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Contents overview
List of figures List of tables List of mini case studies Acknowledgements 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Introduction to International Marketing The International Marketing Environment The International Marketing Information and Research Process International Competitive Marketing Strategies Market Selection Decisions and Entry Strategies Management of Exporting and Importing International Marketing Operations and Planning Product and Brand Decisions for International Marketing Service Strategies for International Marketing International Channels of Distribution and Logistics Management Pricing Decisions in International Markets Integrated International Marketing Communications International Business-To-Business Marketing Retail Internationalization and Marketing The Internet and International Marketing Ethics and International Marketing Index xix xxi xxiii xxiv 1 34 68 104 138 172 209 239 274 303 335 367 401 430 454 478 507
Contents
List of figures List of tables List of mini case studies Acknowledgements 1 Introduction to International Marketing Introduction The nature of international marketing Contextual determinants of international marketing Historical development Definition of international marketing Relationship with other business fields A theoretical framework for international marketing Approaches to internationalization Factors causing internationalization The process of firms internationalization A holistic approach The motivation for firms to go international Trade theories and economic development Absolute advantage Comparative advantage The assumptions underlying the principles of comparative advantage International trade theories Classical trade theory The factor of proportion theory The product life cycle theory Foreign direct investment (FDI) The eclectic paradigm The impact of FDI on national economies The determinant factors of FDI FDI and risks consideration Culture and international marketing development East and west cultures Cultural influences Cultural values National culture and consumption patterns Management issues in international marketing Summary Revision questions Seminar case study: Market opportunities and barriers in the Chinese emerging market Managerial assignment task References xix xxi xxiii xxiv 1 2 2 3 4 5 5 7 7 8 9 10 12 12 14 14 16 16 17 17 18 19 19 20 21 22 23 23 24 24 25 26 27 28 28 31 31
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The International Marketing Environment Contents Learning objectives Introduction The international marketing environment The international economic environment Economic systems Stages of market and economic development Competitive analysis The cultural environment The interaction of culture and consumer behaviour The impact of religion and language The international political environment Political imperatives (barriers to operation) The political behaviour of international firms Political targets The international legal environment International law and the Internet Consumer protection Intellectual property violations Technological developments Information technology Technology advances Scanning for international marketing opportunities Competitive environmental scanning International marketing involvement The classification of international markets Economic classification Summary Revision questions Seminar case study: The international marketing environment: a focus on brands in the grey market Managerial assignment task References The International Marketing Information and Research Process Contents Learning objectives Introduction International marketing information systems International marketing information needs An information-gathering approach IT and marketing planning IT marketing Marketing expenditure on IT Changes in the employment of marketing mix variables Managerial use of IT for making decisions Sources of marketing information
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Classification and sources of information Data and research for the international marketing process Qualitative research Survey methods Incorporating technological advances into research design and methodology The international marketing research environment The changing international marketing environment The heterogeneity of research contexts International marketing research implications The organization of international research Measurement and sampling Analysis of the findings Reporting the findings Research problems in developing countries Conducting research in diverse environments Ethical issues in international marketing research Ethical issues relating to qualitative research Ethical issues relating to quantitative research Future directions in ethics Using the Internet for international marketing research Exploratory and qualitative research Descriptive and quantitative research Summary Revision questions Managerial assignment task References 4 International Competitive Marketing Strategies Contents Learning objectives Introduction International market competitive theories The origin and nature of competitive advantage The value system The competitive strategy Competitive advantage in an international market International competitive strategy Sustainable competitive advantage Corporate and marketing strategy Operating strategies Strategic options (regional, local, or standardization) Psychic distance and corporate marketing performance Psychic distance and organizational performance International marketing and strategic planning Factors influencing strategic marketing planning Planning formality Generic strategic options in world markets
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Contents
International market segmentation Composition of a target market International targeting strategy International market positioning Alternative positioning strategies Market-based options (MBO) Resource-based alternatives International market expansion strategies The major strategic alternatives Summary Revision questions Seminar case study: McDonalds a global retailer Managerial assignment task References Market Selection Decisions and Entry Strategies Contents Learning objectives Introduction Understanding international markets The elimination of unsuitable markets Foreign market selection Internal factors influencing the selection Mixed factors influencing the selection External factors influencing the selection Decision criteria for choice of market entry mode Internal factors Mixed factors External factors The role of culture in entry decisions Culturally close or distant Entry as an international marketing strategy Self-start entry (organic growth) strategy Franchising arrangements Joint ventures Acquisition International licensing agreements Strategic alliances (co-marketing) The goals of strategic alliance Motives underlying strategic alliances Partnerships in emerging markets The market adaptation and standardization process The impact of the Internet on the market selection and entry process Summary Revision questions Seminar case study: The entry of the Silver Streak Restaurant Corporation into Mexico Managerial assignment task References 5
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Management of Exporting and Importing Contents Learning objectives Introduction Export activities and organization Direct exporting modes The export agent Distributors The choice of intermediaries Exporting and logistics Terms of sale and delivery Terms of payment Export finance Government policy and exporting Overseas Trade Services (OTS) Help elsewhere Export planning Imports Free trade zones Barter and counter-trade Counter-trade Buyback Offset trading Switch trading Evidence account Parallel importing (grey marketing) The advantages of parallel importing The disadvantages of parallel importing Regional trading blocs Levels of trading arrangements Successful regional trading blocs The European Union North American Free Trade Agreement (NAFTA) Association of South East Asian Nations (ASEAN) Summary Revision questions Seminar case study: Export marketing challenges in the commercialization of GM crops Managerial assignment task References International Marketing Operations and Planning Contents Learning objectives Introduction International marketing operations Segmenting the international market
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Criteria for successful segmentation Consumer market segmentation Business (industrial) market segmentation Profiling the segments Segmenting international markets The nature of international marketing planning Types of planning mode Shorter-range planning Medium-range planning Longer-range planning An international marketing plan Strategic planning in the international context The meaning of strategy The role of strategic planning Company growth Marketing and corporate strategy General analysis of strategic options Selecting target markets Marketing management Control tools for international marketing planning Marketing implementation Monitoring action plans Challenges to international marketing planning Implementation of the international marketing plan Summary Revision questions Seminar case study: The strategic planning process at Akout plc Managerial assignment task References 8 Product and Brand Decisions for International Marketing Contents Learning objectives Introduction The nature of the product in international markets International product policy Developing new products Degrees of product newness Product development strategic orientation International product introduction strategic alternatives Product standardization Standardization versus adaptation decisions Brand equity and branding decisions Branding decisions Brand comparison Own-label branding The retailers perspective The manufacturers perspective
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National brands (manufacturers own brands) Co-branding Global branding The product life cycle (PLC) Introduction Growth Maturity Decline Problems with the product life cycle International product life cycle and strategies New product introduction and development In-house product development Adoption and diffusion of new products Product deletion International product-line management Summary Revision questions Seminar case study: The new product design process the case of Alpha Ltd Managerial assignment task References 9 Service Strategies for International Marketing Contents Learning objectives Introduction The nature of service in international markets International service sectors The characteristics of services Marketing problems relating to service characteristics Meta-classification of international services Service typologies Reflections on the four international service types International service process matrix Developing a supplementary service model Competitive strategy for international service provision Competition and industry drivers Coping with technological competition The marketing mix for international services The Booms and Bitner framework The international marketing task Implications for international marketing International services management Appropriate entry modes Standardization versus local adaptation Service quality considerations Regulatory impediments to international service marketing Economic impediments Cultural impediments
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Summary Revision questions Seminar case study: The Valamo Monastery (VM) Managerial assignment task References 10 International Channels of Distribution and Logistics Management Contents Learning objectives Introduction The structure of international marketing channels Natural channels of distribution Influential factors in international channel design Channel selection and management Channel selection Appointing suitable agents Communication and control of agents Channel motivation and performance evaluation Channel membership management Channel motivation Channel cooperation and conflict Channel agreements and alternative channels Power negotiation Cultural aspects of negotiations Alternative channels of distribution Joint ventures Strategic alliances Channel strategy for new market entry Determinants of choice Grey market influences on distribution management The black market (informal economy) International logistics management The role of the Internet Aspects of the Internet developments The Internet and the value chain Summary Revision questions Managerial assignment task References 11 Pricing Decisions in International Markets Contents Learning objectives Introduction Determinants of international pricing Competitive structure Price structure Consumer behaviour
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Using pricing strategy as competitive advantage in international markets Cost leadership strategy Low-price, high-quality strategy Focused differentiation strategy Brand preference strategy Fundamentals of pricing strategy International market skimming International market pricing Penetration pricing Economic analysis of international pricing issues Setting objectives for international pricing Price orientations in international marketing Export pricing Export pricing objectives Export pricing policies Export pricing methods International transfer pricing International reference pricing (IRP) Product dumping in international markets International product piracy Scope and kinds of international piracy Exchange rate fluctuations Currency risks Invoice currency policies International counter-trading Reasons for counter-trading Benefits from counter-trading Motivations and reasons for increasing counter-trade Difficulties associated with counter-trade Barter trading Counter purchase Summary Revision questions Seminar case study: Barter trading in the US radio industry Managerial assignment task References 12 Integrated International Marketing Communications Contents Learning objectives Introduction The nature and process of marketing communications The international communication process Integrated marketing communications (IMC) The meaning of IMC International advertising decisions Standardization of international advertising campaigns Adaptation of international advertising campaigns
