company entering such a market would need to
be rewarded for the risk that they would take. At this point the marketing manager could
decide upon a shorter list of countries that he or she would wish to enter. Now in-depth
screening can begin (ibid).

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3. In-Depth Screening: the countries that make it to stage three would all be considered
feasible for market entry. So it is vital that detailed information on the target market is
obtained so that marketing decision-making can be accurate. Now one can deal with not
only micro-economic factors but also local conditions such as marketing research in
relation to the marketing mix i.e. what prices can be charged in the nation? - How does
one distribute a product or service such as ours in the nation? How should we
communicate with are target segments in the nation? How does our product or service
need to be adapted for the nation? All of this will information will form the basis of
segmentation, targeting and positioning. One could also take into account the value of the
nation's market, any tariffs or quotas in operation, and similar opportunities or threats to
new entrants (ibid).
4. Final Selection: now a final shortlist of potential nations is decided upon. Managers
would reflect upon strategic goals and look for a match in the nations at hand. The
company could look at close competitors or similar domestic companies that have already
entered the market to get firmer costs in relation to market entry. Managers could also
look at other nations that it has entered to see if there are any similarities, or learning that
can be used to assist with decision-making in this instance. A final scoring, ranking and
weighting can be undertaken based upon more focused criteria. After this exercise, the
marketing manager should probably try to visit the final handful of nations remaining on
the short, shortlist (ibid).
5. Direct Experience: personal experience is important. Marketing manager or their
representatives should travel to a particular nation to experience firsthand the nation's
culture and business practices. On a first impressions basis at least one can ascertain in
what ways the nation is similar or dissimilar to your own domestic market or the others in
which your company already trades. Now the company will need to be careful in respect
of self-referencing. Remember that the company’s experience to date is based upon its
life mainly in its own nation and its expectations will be based upon what is already
known. Try to be flexible and experimental in new nations, and do not be judgmental - it
is about what is best for the company (ibid).

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International Marketing

1. Why is political stability so important for international marketers? Find some


recent examples from the press to underline your points
Political stability means the peace and security that is in a nation or country. When companies
or businesses want to invest abroad or internationally, they consider a lot of factors in advance
with political stability being among them. Due to the nature of international investment being
huge that require a number of years to see turnovers and meet profit and other organizational
objectives, businesses must be sure that during their expected turnover period and beyond, the
country’s environment will be conducive for business to mature and prosper.
Political stability could also mean other factors apart from violence. Factors such as
confiscation, expropriation and domestication as an aspect of political stability could influence
international marketing.
Thus, if a country is politically unstable due to civil unrests, wars, conflicts, political disputes,
and corruption to mention a few, international marketing and investment could be abolished
due to fears of meeting objectives.
An example is obtained from the citizen newspaper on Monday, 02 May 2011:
Uganda violence threatens Kenyan exports
“Nairobi. Kenyan exports face possible cut off from the lucrative Uganda market following
the breakout of riots to protest the arrest of opposition leader Kizza Besigye. Uganda is the
single largest destination of Kenyan goods that in 2009 bought goods worth Sh46 billion out
of a total national exports worth Sh345 billion. Kenya’s exports to the country have been
growing steadily and have more than doubled since 2005 when they were worth Sh20 billion.
“We would want to see Uganda sort out the problems they have because any instability is bad
for business. We export there and we have insurance and property and other business based
there, so we ask them to ensure they sort out the causes of the violence,” said Chris Kirubi, a
Nairobi businessman with interests in a range of economic sectors.
Tanzania is the second largest destination of Kenya’s exports which were worth Sh30 billion
in 2009….”