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Media selection Costs Selecting agents International publicity and public relations Major constraints on international publicity Personal selling in the international environment International sales promotion Sales promotion techniques Sales promotional objectives Choice of sales promotion techniques Relationship marketing Components of a successful relationship Direct marketing Growth of direct marketing Trade shows International account management Framework for managing international accounts Factors in the management of international accounts Examples of companies with international accounts International customers International channels Regional customers and channels Transferable marketing Lead countries International economies of scale High product development costs Changing technology International competitors Response to international customers Ethical and cultural issues Summary Revision questions Seminar case study: International account management Managerial assignment task References 13 International Business-To-Business Marketing Contents Learning objectives Introduction The e-commerce markets The characteristics of B2C marketing The business markets The consumer market Relationship marketing in the B2B context The B2B relationship lifecycle The nature of B2B in the international environment Buyer behaviour in B2B markets
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Problem recognition Information search Evaluation of alternatives Purchase decision Post-purchase behaviour Exploring business behaviour in the B2B market The participants Negotiation process Performance monitoring After-sales analysis International B2B channel control The role of the Internet in developing B2B Innovative theory Government issues in B2B transactions Summary Revision questions Managerial assignment task References 14 Retail Internationalization and Marketing Contents Learning objectives Introduction Global versus international retailing The nature of international retailing Conceptual framework and internationalization process Conceptual framework The internationalization process Internationalization motives and entry strategies Retail internationalization drivers Retail international expansion motives Market entry strategies International market opportunities International retail market position and strategies International retail format International market power Retail management implications Summary Revision questions Seminar case study: Louis Vuitton Moet Hennessy (LVMH): global retailer Managerial assignment task References 15 The Internet and International Marketing Contents Learning objectives Introduction The role of e-commerce in international marketing
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E-commerce as a marketing process innovation The development of the Internet Internet users Technological applications The Internet development stage Adaptation process The Internet as an international marketing channel Business applications of the Internet The Internet and international marketing activities Summary Revision questions Seminar case study: The use of the Internet by Scult Software Company (SSC) Managerial assignment task References 16 Ethics and International Marketing Contents Learning objectives Introduction The nature of ethics in international marketing The importance of ethics Developments in marketing responsibility Ethics in the international environment Corporate social responsibility Social expectations Corporate social culture Corporate ethical values Social responsibility in international marketing International fair trading The international fair trade movement Business responses to fair trade International marketing of ecological products Internationalization of eco-firms The role of consumers Consumers judgement of unethical behaviour Consumer response to ethics Consumer sophistication Consumer boycotts and consumer values Summary Revision questions Seminar case study: The global revolution in ethical business Managerial assignment task References Index
457 458 460 460 461 462 467 468 470 472 473 473 475 476 478 478 478 479 480 480 481 482 484 486 487 488 489 491 491 493 495 497 497 498 498 499 500 502 502 503 505 505 507
Figures
1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 2.4 2.5 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 5.1 5.2 5.3 5.4 5.5 6.1 7.1 7.2 7.3 7.4 7.5 7.6 Contextual determinants of international marketing Subsets of international business A holistic approach to internationalization Key decisions in the FDI process Factors favouring FDI decisions The international marketing environment The micro and macro marketing environment The worlds economic systems A model of the interaction of culture and consumer behaviour Composition of the sociocultural environment A model of marketing information need International marketing information-gathering matrix The value chain The five competitive forces Four archetypes of strategic platform International strategic marketing decisions A theoretical framework of psychic distance and organizational performance A model of strategic formal planning International retailers and their market position International market positioning Market-based strategic options Internal factors influencing market selection Mixed factors influencing market selection External factors influencing market selection Factors influencing market entry mode selection A cultural framework for an international market entry strategy Direct exporting Effects of cultural and socioeconomic factors on international marketing operation Some determinants of the firms choice of international markets The basis of international market segmentation A conceptual model of strategic management The international strategic planning process Alternative international marketing planning sequence 3 6 10 20 22 35 37 39 43 44 71 72 106 108 109 112 116 118 125 126 130 140 144 146 148 152 177
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Figures
8.1 8.2 8.3 8.4 8.5 8.6 9.1 9.2 9.3
Types of new products Five product strategic alternatives Brand type decisions The three brand options The product life cycle New product adoption segments International service typologies The core service offer surrounded by elements of supplementary services The marketing mix
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10.1 Distribution channel for a grocery products manufacturer 10.2 The conceptual framework for the international channel process 11.1 11.2 11.3 11.4 11.5 11.6 12.1 12.2 12.3 12.4 12.5 13.1 13.2 13.3 13.4 Determinants of international pricing Pricing new products in international markets The commodity slide A conceptual framework for export pricing decisions Examples of export pricing objectives, policies and methods International piracy impact and prevention Elements of international communications IMC process model Major international advertising decisions Standardization versus adaptation of international advertising strategies Framework for international account management The four different e-commerce markets Seller and buyer transaction process model Disintermediation and reintermediation B2B e-market network and information flow among participants
14.1 Effects of cultural and socioeconomic factors on global retail marketing 14.2 Market internationalization 14.3 Framework for international market entry strategy 15.1 15.2 15.3 15.4 15.5 15.6 Different channel networks in e-commerce Tripartitioned approach to optimized communications Base model for consumer acceptance of websites Theoretical model for consumers acceptance of websites The Internet and international marketing dyad Strategic positioning for Internet applications
16.1 Retailer engagement with fair trade 16.2 Consumers judgement of corporate ethics 16.3 Consumer attitudes to ethical purchasing
Tables
1.1 1.2 1.3 3.1 3.2 4.1 4.2 4.3 5.1 5.2 6.1 6.2 6.3 7.1 7.2 7.3 8.1 8.2 8.3 8.4 8.5 9.1 9.2 Firms internationalization process Push and pull factors in retail internationalization Selected theories of international trade Criteria for selecting and evaluating sources of information Primary research problems International marketing strategies Basic positioning strategy alternatives High-touch and high-tech positioning strategies The process of eliminating unsuitable markets Motives underlying strategic alliances The 13 terms in Incoterms 2000 Factors affecting the success of parallel importing activity Regional trading arrangements Structure and contents of a typical marketing plan The eight Os Types of international marketing control strategy Product development strategic orientation Factors favouring product standardization versus adaptation Advantages and disadvantages of product standardization Advantages and disadvantages of branding options Product and market-related characteristics International service sectors The marketing mix modified for services 9 13 17 78 80 110 127 129 141 161 181 198 200 219 229 230 246 249 251 255 268 277 291 329 347 360 372 414 417
10.1 Applications of the Internet in the value chain 11.1 International customer pricing axioms 11.2 Forms of counter-trade 12.1 The key elements of IMC 13.1 The purchase decision process (marketplace versus market space) 13.2 Differences between physical and virtual stores
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14.1 Push and pull factors 14.2 Market entry strategy advantages and disadvantages 14.3 Global Retail Development Index, 2005 15.1 The uses of e-commerce 15.2 Successful Internet usage factors 15.3 Psychographic and demographic characteristics of net users 16.1 International fair trade sales 2005/06
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Mini case studies

1.1 1.2 2.1 2.2 3.1 4.1 4.2 5.1 5.2 5.3 6.1 6.2 7.1 8.1 9.1 9.2 10.1 10.2 10.3 10.4 Example of retail internationalization (push and pull factors) Example of specialized production Rapid economic growth in Asia Antitrust and bribery regulations hinder international marketing operations Retail influence on international marketing research The cost-effectiveness of standardization Positioning international retailers Buying a foreign company Examples of international companies doing business with emerging countries Examples of standardization versus adaptation Export of ideas in industrial gases Pricing in separate channels the case of parallel imports Retailers pushing for positions in the global markets Universal Feeder Ltd Internationalization of services Examples of tangible product-related service roles Organizational neglect of natural channels Retailers alteration of the international competitive environment Relative channel differences in Europe The negotiating power of agents/distributors 13 15 42 50 88 114 124 157 163 165 175 196 217 263 279 281 307 312 319 323 338 355 373 390 423 485 489 496 499
11.1 Competitive structure 11.2 Examples of brand and/or product piracy 12.1 The nature of consumer behaviour 12.2 Examples of international events sponsorship 13.1 Disintermediation in the Japanese distribution system 16.1 Corporate responsibility but who is responsible? 16.2 Organic meat: accusation of hypocrisy in buying local organic food products 16.3 The ecological market in Romania 16.4 Produce of Britain
1
Introduction to International Marketing
Contents
Learning objectives Introduction The nature of international marketing A theoretical framework for international marketing Approaches to internationalization The process of firms internationalization Trade theories and economic development Foreign direct investment (FDI) Culture and international marketing development Management issues in international marketing Summary Revision questions Seminar case study: Market opportunities and barriers in the Chinese emerging market Managerial assignment task References 1 2 2 7 7 9 12 19 23 26 27 28 28 31 31
LEARNING OBJECTIVES
After reading this chapter you should be able to: understand the nature of, and changes in, the international marketing process know the differences between international trade and international marketing evaluate the various reasons that companies pursue international marketing strategies examine the nature of foreign direct investment, the advantages and implications discuss the cultural factors in international marketing development assess managerial issues in international marketing operations.
International Marketing
Introduction
Dramatic world economic changes in the new millennium, such as the new euro currency, the Asian economic downturn, instantaneous flows of capital, new international conglomerates, and the growth of the Internet, are resulting in new ways of managing international marketing operations. These changes are having profound impacts on international marketing management, including increasing risk and uncertainty, real-time information management, and rapid response to international developments. Cross-impact analysis has become a more important tool for dealing with uncertain interactions among complex forces. The managerial mindset will have to discount the present to create the future, and move far beyond benchmarking. This will lead to changes in decision-making orientations, including a shift from relatively stable environments and mechanistic management approaches to more turbulent environments and systemic management approaches. It will also lead to a shift from hard facts for solving problems to virtual facts for problem prevention. In his viewpoint assessment, Paliwoda (1999) observed that the confluence of several important external developments has challenged international marketing managers with situations unlike those encountered previously. Sheth and Parvatiyar (2001) noted that many changes in macromarketing forces are reshaping international marketing management thought and practice. As macromarketing forces have carried over into the new millennium they: continue to establish critical parameters for international marketing plans and strategies raise questions regarding widely held beliefs about multinational marketing operations result in rethinking many of the accepted assumptions and paradigms lead to different approaches to and perspectives on international marketing decision making. This chapter charts recent macromarketing developments and the impact that they are having on international marketing management operations. The ideas presented are based on a comprehensive review of the current international marketing literature and the work of academic thinkers around the world The chapter starts by considering the nature and the definition of international marketing. This is followed by a review of the theoretical framework relevant to international marketing, looking at trade theories, foreign direct investment and the cultural factors impacting on international marketing development.
The nature of international marketing

International marketing is about the application of marketing concepts, philosophy, skills and techniques to markets across the world. The marketing concept and philosophy are universal but the ways in which marketing skills and techniques are applied vary between markets to take account of the environmental differences. The discipline of international marketing provides an understanding of marketing practices in different countries (comparative descriptions); its structural determinants anchored to national differences
Introduction
(comparative explanations); and the deployment of country-specific marketing strategies and operations by multidomestic firms (comparative prescriptions). Its primary focus is on description, explanation, and managerial control of marketing practices across national boundaries. Compared with international trade and export marketing, international marketing is a more recent phenomenon (Sheth and Parvatiyar 2001). It has grown since the Second World War, and presumably was a consequence of the demise of colonialism and the re-creation of numerous independent nations.
Political stability
Eastwest dichotomy
Marketing transfer
issues
Government policy
Contextual determinants of international marketing
Product life cycles
Ideology-driven
economy
Lack of
infrastructure
Fear of colonialism Figure 1.1
Northsouth dichotomy
Contextual determinants of international marketing
This origin of the rise of international marketing resulted in a number of contextual determinants for its practice, and became the focus of academic research and thinking.
Contextual determinants of international marketing Figure 1.1 shows the contextual determinants of international marketing. The first four determinants (political stability, government policy, ideology-driven economy, and fear of colonialism) are the most responsible for the prescription of multi-domestic marketing practices. This includes such managerial decisions as selection of countries with which to do business and specific entry strategies. As Sheth and Parvatiyar (2001), noted most of this has required the understanding and use of what has been recently referred to as the fifth P of marketing (politics and public relations). Unfortunately, there is very little theoretical foundation underlying these determinants, partly because international marketing has not borrowed constructs and theories from the social sciences, including political science. Instead it has relied on the framework provided in international business literature, wherein barriers to conducting international business have received considerable attention (Keegan and Schlegelmilch 2001). However, much of it is based simply on the environmental and policy differences across countries, and their impact on the choice of market entry modes and operating strategies.
The next three determinants (marketing transfer issues, lack of infrastructure, and northsouth dichotomy) need a little more description. Marketing transfer issues relate to the operational challenges of product, price, distribution, and promotion adjustments across national boundaries as a result of divergence in support and core value chain activities, including materials, people, processes and facilities. The purpose is to understand what market factors, including consumer differences and the unavailability of marketing institutions, would pose difficulties to the multinational firm in transferring its successful international marketing programmes to other countries. The lack of infrastructure refers to inadequate availability of transportation, communications, physical, financial, natural and human resources, especially in the emerging markets of Africa and South America. This lack of infrastructure impacts the adjustment process for the marketing mix as well as the implementation of the marketing programme in foreign countries. The northsouth dichotomy refers to the have and have-not countries of the world, and is a direct reflection of traditional economic development theories and their importance to international marketing practices. Of the remaining determinants, eastwest dichotomy refers to the cultural differences between nations at both the macro and micro levels of understanding and explanation. Product life cycles refer to the birth and death theories of product life as they move across national boundaries. Again, the product life cycle concept has benefited from its basis in population ecology and biological theories, and to that extent it seems to have face validity and empirical support. This analysis clearly suggests why international marketing has remained a predominantly contextual practice, and why it has been difficult to develop a theory of international marketing even based upon contingency propositions. Most determinants of international marketing are ad hoc, dynamic and unstable, and therefore do provide theory-building opportunities. For example, who could have forecast the demise of the Soviet Union (political stability), the development of regional integration (as in the European Union), the privatization of public sector industries (for example, in Japan and the United Kingdom) and pro-Western links by Muslim states (such as Indonesia and Egypt)?
Historical development Early international marketing work was a practical extension of the international trade field. Books dealing with an international theme focused mainly on the how-to aspects, covering issues such as export and import mechanics, financing and documentation. Over time, the field tends to have developed a comparative marketing approach, examining similarities and differences among consumers, institutions and environments in different markets. During the mid-1960s an approach to international marketing that explicitly recognized the importance of the policy dimension was in place in the marketing literature. This approach highlighted the variations among countries that arise from differences in basic systems of society, and the distortions of international trade patterns by nationalist government policies. Since then, authors such as Philip Kotler, writing about marketing on a domestic level, have reiterated the essential role of policy within the marketing framework. Thus marketing managers need to acquire skills and understandings of political forces and public opinion in order to manage efficiently.
Introduction
Definition of international marketing The basic definition of international marketing is simple. It is the marketing of goods, services and information across political boundaries. Thus it includes the same elements as domestic marketing: planning, promoting, distributing, pricing, and support of the goods, services and information to be provided to the ultimate consumers. The process of international marketing, however, is typically much more complex than domestic marketing. The international marketer must deal with a number of key differences in foreign environments from the characteristics of domestic environments. These may include, for example, differences in consumer tastes and needs, economic levels, market structures, ways of doing business, laws and regulations. Any one of these factors can make a companys international approach to marketing ineffective, counterproductive, and/or violate local law in the foreign market. Together, these differences require a careful and well-planned approach to entering and expanding in the international marketplace. There are facilitating organizations that can provide assistance in the process, but the marketing manager has the responsibility for developing an effective and efficient approach to marketing in other nations. This requires an understanding of all of the differences that must be accommodated. The business activities that must be carried out in marketing, and adjusted to accommodate differences in the international market (Van Mesdag 2000), include: the analysis of markets and potential markets the planning and development of products and services that consumers want, clearly identified in a suitable package the distribution of products through channels that provide the services or conveniences demanded by purchasers the promotion of products and services, including advertising and personal selling to inform and educate consumers about those products and services, or persuade consumers to try new, improved or different ways of satisfying their wants and needs the setting of prices that reflect both a reasonable value (or utility) of products or services to the consumers, and a satisfactory profit or return on investment the technical and non-technical support given to customers, both before and after a sale is made, to ensure their satisfaction, and thus pave the way for possible future sales that are necessary for company survival and growth. An international dimension has to signify more than just being non-domestic. It ought also to incorporate one or more dimensions of a social, legal, economic, political or technological nature (see Chapter 2), so as to enable fuller comparisons to be drawn, and delineate clearly for marketers the points to which particular attention has to be paid.
Relationship with other business fields International marketing is related to other business fields of study such as international business and international trade. In general terms, international marketing is a subset of international business, which could be defined as the performance of all business
functions across national boundaries. International business includes all functional areas such as international production, international financial management, international human resources management and international marketing (see also Jeannet and Hennessey 2001). International trade theory explains why nations trade with each other (see the discussion below). The trade theory is aimed at understanding product flows between countries in the form of exports or imports. Like every other term used in marketing, international and global do not have a sharp dividing line. For example, multinational merely refers to a corporate entity that owns operations in a number of countries. The term gives no indication of the marketing strategy followed in those countries. They can be totally diverse and unconnected. International marketing simply refers to a company operating in more than one country, whose marketing strategy in each country is chosen deliberately from being very diverse to being rigidly standardised between countries.
International business
International finance
International trade
International management
International marketing
Global marketing
Figure 1.2
Subsets of international business
Global marketing is a particular form of international marketing, and in its purest form does not exist. Its essence is that it covers a broad spread of the worlds countries, and strives consciously to standardize the marketing strategy between those countries (see Van Mesdag 2000). The majority of international marketing approaches today are still based predominantly on culture-sensitive adaptation as each new foreign market is entered. As Kapferer (1992) stated, it is time to realize that the majority of the brands operating across Europe are neither global nor local, but glocal. International marketing still has to differentiate itself clearly from international business, which touches everything but nothing in depth, and international management, which may include other disciplines such as human resource management and operations management.
Introduction
A theoretical framework for international marketing

As noted earlier, international marketing discipline, despite its history of several decades, has been relatively unsuccessful in developing well-accepted theories. International marketing is a discipline containing a number of paradigms which draw on a number of theories. Theories are operated through the decisions taken by managers in dealing with the international environment in which they operate. As Ghauri and Cateora (2006) explained, it is important to be able to identify paradigms that indicate what international marketing should be concerned with, what questions it should ask, and what rules should be followed. International marketing is not a single theory but a discipline containing a number of theories which, when applied, become the operating technologies of practitioners engaged in the international marketing process (Van Mesdag 2000). The purpose of a theory of international marketing is to explain marketing behaviour as it crosses national boundaries. The objective of a good theory in this field should include the following: the behaviour of consumer and industrial buyers in different countries the reaction of companies to changes in cultural differences the flow of imports and exports throughout the world the arrangements of joint ventures, strategic alliances and licensing activities the location and direction of foreign investment the impact of different value systems in various cultures.
While some progress has been made, one problem of international marketing as a discipline, and hence its inability to develop well-grounded theories, is that it is anchored in the contextual differences between nations. Also the variables are so contextual that generalization and theory development becomes very difficult (Doole and Lowe 2001). As a result of the contextual variability it seems that a differentiated approach to international marketing is required and should be preferred. It is also becoming increasingly evident that we can build on well-accepted concepts of economic and social sciences to develop a theory of integrated international marketing. Furthermore, these theories, if well grounded, might in time contribute to the development of a more general theory of marketing. Such an approach must take into consideration that international marketing is a subset of international business and is linked to other fields of study such as international trade.
Approaches to internationalization
Over the past 30 years, one of the most frequently researched topics in international marketing has been the internationalization of the firm. For the most part, studies of the internationalization of firms have been devoted to the factors that cause internationalization, or to the processes by which firms become increasingly involved in international marketing activities (Fletcher 2001). One conclusion that emerges from such studies is that internationalization is a complex and multidimensional process. There are many definitions of internationalization: Fletcher (2001) describes it as a process by which firms increase their involvement in international business activities.
Factors causing internationalization The factors causing internationalization can be grouped into management characteristics, organization characteristics, external impediments and external incentives to engage in business overseas. Management characteristic factors These may include the following factor groupings: demographic, such as age and education international exposure, such as country of birth, time spent living overseas, and frequency of business trips overseas knowledge of international business, such as familiarity with culture and international business practices, and international transactions experience structured approach to management, such as planning orientation, and having a strategic or proactive approach. (Fletcher 2001) Organizational characteristic factors The most important organizational characteristics are willingness to: develop products for overseas markets gain technological advantage fund international marketing activities gain market size as measured by employment research overseas markets have a focus on research and development (R&D) appraise the nature of the product and/or service. (Evangelista 1994) External impediments The most important external impediments are: marketing activities by competitors in overseas markets perception of higher risk in overseas markets, including lack of continuity in overseas orders, tariff and non-tariff barriers, and exchange rate movements knowledge of the market and how it operates issues relating to agents and control, including attitudes of foreign governments, cost elements, lack of export training and government assistance. External incentives The most important external incentives are: availability of export incentives from government overseas demand factors such as competitiveness inquiries via industry bodies or government representatives overseas
Introduction
fall in domestic demand or excess capacity reduction in costs of production. (Ogunmokun and Ng 1998) These factors causing internationalization categorize the degree of international operation according to the nature of involvement in exporting, or progression from one stage of outward-driven international behaviour, for instance exporting, to another, such as foreign direct investment (FDI). In all cases, the focus is on international operation as an outward-driven activity (Fletcher 2001).