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The example above shows how political stability affects international marketing and
investment. A country like Tanzania has much potential and investment rates are increasing
because of favorable and peaceful environments.
Source :( http://thecitizen.co.tz/business/14-international-business/10532-uganda-violence-
threatens-kenyan-exports.html)
2. Identify different types of barrier to the free movement of goods and services
The movement of goods and services from one country to another is affects by many factors
commonly known as BARRIERS. These barriers are:
a) Tariff Barriers: Tariff means tax levied upon goods as they cross-national boundaries,
usually by the government of the importing country. The words tariff, duty, and customs
are used interchangeably. Under tariff barriers, the barriers hindering smooth
international marketing are export duties, import duties, transit duties, countervailing
(subsidies) and anti-dumping duties.
b) Non-Tariff Barriers: These are barriers or factors impeding international marketing that
are not associated by taxes levied by the country’s Government. These are such as prior
import deposits, quantitative restrictions (quotas licensing), foreign exchange restrictions,
exchange (consular) formalities duties, technical and administrative regulations, health
and safety regulations, government procurements, state trading, preferential
arrangements, canalization of trade, trading blocks, and economic and political war to
mention a few.
3. Define the following terms:
a) International Marketing: international marketing involves the firm in making one or
more marketing mix decisions across national boundaries. At its most complex level, it
involves the firm in establishing manufacturing facilities overseas and coordinating
marketing strategies across the globe (Doole and Lowe, 2001). Another definition is that
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 (http://marketing-4-you.blogspot.com/favicon.ico).
b) Global Marketing: is marketing on a worldwide scale reconciling or taking commercial
advantage of global operational differences, similarities and opportunities in order to
meet global objectives. That is, selling a product all over the world. Global market is
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when the entire world is looked at or considered as one market. Example is like the sale
of IPods world from Apple that is in America.
(http://www.businessknowledgesource.com/marketing/how_global_marketing_differs_fr
om_international_marketing_026282.html).
c) Controllable Elements: These are the factors that marketers can control in making
strategies for attaining organizational objectives, whether domestically, international or
both. They are also preferred to as the marketing mix. They include; product, price,
promotion and place.
d) Uncontrollable Elements: These are factors that the marketers or organization cannot
control, that is, contrary to the controllable elements. They are elements from the external
domestic and/or foreign environment. The domestic uncontrollable factors are political
forces, legal structure, competitive forces, and economic climate. The foreign
uncontrollable elements as the case of international marketing is concerned are political
legal forces, economic forces, competitive forces, level of technology, structure of
distribution, geography and infrastructure, and cultural forces, to mention a few.
4. Differentiate between a global company and a multinational company
Global companies are those companies that have invested and are present in many
countries. They market their products through the use of the same coordinated image/brand in all
markets. Generally, there is one corporate office that is responsible for global strategy. They
emphasis on volume, cost management and efficiency. Global companies mainly do everything
in their home country, and export the products elsewhere. Global products are marketed with a
single strategy, one-size-fits-all. Example is like iPod products.
(http://wiki.answers.com/Q/Difference_between_a_global_and_a_multinational_company)
Multinational Companies on the other hand are companies that have investment in other
countries, but do not have coordinated product offerings in each country. They are more focused
on adapting their products and service to each individual local market. That is, multinational
companies customize and localize the products according to national segments, often organizing
their activity by using a central business strategy that is modified to fit each target country.
Examples are Coca Cola Company, Steers, Mc Donald, etc. They can be viewed as working like
franchisees (http://mooncore.eu/mimu/txt/mne-a.htm).
5. Discuss the conditions that have led to the development of global markets
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Most companies would prefer to remain domestic if their domestic market were large
enough. Managers would not need to learn other languages and laws, deal with volatile
currencies, face political and legal uncertainties, or redesign their products to suit different
customer needs and expectations (Kotler, 2001). Business would be easier and safer. Yet several
factors are drawing more and more companies into the international arena:
1. External Competition: global firms offering better products or lower prices can attack the
company’s domestic market. The company might want to counterattack these competitors
in their home markets. Such conditions have made many domestic companies invest
abroad thinking that they can achieve what their foreign competitors have achieved in
their own soils. Examples are companies like Tanzania Breweries competing with
products from Kenya that have invested in Tanzania (Kotler, 2001).
2. Discovery that some foreign markets present higher profit opportunities than the
domestic market, this means certain areas outside the company’s mother country signals
huge profits and markets. Such conditions stimulate companies to attempt to go beyond
their borders hoping to find far greener pastures (ibid).
3. The needs for a larger customer base to achieve economies of scale. Companies
sometimes seek ambitions to go beyond their borders to enjoy economies of scales when
it comes to production expansion and things of the like (discounts from bulk purchases)
(ibid).
4. Ambitions to reduce dependence on any one market, this is most common especially with
the ever changing and dynamic market environment these days. Creating dependencies is
risky thus, having several markets, the company is more likely to be sustainable (ibid).
5. Company’s customers who are going abroad requiring international servicing, due to
globalization and free trade, customers are demanding what they like consuming at home
to also be consumed abroad. That signals encourages businesses to invest abroad to meet
the need of their customers (ibid).
6. How does culture influence international marketing?
Culture is the way of people’s life. That is, it is what shapes and gives people definition
in a society. International marketers must consider this accept when attempting to enter such
foreign markets whose cultures are not known. Culture also differs from place to place. When
attempting to analysis foreign markets and cultures, a framework is used to aid marketing

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managers to effect the process of studying cultures that are helpful in capturing new markets
beyond borders. The Terpstra and Sarathy Cultural Framework helps marketing managers to
assess the cultural nature of an international market. It is very straightforward, and uses eight
categories in its analysis. The Eight categories are Language, Religion, Values and Attitudes,
Education, Social Organizations, Technology and Material Culture, Law and Politics and
Aesthetics (Teacher’s Lecture Notes).
1. Language: With language one should consider whether or not the national culture is
predominantly a high context culture or a low context culture (Hall and Hall 1986). The
concept relates to the balance between the verbal and the non-verbal communication
(ibid).