The process of firms internationalization

There are four main approaches to internationalization: the stages approach, learning approach, contingency approach and network approach (see Table 1.1). There have been some challenges to the above approaches on the grounds that they do not reflect how firms actually behave, especially in hi-tech and service industries (see Bell 1995). Such challenges have not gone beyond questioning the relevance of these approaches to outward forms of internationalization, but raise the question of how relevant the more traditional approaches to internationalization of firms are in the current international marketing environment. There are two main reasons for the change in the environment for international marketing (see further discussion in Chapter 2): Table 1.1 Firms internationalization process
Firms internationalization process Views internationalization as involving changes in the firm as it increases its commitment to foreign markets. Firms start with the entry mode, which requires the least commitment of resources, and gradually increase their level of commitment. Attempts to explain rather than describe patterns of internationalization behaviour. With this approach, the process is treated as an evolutionary, sequential build-up of foreign commitments over time, due to the interaction between knowledge of foreign markets, on the one hand, and increasing commitment of resources to their development, on the other. Based on the premise that firms international evolution is contingent upon a wide range of market-specific and firm-specific characteristics. External situations or opportunities may cause firms to leapfrog stages or to enter markets that are psychically distant from the home country (OFarrell and Wood 1994). Attributes internationalization to the development of networks of relationships over time as international buyers and sellers build up knowledge about each other. At a point in time, the firm has a position in an overseas network that characterizes its relations with other firms. The network approach concentrates on the market and the relationship of the firm to that market as opposed to internal development of a firms knowledge and resources (see Leonidou and Kaleka 1998).
Approach 1 The stages approach
The learning approach
The contingency approach
The network approach
10
National borders are becoming increasingly irrelevant. This is evidenced by the expansion of regional trade groupings, developments in the international trade environment such as the World Trade Order and the difficulties faced by governments in enforcing national sovereignty. This aspect is illustrated by the rise in incidence of transfer pricing, promotion activity via the Internet and the expanded focus of global policies on issues such as the environment and human rights. Firms are forming strategic alliances across national boundaries (see Chapter 5). These are driven by the information revolution, rising fixed costs, the need for increasing R&D expenditures, rapid dispersion of technology, shorter product life cycle, converging consumer tastes, and increasing value placed on brand equity. All these factors encourage firms to enter into cooperative arrangements with organizations in other countries. These issues require firms to adopt a more dynamic approach as opposed to an incremental approach, and switch between forms of international involvement as changing market circumstances require.
A holistic approach In response to the developments in the international marketing environment, more complex forms of international behaviour have evolved.
Internal environment Management characteristics Organization characteristics
External environment External impediments External incentives
Internalization activities
Outward Export intermediary Export agent Export direct Sales office overseas FDI supply overseas Licensor overseas Franchisor overseas Linked Strategic alliance Counter-trade Cooperative manufacturing Inward Import intermediary Buying agent Import direct Buying office overseas Licensee in host country Franchisee in host country
Figure 1.3
A holistic approach to internationalization
Introduction
11
These forms of behaviour have been influenced by the increasing need to: serve customers in the international environment bring products to market more quickly introduce products into several countries simultaneously lower costs by firms in each country focusing on their core competencies reduce promotion costs by marketing world-wide under one brand.
Underlying these needs is a realization by firms that in order to be internationally competitive, they also need to be internationally cooperative. Whilst the early approaches to internationalization such as the stages, learning and contingency approaches were developed on the basis of empirical surveys of export practices in the United States and Europe in the 1970s and 1980s, changes in the international business environment mean that such approaches may no longer be relevant. These changes in the environment call for a new approach which embraces a more holistic view of international operation (see Figure 1.3). This new approach needs to recognize the following factors: Firms can also become internationalized by inward-driven activities such as indirect importing, direct importing, becoming the licensee for a foreign firm, and being the joint venture partner with an overseas firm in their domestic market, or by manufacturing overseas to supply the home market. Outward internationalization can lead to inward internationalization and vice versa, as when the franchisee or licensee in one country becomes the franchisor or licensor in another. Internationalization often requires more complex forms of international behaviour in which there is a linking of both inward and outward international activities, as happens with strategic alliances, counter-trade and cooperative manufacture. Internationalization should be viewed as a world-wide activity rather than as an activity with respect to a firms involvement in a specific overseas country. This means that internationalization should focus not only on expansion of international involvement in a particular country but also on contraction. This is because a firm might involuntarily or deliberately reduces its involvement in one country so as to devote resources to more beneficial activities in other countries. This relates to the concept of de-internationalization as proposed by Welch and Benito (1996). Figure 1.3 is a conceptual framework of a holistic approach to internationalization. It shows that factors previously found to apply to outward-driven internationalization also impact on inward and linked forms of internationalization. It also shows that outward forms can lead to inward forms and vice versa. In addition, it illustrates that linked forms of internationalization can be driven by outward forms (for example, a desire to export) or by inward forms (for example, a desire to tie up a long-term supply from overseas of a difficult-to-obtain product). Within each of the above forms, various types of international marketing activity are shown such as exporting, licensing, production overseas, strategic alliances and counter-trade.
12
The motivation for firms to go international International marketing becomes a vital issue for companies that are considering internationalization. They need to take a broad view of the issues that inevitably make the overseas market more complex and unfamiliar than marketing within a national market. The first consideration for firms going international must be their motivation for developing outside their own national markets. Where the opportunity in the domestic market is limited it is reasonable to expect that firms will seek expansion opportunities in international markets. This reasonable expectation underlies push and pull analysis of the motivations for international marketing processes. Such an assumption is fundamental to an interpretation that sees international marketing as a reactive response to the competitive environment. Push factors may be described as those issues that encourage international marketing, or make it imperative, as a result of environmental or company-specific conditions in the domestic market. They are therefore characterized by unattractive trading conditions. Environmental factors such as poor economic conditions, negative demographic trends and regulatory constraints are commonly referred to in this context. Company-specific issues, such as the stage of the companys development, are also commonly seen as instrumental in prompting international marketing action. Where, for example, there are limited growth opportunities in the domestic market, they will be interpreted as pushing the company out of this market and into international markets. The pull factors are essentially attractive conditions that draw companies into new markets overseas. The push and pull factors should be viewed as relative rather than absolute. For example, push factors within the European environment during the 1970s encouraged international marketing activities, while pull factors from the United States encouraged investment in that market. The US market, with relatively attractive social, economic and regulatory conditions, pulled European companies into North America, while unhealthy operating conditions and limited commercial opportunities at home prompted expansion outside the domestic market.
Trade theories and economic development

According to the marketing principle, whenever a seller and buyer come together, each expects to gain something from the other. The same expectation applies to nations that trade with each other. It is virtually impossible for a country to be completely self-sufficient without incurring undue costs. Trade therefore becomes a necessary activity. Thus, the importance of international trade to a nations economic welfare and development has been heavily documented in the economics literature since Adam Smiths (1776) pioneering Inquiry into the Nature and Causes of the Wealth of Nations. The rationale underlying this relationship suggests that economies need to export goods and services in order to generate revenue to finance imported goods and services, which cannot be produced indigenously. One of the broad indicators of a nations economic strength can be gauged from its gross domestic product (GDP), as this measure is an estimate of the value of goods and services produced by an economy in a given period. The notion that international trade can influence GDP has been explored by several economic theorists (Marin 1992), and
Introduction
13
MINI CASE 1.1
Example of retail internationalization (push and pull factors)

Table 1.2 distinguishes between the push and pull factors that help to shape retailers motives for international expansion. Table 1.2 Push and pull factors in retail internationalization Push factors Unstable political structure Unstable economy Matured domestic market Retail format saturation Small domestic market Restrictive regulatory environment Hostile competitive environment Poor economic conditions Negative social environment Unfavourable operating environment High operating costs Consumer credit restrictions Lack of government support Poor infrastructure Pull factors Stable political structure Stable economy Underdeveloped retail structure Larger market Relaxed regulatory environment Good economic conditions Positive social environment Favourable operating environment Favourable exchange rate Low share prices Niche opportunities Attractive socio-cultural fabric Company-owned facilities Innovative retail culture
Other push factors not mentioned in Table 1.2 are: intense competitive pressures within the domestic marketplace the prospect of saturation in the domestic marketplace, leaving little room for business development sluggish performance in the domestic economy, resulting in flat sales in the domestic market restrictive legislation on new business developments. To a large extent, many companies opt for international market expansion by being reactive to these push factors. By contrast, other companies take an active approach through being attracted by opportunities in other countries. Here, there are a number of pull factors at work, including: the identification of fragmented, underdeveloped or niche marketing opportunities in other countries the opportunity to establish a bridgehead for further expansion the presence of attractive acquisition targets. There are some other important facilitating factors that come into play, including improved data communications, the international mobility of managers, and the accumulation of company experience in international trading.
14
culminated in the export-led growth thesis. The tenet underlying this volume of research is that as export sales increase, other things being equal, the GDP of a nation will rise and provide a stimulus to improved economic well-being and societal prosperity. The way in which this relationship can be interpreted suggests that export performance has a stimulating effect throughout a countrys economy in the form of technological transfer and other related favourable externalities (Marin 1992). Export activities may exert these influences because exposure to international markets demands improved efficiency, and supports product and process innovation activities, while increases in specialization encourage profitable exploitation of economies of scale. Thus, the export-led growth thesis predicts that export growth will cause economy-wide productivity gains in the form of enhanced levels of GDP . Another mechanism through which exports are connected with sustainable rates of economic growth is the balance of payments. The balance of payments constraint can be expressed as follows. In general, economic growth creates a variety of demands, which cannot be satisfied solely by domestic output. Beyond a certain level, the faster the rate of domestic demand, the more accelerated the growth of imports. However, any excess of imports over and above exports requires the trade deficit to be financed by either government borrowing from overseas or drawing on the economys stock of assets. If this situation is sustained, it becomes vital for the home government to address the issue of such a trade imbalance (de Jonquieres 1994). The method of addressing the issue of trade imbalance is the consideration of national economic advantage (absolute and comparative).