2. Religion: The nature and complexity of the different religions an international marketer
could encounter is pretty diverse. The organization needs to make sure that their products
and services are not offensive, unlawful or distasteful to the local nation. This includes
marketing promotion and branding (ibid).

3. Values and Attitudes: Values and attitudes vary between nations, and even vary within
nations. So if you are planning to take a product or service overseas make sure that you
have a good grasp the locality before you enter the market. This could mean altering
promotional material or subtle branding messages. There may also be an issue when
managing local employees. For example, in France workers tend to take vacations for the
whole of August, whilst in the United States employees may only take a couple of week's
vacation in an entire year (ibid).

4. Education: The level and nature of education in each international market will vary. This
may impact the type of message or even the medium that you employ. For example, in
countries with low literacy levels, advertisers would avoid communications, which
depended upon written copy, and would favor radio advertising with an audio message or
visual media such as billboards. The labeling of products may also be an issue (ibid).

5. Social Organization: This aspect of Terpstra and Sarathy's Cultural Framework relates to
how a national society is organized. For example, what is the role of women in a society?
How is the country governed - centralized or devolved? The level influence of class or

20
casts upon a society needs to be considered. For example, India has an established caste
system - and many Western countries still have an embedded class system. So social
mobility could be restricted where caste and class systems are in place. Whether or not
there are strong trade unions will impact upon management decisions if you employ local
workers (ibid).

6. Technology and Material Culture: Technology is a term that includes many other
elements. It includes questions such as is there energy to power our products? Is there a
transport infrastructure to distribute our goods to consumers? Does the local port have
large enough cranes to offload containers from ships? How quickly does innovation
diffuse? Also of key importance, do consumers actually buy material goods i.e. are they
materialistic? (ibid)

7. Law and Politics: As with many aspects of Terpstra and Sarathy's Cultural Framework,
the underpinning social culture will drive the political and legal landscape. The political
ideology on which the society is based will impact upon your decision to market there.
For example, the United Kingdom has a largely market-driven, democratic society with
laws based upon precedent and legislation, whilst Iran has a political and legal system
based upon the teachings and principles Islam and a Sharia tradition (ibid).

8. Aesthetics: Aesthetics relate to your senses, and the appreciation of the artistic nature of
something, including its smell, taste or ambience. For example, is something beautiful?
Does it have a fashionable design? Was an advert delivered in good taste? Do you find
the color, music or architecture relating to an experience pleasing? Is everything relating
to branding aesthetically pleasing? (ibid)

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REFERENCES
1. Cateora, P. R., and Graham, J. L. (2005), International Marketing, 12th Edition, New
York: Mc Graw-Hill.
2. Hollensen, S. (2007), Global Marketing, 4th Edition, Prentice Hall.
3. Kotler, P. (2001), Marketing Management, Millennium Edition, Prentice Hall.
4. http://jurisonline.in/2008/09/parallel-imports/
5. http://www.scribd.com/doc/26122004/Gray-Market

6. www.citeman.com/13112-price-escalation/

7. en.wikipedia.org/wiki/Dumping_(pricing_policy)

8. http://www.citeman.com/13467-administered-pricing/

9. www.citeman.com/13112-price-escalation/

10. http://www.blurtit.com/q173647.html

11. http://www.experts123.com/q/what-is-the-difference-between-indirect-and-direct-
exporting.html

12. http://www.analysysmason.com/PageFiles/3652/Market_entry_strategy.ppt

13. http://www.marketingteacher.com/lesson-store/lesson-international-modes-of-entry.html

14. http://www.marketingteacher.com/lesson-store/lesson-international-marketing-entry-
evaluation-process.html

15. http://marketing-4-you.blogspot.com/favicon.ico

16. http://www.businessknowledgesource.com/marketing/how_global_marketing_differs_fro
m_international_marketing_026282.html

17. http://wiki.answers.com/Q/Difference_between_a_global_and_a_multinational_company

18. http://mooncore.eu/mimu/txt/mne-a.htm

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19. http://thecitizen.co.tz/business/14-international-business/10532-uganda-violence-
threatens-kenyan-exports.html

20. http://jurisonline.in/2008/09/parral-import

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