Absolute advantage Over 200 years ago, the great classical economist Adam Smith first explained how, within a single production unit, output could be increased if workers specialized in different tasks in the manufacturing process. Smith had established one of the most fundamental of all economic principles: the benefits of specialization or the division of labour. The benefits of the division of labour suggest that if each of the worlds countries, with its own endowment of both natural resources and man-made resources, specializes in what it does best, total world output or production can be increased over that possible in a situation without specialization. In economic terms, being better at producing a good or service means that a country can produce a defined amount of the good at the lowest cost in terms of resources used (factors of production or inputs). The country is technically and productively efficient in producing the good. That is, if a country is best at producing a good or service, it possesses an absolute advantage in the goods production, whereas if it is not the best at producing it, the country has an absolute disadvantage. According to this principle, a country should export a commodity that it can produce at a lower cost than can other nations. Conversely, it should import a commodity that it can only produce at a higher cost than can other nations.
Comparative advantage Absolute advantage must not be confused with the rather more subtle comparative advantage. To introduce and illustrate this most important economic principle, we can
Introduction
15
construct a highly simplified model of the world economy, by assuming just two countries say, the United States and China each with just two units of resource (for example man-years of labour) that can produce either of two commodities say, guns or rice. Each unit of resource, or indeed a fraction of each unit, can be switched from one industry to the other if so desired in each country. Suppose the production possibilities are that one unit of resource can produce four guns or two tons of rice in the United States, and one gun or one ton of rice in China. Quite clearly, the United States is best at, or has an absolute advantage in, producing both guns and rice, but it only possesses a comparative advantage in gun production. This is because comparative advantage is measured in terms of opportunity cost, or of what a country gives up when it increases output of one industry by one unit. The country that gives up least when increasing output of a commodity by one unit possesses the comparative advantage in that good. The United States has to stop producing or give up two guns in order to increase its rice output by one ton, but China would only have to give up one gun to produce an extra ton of rice. Thus China possesses a comparative advantage in rice production although it has an absolute disadvantage in both products. When one country possesses an absolute advantage in both industries, as in the example above, its comparative advantage will always lie in producing the good in which its absolute advantage is greatest. Similarly, the country that is worst at both activities will possess a comparative advantage in the industry in which its absolute disadvantage is least.
MINI CASE 1.2
Example of specialized production

The United States and China example above could be used to show that total world production will be greater if each country specializes in the activity in which it has a comparative advantage, than when each country devotes exactly half its resources to each industry. Of cause it is necessary to specify carefully the degree of specialization undertaken in each country. Suppose for example that no specialization occurs and each country (the United States and China) devotes one unit of resource to each industry. The total world production will be five guns and three tons of rice. But now suppose that each country completely specializes in producing the good in which it possesses a comparative advantage. In this case, world production becomes eight guns and two tons of rice. It is important to note that while production of one good (guns) has risen, production of the other (rice) has fallen. Since we are not comparing like for like, this does not necessarily represent a net gain in output. Let us suppose finally that China completely specializes, but that the United States the country with the absolute advantage in both goods devotes just enough resource (half a unit) to top up world production of rice to three tons. This would allow the United States to partially specialize, directing one and half units of resource into gun production and producing six guns. The total world production will now be six guns and three tons of rice. Since at least as much rice and more guns are now produced than in the earlier self-sufficient situation, quite clearly specialization in accordance with the principle of comparative advantage has led to an increased output.
16
The assumptions underlying the principles of comparative advantage To show that definite benefits are likely to result from specialization and trade in accordance with the principle of comparative advantage, a number of rather strong assumptions have to be made. The case for trade and hence the case against import controls and other forms of protectionism is thus heavily dependent upon the realism of these assumptions. Equally, the case against trade and the case in favour of import controls is be based on questioning the realism of the assumptions underlying the principle of comparative advantage. The assumptions include: Each countrys endowment of factors of production, including capital and labour, is assumed to be fixed. Capital and labour are treated as being immobile between countries, though they are capable of being switched between industries within a country. Finished goods, but not factors of production or inputs, are assumed to be mobile between countries. The principle of comparative advantage assumes constant returns to scale. One unit of resource is assumed to produce four guns or two tons of rice in the United States whether it is the first unit of resource employed or the hundredth unit. But in the real world, increasing returns to scale and decreasing returns to scale are both possible. In a world of increasing returns, the more a country specializes in a particular industry, the more efficient it becomes, thereby increasing its comparative advantage. But if decreasing returns to scale occur, specialization erodes efficiency and destroys the initial comparative advantage. In agriculture, over-specialization can result in monoculture, in which the growing of a single cash crop for export may lead to soil erosion, vulnerability to pests and falling agricultural yields in the future. Over-specialization may also cause a country to become particularly vulnerable to sudden changes in demand, or to changes in the cost and availability of imported raw materials or energy. Changes in costs and new inventions and technical progress can eliminate a countrys comparative advantage. The principle of comparative advantage implicitly assumes relatively stable demand and cost conditions. The greater the uncertainty about the future, the weaker the case for complete specialization. Indeed, if a country is self-sufficient in all important respects, it is effectively neutralized against the danger of importing recession and unemployment from the rest of the world if international demand collapses.
International trade theories Economists usually identify three categories of international trade issues (Morgan and Katsikeas 1997): explanations for trade flows between at least two nations the nature and extent of gains or losses to the national economy the effects of trade policies on the national economy. Most theories of international trade are dedicated to the explanation of trade flows between nations, and economists generally turn their attention to the theoretical response in the form of classical trade theory, factor proportion theory and product life cycle theory.
Introduction
17
Table 1.3
Selected theories of international trade

Type of theory Theoretical emphasis Countries gain if each devotes resources to the production of goods and services in which it has an advantage Countries will tend to specialize in the production of goods and services that use their most abundant resources The cycle follows that: a countrys export strength builds; foreign production starts; foreign production becomes competitive in export markets; and import competition emerges in the countrys home market. Credited writers Ricardo (1817) Smith (1776) Hecksher and Ohlin (1933) Vernon (1966, 1971) Wells (1969).
Classical trade theory
Factor proportion theory Product life cycle theory (for international trade)
Classical trade theory This trade theory dictates that the extent to which a country exports and imports relates to its trading pattern with other nations. That is, countries are able to gain if each devotes resources to the generation of goods and services in which it has an economic advantage (Ricardo 1817, Smith 1776). Classical trade theory therefore effectively describes the scenario where a country generates goods and services in which it has an advantage, for consumption indigenously, and subsequently exports the surplus. Conversely, it is sensible for countries to import those goods and services in which they have an economic disadvantage. Economic advantages/disadvantages may arise from country differences in factors such as resource endowments, labour, capital, technology or entrepreneurship. Thus, classical trade theory contends that the basis for international trade can be sourced to differences in production characteristics and resource endowments which are founded on domestic differences in natural and acquired economic advantages. However, over and above such a general insight into international trade, classical trade theory is unable to offer any explanation of what causes differences in relative advantages.
The factor of proportion theory In contrast to classical trade theory, proportion theory is able to provide an explanation for the differences in advantage exhibited by trading countries. According to this theory, countries will tend to generate and export goods and services that harness large amounts of production factors they possess in abundance, while they will import goods and services that require large amounts of production factors that are relatively scarce (Hecksher and Ohlin 1933). This theory therefore extends the concept of economic advantage by considering the endowment and costs of factors of production.
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The product life cycle theory Both the classical and the factor of proportion theories have been shown to be deficient in explaining more recent patterns of international trade. For example, the 1960s witnessed significant technological progress and the rise of the multinational enterprise, which resulted in a call for new theories of international trade to reflect changing commercial realities (Leontief 1966). At that time, the product life cycle theory of international trade was found to be a useful framework for explaining and predicting international trade patterns as well as multinational enterprise expansion. The product life cycle theory explains the pattern of world production, specialization and trade in manufactured goods in terms of the nature of technical progress. Early in its life cycle and immediately following its successful innovation, a product is likely to be strongly differentiated from competing products. By creating a highly profitable relative monopoly position for the innovative firm, such product differentiation provides an important motive for technical development (Porter 1990). At this stage of the products life cycle, manufacture is usually located in the country of origin of the innovative company, where its research and development facilities are concentrated. But at a later stage when the company loses its monopoly over the existing technology, when the product becomes more standardised with agreed international specifications, and when mass production combines economies of scale with the application of routine relatively unskilled labour, the advanced economies lose their comparative advantage and production shifts to the new industrialized countries (NICs). Meanwhile, the innovative firms in the advanced industrial countries attempt to maintain their lead by further technical progress and product development, while at the same time owning subsidiaries in the NICs in which they manufacture for export back to the developed world the older products which are now well into their life cycles (Wells 1969). This theory suggested therefore that a trade cycle emerges where a product is produced by a parent firm, then by its foreign subsidiaries and finally anywhere in the world where costs are at their lowest possible (Vernon 1971, Wells 1969). Furthermore, it explains how a product may emerge as a countrys export and work through the life cycle to ultimately become an import (see Table 1.3). The essence of the international product life cycle is that technological innovation and market expansion are critical issues in explaining patterns of international trade. That is, technology is a key factor in creating and developing new products, while market size and structure are influential in determining the extent and type of international trade. While the theories outlined in Table 1.3 are insightful, a number of modern international trade theories have also emerged which take account of other important considerations such as government involvement and regulation. However, it remains that these theories make several assumptions that detract from their potential significance and contribution to international trade. For instance, they assume that factors of production are immobile between countries, perfect information for international trade opportunities exists, and traditional importing and exporting are the only mechanisms for transferring goods and services across national boundaries.
Introduction
19
Foreign direct investment (FDI)

Over the past two decades direct investments by multinational firms have grown significantly faster than trade flows, particularly among the worlds most developed economies. International economic activities increasingly involve foreign production and intra-firm trade by multinational firms, and it is now estimated that about 30 per cent of world trade is intra-firm. Foreign direct investment (FDI) refers to the establishment, management and control of a new venture overseas. The establishment of such venture usually involves a heavy financial and managerial commitment on the part of the investing company. The investing company transmits equity capital, entrepreneurship, technology or other productive knowledge in the context of an industry-specific package. One of the major implications of neoclassical growth theory is that all countries will eventually converge to the same level of productivity. The lack of evidence that this is happening prompted the development of new growth theories. One of the major characteristics of these new theories is the endogenization of technology. In the evolutionary approach technology is considered as an endogenous factor. Furthermore, in a microeconomic context, technology has important private good characteristics as well as public good characteristics. This implies that the benefits of innovation can be partly appropriated. Technological differences between countries remain, to a certain extent, persistent under the assumption that diffusion occurs more easily within a country than between countries. In other words, it is likely that no country can rely fully on imitation to obtain the technological frontier. This also suggests that technology gaps stem from an accumulation process, rather than resulting from different natural endowments. In the neoclassical growth models, long-run growth stems from technological progress and labour force growth, which are both assumed to be exogenous (see Dunning 1998).
The eclectic paradigm Dunning (1980) developed the eclectic paradigm, which synthesizes previous theories under a single conceptual scheme, which was subsequently reformulated (see Dunning 1998). His developments, along with the complementary works of Buckley and Casson (1998), constitute the eclectic conceptual framework. The eclectic paradigm proposes that the undertaking of FDI is determined by the realization of three groups of advantages: Ownership advantages are specific to the company and are related to the accumulation of intangible assets, technological capacities or product innovations. Internalization advantages stem from the capacity of the firm to manage and coordinate activities internally in the value added chain. They are related to the integration of transactions into multinational hierarchies through FDI. Location advantages refer to the institutional and productive factors that are present in a particular geographic area. They arise when it is better to combine products manufactured in the home country with irremovable factors and intermediate products of another location.
20
Factors
Ownership
Internationalization
Location
Decision based question
Why?
How?
Where?
FDI
Why undertake FDI?
Why internationalize via FDI instead of other forms?
Where to undertake FDI?
Figure 1.4
Key decisions in the FDI process
FDI will take place when these three kinds of advantage come together. According to the reasoning of Buckley and Casson (1998), all the advantages are interconnected and affect indistinctly the likewise interconnected decisions of why, how and where to internationalize (see Figure 1.4). It is apparent from Figure 1.4 that ownership advantages mostly determine the why decision, internalization advantages mostly determine the how decision and location advantages mostly determine the where decision. The eclectic paradigm is dynamic. The continuous incorporation of new companies to the internationalization process and the changing and more and more receptive policies in developing countries are giving rise to new trends in the way of carrying out FDI (Dunning 1997).
The impact of FDI on national economies FDI should have only a short-run effect on output growth, but the adoption of endogenous growth theory has encouraged research into channels through which FDI can be expected to promote economic growth in the long run (Borensztein, de Gregorio and Lee 1998). The view of FDI is therefore optimistic, suggesting that multinational firms have important complementarities with local industry, and stimulate development and welfare in the host economy. The impact of FDI on growth runs through the following channels: 1 By capital accumulation in the recipient country, FDI increases economic growth by encouraging the incorporation of new inputs and foreign technologies in the production function of the recipient economy (Borensztein et al. 1998). Thus, a catch-up process in the level of technology explains growth rates in host countries. 2 By knowledge transfers, FDI is expected to boost levels of knowledge in the recipient economy through labour training/skill acquisition (de Mello 1997). 3 FDI may also change the structure of imperfectly competitive industries by intensifying
Introduction
21
competition, and this in turn may create demands for local output and strengthen the local supply industries. 4 FDI promotes technological upgrading, in the case of start-up, marketing and licensing agreements. It may also lead to the establishment of local industrial sectors, and these sectors may grow to the point where local production overtakes and forces out FDI plants (Markusen and Venables 1999). FDI can therefore be seen as a catalyst for industrial development and technological upgrading. As a result, foreign investors may increase productivity and technological progress in the recipient economy and therefore have a large impact on economic growth and welfare.
The determinant factors of FDI Figure 1.5 depicts some of the factors that multinational firms consider in making FDI decisions. The state of the economic environment may affect the volume and type of FDI inflows in the recipient economy (see also Galan and Gonzalez-Benito 2001). Similarly, the technological capability of the recipient economy is likely to correlate significantly with the extent of FDI. If foreign multinational enterprises are exactly identical to domestic firms, they will not find it profitable to enter the domestic market. In other words, technological advantages, lower factors costs, factor endowments, and higher productivity of the recipient country should increase the attractiveness of FDI (see Bradley 2002). These are quite consistent with international investment theory, as proposed by Dunning (1998), who suggested that three conditions (ownership, location and internalization) all need to be present for a firm to have a strong motive to undertake direct investment. Additional factors that may have strong association with FDI inflows are the degree of macroeconomic stability and the trade policy of the host country. The host economy becomes more attractive once it has implemented monetary and fiscal discipline to control inflation, liberalization reforms, and has promoted trade and provided the necessary institutional framework for property rights and cross-border legal and financial settlements. All these factors can be deemed to foster growth, and the ensuing higher growth rate may then attract larger FDI inflows. The effectiveness of macroeconomic policies is important in making the economic environment attractive to foreign investors. Furthermore, FDI influences growth through the catch-up process in technology and through knowledge transfer. By promoting growth in the recipient economy, inflows of FDI will increase and this in turn will have additional effect on growth and welfare. The advantage of endogenous growth models is that the long-run growth is affected not only by technological changes but also by institutional and country-specific factors. For example, government policy can induce a permanent increase in the rate of output growth by making the state of the economic environment in the recipient economy more appealing to foreign investors. Thus, the following factors are likely to have significant impact on FDI inflows (see de Mello 1997): the recipient economys trade policy, productivity growth, legislation, political stability, balance of payment constraints, and the size of the domestic market. These factors are mostly related to the moderating role of the environmental risk elements in the recipient economy and the uncertainty involved, which the investor needs to consider.
22
The determinant factors of FDI
Ownership factors
Internationalization factors
Location factors
Experience of local
market Availability of government grants Economies of scale Technological capabilities Scope of market opportunities Trading advantages Joint administration of resources
Ability to control
activities and resources Diversify the risks Follow the traditional customers Tariffs against foreign goods High cost of distribution Produce in proximity of customers Previous export experience
Size of the country Market potential Market competition Market trading opportunities Cheap labour and transportation costs Industrial concentration Cultural affinity Cultural close
Figure 1.5
Factors favouring FDI decisions
FDI and risks consideration The strength of the relationship between uncertainty and the firms decision to engage in FDI is moderated by factors such as capital intensity and firm size. Many multinational firms are known to serve foreign markets through FDI in preference to exporting and licensing. Many determinants of FDI spanning host country, product, industry and firm characteristics are known to contribute to firms decisions to use FDI. Of these, environmental uncertainty occupies a position of pre-eminence. In the international marketing literature, uncertainty is categorized as: Internal uncertainty, caused primarily by the firms lack of knowledge of host markets because of a dearth of international experience or entry into culturally unfamiliar host markets. A firm perceives internal uncertainty when it lacks market-related knowledge in a particular entry situation. Internal uncertainty can arise from the firms lack of experience in international markets, or from the cultural distance between the firms home country and host country: that is, the differences between the countries cultures, languages and business practices. The more culturally dissimilar two countries are, the greater the internal uncertainty perceived by the firm. Internal uncertainty causes managers to discount investment opportunities and refrain from ownership. It also makes managers unsure of their ability to manage foreign
Introduction
23
operations and impedes transfer of home-country management expertise to hostcountry operations. External uncertainty, resulting from volatility in the host markets. External uncertainty arises out of the volatility or the unpredictability of the host country. Political instability, economic fluctuations, currency changes, labour disputes and infrastructural difficulties all contribute to unpredictability in overseas markets and represent major sources of external uncertainty. High country risk, a variable used to represent external uncertainty, discourages commitment of resources to foreign markets. This internalexternal dichotomy is consistent with the broader strategic management perspective put forth by Miller (1993), that uncertainty can arise from inadequacy of information on certain variables or from the unpredictability of the environment. Miller has found that firms reduce resource commitments in the face of growing uncertainty. In turn, reduction in resource commitments would favour non-FDI modes over FDI modes. But, it is not clear whether the strength of the relationship between uncertainty and choice of FDI remains constant in all situations. Miller also observed that firms do not respond to uncertainty with equal intensity in all situations. Cultural factors are usually one of the major considerations when FDI decisions are made.
Culture and international marketing development

Belk (1996) argues that internationalization does not necessarily entail homogenization of markets, especially the assimilation of other cultures to the Euro-American models. Cultures transform international marketing meanings into unique local market meanings, which are interpreted very differently. Thus, cultures are resilient and enduring, and so is the concept of international multiculturalism. Although internationalization might not adequately homogenize cultures, it might polarize them on the basis of both material and abstract cultural differences (Manrai and Manrai, 1996).
East and west cultures At the primary level of analysis, we could dichotomize the world into two cultures: Eastern cultures these are characterized by high power distance, collectivism, femininity and long-term orientation. For example, Japan in comparison with Western Europe is a high power distance, collectivist, long-term-oriented society. It is also a very strong uncertainty avoider, which is reflected in tight, stable and long-lasting relationships (Van Den Bosch and Van Prooijen 1992). Western cultures these are characterized by low power distance, individualism, masculinity and short-term orientation (see Hofstede 1991). Another important distinction is that eastern countries are high-context cultures in comparison with western countries, which are low-context cultures. This means that the social context of transactions is given high importance in eastern cultures. For example, Hall and Hall (1987) observed that eastern cultures have a polychronic view of time
24
(multiple activities at a time) whereas western cultures have a monochromic view of time (single activity at a time). At the secondary level of analysis, we can also see differences within each major grouping. Within the western culture, Anglo (for example Canada, Ireland, the United Kingdom and the United States) and Germanic countries (for example Austria, Germany, Switzerland) are high on masculinity, whereas the Nordic countries (for instance, Denmark, Norway, Sweden) are high on femininity. Similarly, within the western cultures, North America (the United States and Canada) can be considered relatively higher in the cultural context than Western Europe (Manrai and Manrai 1996). Hence, in the continuum of time concept, East Asian countries are polychronic, Western European countries are monochromic, and North American countries lie in-between the two although closer to the Western European countries.
Cultural influences Culture to many people is a dustbin word (Holden 1998). If cultural differences are assumed to have an influence, culture is seen as a convenient catchall for the many differences in market structure and behaviour that cannot readily be explained in terms of more tangible factors (Buzzell 1968). If we take Europe as an example, international marketers would like us to believe that in the new Europe with a single currency, people will become more similar, will increasingly eat the same food, wear jeans and sports shoes and watch the same television programmes. The reality is of course different. Few people watch international (English language) television programmes regularly (see de Mooij 2000). Understanding of the English language still varies widely and few Europeans, apart from the British and the Irish, regularly watch English language television without translation (EMS 1999). There also remain large differences between the value systems of the peoples of Europe. These differences were expected to disappear with the single European market in 1992 but they did not. They have not disappeared with the introduction of the euro either. Values are strongly rooted in history and appear to be stable over time.
Cultural values Although there is evidence of convergence of economic systems (see Paliwoda 1999), there is no evidence of convergence of peoples value systems. On the contrary, there is evidence that with converging incomes, peoples habits diverge (de Mooij 2000). More discretionary income gives people more freedom to express themselves, and they normally do that according to their own specific value patterns. According to de Mooij, there are basically four reasons that international marketers are reluctant to accept this viewpoint: What unites marketers worldwide is the wish for change. Change and trends are what the marketing environment thrives on. New trends mean new business. This preoccupation with change makes it so difficult to understand the stability of cultural values. The origin of most multinational companies is America and/or Britain, or Anglo-
Introduction
25
American management dominates them so they are very individualistic. Individualism implies universalism, thinking that the rest of the world is like oneself, or will become like oneself. For individualists, it is difficult to understand that others may be different, and will remain so in the foreseeable future. Their focus (Holden 1998) is on global markets, on similarities, not on the differences. Those who preach the importance of cultural differences in the international marketplace do not have much empirical evidence to refer to. The few results of cross-cultural academic research trickle down too slowly. The problem of cultural values is that they are difficult to vocalize. Cross-cultural studies that can be applied to international marketing are few. Thus, a model that distinguishes values of national culture, developed by Geert Hofstede (1991) for the purpose of intercultural management, can also be used to understand differences in consumption and consumer behaviour.
National culture and consumption patterns Many of the differences in product usage and buying motives across Europe for example, are correlated with Hofstedes dimensions. Values of national cultures influence, for example, the volume of mineral water and soft drinks consumed, ownership of pets, of cars, the choice of car type, ownership of insurance, possession of private gardens, readership of newspapers and books, television viewing, ownership of consumer electronics and computers, use of the Internet, sales of video cassettes, use of cosmetics, toiletries, deodorants and hair care products, consumption of fresh fruit, ice cream and frozen foods, use of toothpaste and numerous other products and services, fast-moving consumer goods and durables. These differences are stable or becoming stronger over time. This stability of cultural values is in contrast to what economists expect: that with converging incomes, cultural values and habits will also converge. The opposite is true. Cultural values are stable and with converging incomes they will become more manifest. When people possess more or less enough of everything, they will spend their incremental income on what most fits their value pattern. Americans will for example buy more cars, the Dutch will buy more luxurious caravans and the Spanish will eat out even more than they do now. Many of the current marketing theories have been developed and validated only in western cultures, particularly the United States. The further advancement of international marketing as an academic discipline requires that the validity of marketing theories and models be examined in other cultural settings as well, to identify their degree of generality and to uncover boundary conditions. This will assist international marketers to select foreign markets that are culturally compatible. For international marketing, the future is predictable, but in a different way than is generally expected. Disappearing income differences will not cause homogenization of needs. On the contrary, along with converging incomes, the manifestation of value differences will become stronger. This phenomenon makes it increasingly important to understand values of national culture and their impact on consumer behaviour. This knowledge can be a powerful tool for international marketing. If it is accepted that the core values of national cultures are stable and will influence both existing and future consumer behaviour, the future use of innovations can be predicted. Thus international marketing can be more efficient.
26
Management issues in international marketing

International marketing management is faced with three basic decisions. The first is whether to engage in international marketing activities at all. Second, if a company decides that it wants to do business in international markets, then a decision has to be made concerning what specific individual markets are to be served. Finally, the company must determine how it is going to serve these markets: that is, what method should be used to get product(s) to the consumers in foreign markets. This last decision is the basic marketing mix decision, and includes planning and strategy with regard to market entry, products, promotion, channels of distribution and price. International marketing management includes the management of marketing activities for products that cross the political boundaries of sovereign states. It also includes marketing activities of firms that produce and sell within a given foreign nation, if the firm is a part of an organization that operates in other countries, and there is some degree of control of such marketing activities from outside the country in which the firm produces and sells the product. International marketing management involves the management of marketing not only to but also in foreign countries. From an overall perspective these dimensions relate to the broad area of foreign market entry strategy. The planned and coordinated combination of marketing tools employed to achieve a predetermined goal is called a marketing programme. A central feature of marketing is consumer orientation. The marketing programme should be formulated with the interests and needs of consumers in mind. It must be structured in such a way as to integrate the customer into the company and to lead to creating and maintaining a solid relationship between the company and the customer. A firm operating in this manner is said to be market driven, and is concerned with what the consumer will buy that can be made profitably. Modern international marketing thought means having a customer focus identifying values desired by customers, providing them in the same way, communicating these values to customer groups and delivering the values. Values mean benefits focused on solving customer problems and not merely on the products and services that serve as the vehicle of the solution. The focus is on the customer and on solving problems faced by the customer. The fundamental management issue is to understand the international customers perception of value, to determine a superior value position from this perspective, and to ensure that, by developing a consensus throughout the company, value is provided and communicated to the customer group in the world markets. The role of marketing management is to: understand customers perception of value identify the value the firm expects to provide determine a superior value position for the company provide the value expected determine the appropriate positioning and brand strategy communicate the value distribute and price the product/service deliver the value to the customer. It is misleading to think, however, that only the marketing function in the company affects marketing outcomes. Value emanates from the business system in which the company operates, and the company may leverage other firms and individuals in the system (customers, suppliers and particularly others that complement the firm in what it provides) in creating that value. A long-term marketing orientation draws together
Introduction
27
suppliers, customers, competitors and partners to create value in the entire organization. It is the international marketing system as a whole that creates value within a set of dynamic relationships (Brandenburger and Nalebuff 1996) among customers, suppliers, competitors, partners and the company itself. The international marketing system thus consists of customers, competitors, partners, suppliers and the company itself. In this system the company is the focus of attention, as it establishes relationships with all the other participants located in the domestic market and abroad. In establishing relationships in this international marketing system the company must also consider the environment of international marketing, which reflects the influence of culture, economics and politics on the system (see Chapter 2). Developing an appropriate international marketing strategy in the firm involves coping with the specified relationships within this international marketing system. In the international marketing system the company can offer its customers a different way of perceiving its business. This is particularly true in an Internet world. The customer in the foreign market can see upstream into the companys organization and processes, directly to its capabilities and skills. This mechanism also extends beyond the company to its suppliers, which are also part of its proximate environment. In a process that goes beyond customization, the customer is able to design unique mixes of skills and capabilities to match its requirements. In this view of the international marketing system the company is not only placing its capabilities at its customers disposal, it is also aligning its own upstream supply chain for the customer. In this framework, rather than place discrete orders for goods and services with the company, the foreign-based customer can link its production process seamlessly, and perhaps electronically, back up the value chain through the companys manufacturing, account management and procurement processes. Increasingly, international customers, especially those in high technology and industrial products markets, work with the companys capabilities as if they owned them. Single sourcing is facilitated in such a regime, whereby the relationship marketing paradigm dominates the exchange paradigm.
Summary
This chapter charted recent macromarketing developments and the impact that they are having on international marketing management. The chapter started by discussing the nature and definition of international marketing, then reviewed the trade theories from where international marketing originated. The chapter placed emphasis on the following factors: The discipline of international marketing provides an understanding of marketing practices indifferent countries, its structural determinants anchored to national differences, and the deployment of country-specific marketing strategies. International marketing is related to other fields of study such as international business and international trade. The purpose of a theory in international marketing is to explain marketing behaviour as it crosses national boundaries. Firms internationalize to overcome domestic saturation and to exploit their competitive marketing advantage in new markets.
28
Trade will be advantageous if each of two countries specializes in the production of those commodities in which it has a comparative advantage. Both multinationals and the recipient nations benefit from foreign direct investments but firms must consider carefully the risk involved in making FDI decisions. Cultures transform international marketing meanings into unique local market meanings which are interpreted differently, and values of national cultures influence products and/or services consumption. International marketing management is concerned with the understanding of international consumer perception of value and how this is taken into consideration in the preparation of international marketing plans.
Revision questions
1 Explain what you understand by international marketing. 2 International marketing is about the application of marketing concept and philosophy but has predominantly remained a contextual practice. Discuss this statement and explain why it has been difficult to develop theories of international marketing. 3 What do you consider to be the factors causing firms internationalization? 4 The theory of comparative advantage states that trade will be advantageous if each of two countries specializes in the production of those commodities in which it has a comparative advantage. Explain this theory with the aid of suitable examples. 5 Briefly describe classical trade theory, factor proportion theory, and the product life cycle theory for international trade. 6 Describe the key decision processes for a firm embarking on foreign direct investment 7 What are the factors that are likely to be considered by multinational firms when making foreign direct investment decisions? 8 Cultures transform international marketing meanings into unique local market meanings that are interpreted very differently. Evaluate this statement using suitable examples. 9 The fundamental management issue for international marketers is to understand the international consumers perception of value. Discuss the role of international marketing management with regard to this issue.
SEMINAR CASE STUDY
Market opportunities and barriers in the Chinese emerging market

During the last two decades, the Chinese emerging market has undergone a dramatic transformation, with a tendency to privatization, liberal trade policies and free market forces. While FDI has become a major force driving economic growth in developing countries, foreign-funded projects have not always led to profitable enterprises. Similarly, while many multinational corporations (MNCs) have engaged in infrastructure projects, a significant number of them have invested in local manufacturing to explore the untapped market potential, ranging from family cars, appliances and consumer electronics to food and
Introduction
29
beverage products in China. While some MNCs have enjoyed rapid growth and increasing revenues in China, they have also encountered a whole array of problems, the solution of which has eluded even some of the biggest global companies. Some companies have taken heavy losses from their operations in China, and these reached their climax in the aftermath of the recent Asian financial crisis. Many MNCs have not given enough attention to understanding of the Chinese market structure and local consumers. Despite the preponderant reporting of the surge in consumer power in China, they have stayed at the level of descriptive information such as rapid urbanization and other macroeconomic statistics, and sometimes led to a distorted view of the marketplace and misreading of consumer demand. While the ongoing economic transformations in the Chinese market are revolutionary in nature, international marketing strategists have yet to translate such information into actionable strategies for MNCs. The lack of valid and reliable data, compounded by rapid changes in these societies, has contributed to the paucity of in-depth analysis which MNCs desperately need to make informed decisions. Attracted by the concept of a global consumer, including those in the emerging markets, MNCs foresaw incremental sales and soaring profit. The assumption was that consumers regardless of their country of residence migrate towards the same aspiration: high-quality goods to enhance their quality of life. However, market evolution in China is less likely to replicate the development process that happened in developed nations. To compete effectively, MNCs need to define the consumers of emerging markets which are significantly different from those in the west and to develop an approach to serving their needs. Assessing effective market size and consumer purchasing power, and understanding peoples attitudes to new and western products, are among the critical issues that remain significant challenges for multinationals. One of the delusions that impaired many MNCs was the assumption that China is a huge and single market. In reality, geographic diversity and economic disparity are prevalent in China. While the metropolitan area of Shanghai has become the hotly contested market, vast areas of China show quite a different picture. In fact, the Chinese market includes a number of smaller sub-markets which are distinct from one another in many ways, including language, culture and economic development. Regional disparities in economic infrastructure, consumer purchasing power and distribution channels often pose significant barriers for MNCs trying to adopt uniform strategies in China. Thus, understanding of regional diversity within the Chinese market can help firms assess the opportunities and risks there and enact effective marketing strategies. China is attractive to MNCs for two reasons: its substantial size and the high growth rate of its consumer market. With a geographic area comparable to that of the United States, China has 1.3 billion people, who represent one-fifth of the world population. Most Chinese reside in the eastern provinces, making it a highly concentrated market. With a birth rate higher than those of western nations, the country has a relatively young population. Their common language and cultural heritage, reinforced by decades of Communist rule, give the appearance of a homogeneous market. With a growing economy, an enormous and presumably homogeneous population, China promises many opportunities for rapid growth and expansion with efficient marketing operations. In the last two decades, the Chinese government has reformed its economy, introduced market forces, and opened one industry after another to foreign investors. As part of its campaign to join the World Trade Organization (WTO), China has reduced tariffs and the number of products requiring import licences, revised customs laws, and strengthened intellectual property protection. At the macroeconomic level, its GDP reached $954 billion in 1998, making it the sixth largest economy in the world (US-China Business Council 1999). Since 1992, China has welcomed broad-based foreign participation in the retail sector. Rapid
30
increases in consumer purchasing power and changing spending patterns have driven up sales of many consumer goods. The retail market of China grew from $200 billion in 1996 to $351 billion in 1998. Attracted by these quickly multiplying figures, many MNCs have dreamed of turning every Chinese into a customer. Today, China is the second largest recipient of FDI, with more than 320,000 foreign investment projects operating in the country. Global companies such as Coca-Cola and Kodak have established a significant presence in China, with multiple production sites and distribution networks that can reach even the remote parts of the country. Meanwhile, many MNCs in China have encountered daunting challenges and found the market elusive. They have overestimated the demand for their products while underestimating the level of competition in China. As some MNCs expand aggressively into inland regions, incremental sales from these new markets have not kept up with the escalating costs, resulting in lacklustre performance. As at June 2001, significant numbers of foreign firms operating in China were not profitable. In spite of the well-publicized emerging middle class consumers with increasing income and a craze for foreign goods, focusing on sheer size of the population and rising income alone as an indication of market readiness creates an inaccurate perception of the opportunities and risks there. The profile of a super consumer found in some coastal areas hardly reflects the diversity among the majority of Chinese. Such misconception has led many MNCs to engage in rapid capacity building and in deferrable projects, which would help them take pre-emptive positions or keep competitive parity but only led to overshooting the local demand. For instance, competing with its arch-rival to expand in China, Pepsi-Cola established three bottling plants there, yet they are reportedly running below capacity and bottling for local producers. Contrary to the popular belief, China is largely a developing country and consists of multiple markets segmented by regional economic development and local culture. While residents in Chinas coastal areas and major cities are increasingly better off, most people in rural areas are still living from hand to mouth. Following the open door policy, the coastal areas of China were the first to attract outside investment and have benefited the most from economic reforms. The vast interior provinces are lagging behind in economic development. Furthermore, the Chinese also have diverse cultural patterns exhibited by variations in dialects, values, lifestyles, traditions and customs. Regional differences in consumer purchasing power, distribution channels and transportation logistics can erect major barriers for MNCs trying to exercise a uniform approach to the local markets. For MNCs seeking entry and expansion in China, it is important to recognize that China is actually a conglomeration of markets divided by such factors as level of economic development, industrial priorities and local cultures. Although many companies have focused on specific groups of Chinese consumers, including women and young people, these are usually urban consumers based in a few big cities. As MNCs continue to increase their stake in the country, understanding of regional differences in consumer purchasing power and lifestyles is critical for them to assess local market demand accurately and to enact effective marketing strategies. The importance of regional disparities for marketing operations in China is vivid. Lately, several companies including Pepsi-Cola have embarked upon a geographic segmentation of China based on location, economic development and local culture. The geographic segmentation is intended for the understanding of the Chinese consumers and for improving marketing strategies. Finally, it is important for MNCs to understand the overall market potential of China as well as regional differences. Each regional market has its unique geographic typography, economic base and cultural heritage. Consumers in various regions are also known to differ
Introduction
31
in income, values, lifestyles and extent of contact with the outside world. These differences may in turn affect peoples perception of foreign goods and their purchase readiness, and present tremendous hidden barriers between the markets, making it difficult for MNCs to exercise a national marketing and distribution strategy. Thus, for MNCs striving for a nationwide presence, understanding the impact of regional variations can improve planning and marketing strategies. Since sales of foreign goods are limited to the cities, it may be necessary for MNCs to have this knowledge for successful international marketing strategy implementation in China. Case study seminar questions 1 In the light of the information contained in the case study, discuss what you consider to be the opportunities and barriers to international marketing operation in China. 2 In spite of the implications and the likelihood of failure, China is one of the largest recipients of FDI. Why do you think this is happening? 3 According to the case study, to compete effectively, MNCs need to define consumers in China who are significantly different from those in the West and to develop an approach to serving their needs. Expand and discuss how this could be done.
Managerial assignment task

You have recently been employed by ABF, an UK-based international foods, ingredients and discount clothing retailer, as a marketing manager in charge of discount clothing. The company has operations in North America, Australia, New Zealand, Poland and China. The marketing director has now decided that you will be representing the company in China. During the initiation seminar, you were reminded of the following international marketing functions: International marketing means identifying needs and wants of customers, providing products and services to give the firm a differential marketing advantage, communicating information about these products and services, and distributing and exchanging them internationally through one or a combination of foreign market entry modes. In preparation for your official duties, you were asked to write a report on how you would carry out these international marketing functions on behalf of ABF in China to give it a competitive marketing advantage. Your report should be presented to the board of ABF in London, and a copy should be submitted to the marketing director for evaluation.
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Index
4 see four 5 see five 7 see seven 8 see eight A Aaker, D., 253 accessibility of markets, 141 account management international, 3906, 3989 key, 412 acquisitions, 13, 139, 1568, 242 and new products, 244, 262 adaptation vs standardization, 1625 advantages absolute and comparative, 1417 internationalization, 1920 location, 1920 ownership, 1920 advertising, 124, 179, 368, 3738 agencies, 378, 3902, 395, 3989 ethical issues, 482 on the Internet, 330, 331 legal restrictions, 49 media, 331 after-sales analysis, 420 service, 197, 330 Agarwal, J., 15960 agents, 31415, 320, 3223, 325 advertising, 378, 3902, 3989 appointment of, 31415 as barrier to internationalization, 8 for exports, 17680 and information, 415 law of agency, 179 market research, 90 types of export agent, 1778 agriculture, 2047 in less-developed countries, 60 in Romania, 496 see also food Akout plc, 2356 Albaum, G., 194 Alexander, M., 117 alliances, strategic, 1011, 129, 143, 15962, 272, 3245, 402, 407, 439 motives for, 161 purchasing, 406 aluminium industry, 112 amazon.com, 402, 405, 422 American Association of Advertising Agencies, 371 Ansoff, I. H., 130 antitrust regulations, 50 arbitrage, 196 Asda, 635, 217 asset specificity, 310 Association of Southeast Asian Nations (ASEAN), 199, 202 AT&T, 392 Auchan, 156 auctions, electronic, 405 automobile companies, 125, 156, 163, 262, 2712, 340 company suppliers, 2423, 328 imports and exports, 196, 327, 340 parts counterfeiting, 355 see also Ford Motor Corp. avoidance strategies, 122 B Baalbaki, I., 15960, 313 balance of payments, 14 Banco Santander, 163 banks, 163, 165, 186, 279 to finance exports, 184, 1869 barriers to internationalization/ trade, 150 government policy as, 467 licensing as, 45 and national culture, 1523 personal mobility barriers, 282 tariff and non-tariff, 37 types of, 150 barriers to market entry, 108 lower using Internet, 406 standards as, 425 ways of circumventing, 161 Barry, D., 222 barter, 1925, 360, 362 example, 3645 see also counter-trade BAT, 1567 Baty, J. B., 464 BBDO, 398 Beckerman, W., 114 beer prices, 337 behavioural market segmentation, 214 Belk, R. W., 23 benefits as positioning basis, 1268 Benetton, 307, 442 Benito, G. R. G., 11 Berne Convention, 51, 54 Berry, L. L., 295 bias, research, 801 Big Mac index, 41 biotechnology, 2047 Bitner, M. J., 28991 black market, 329 Body Shop, The, 157, 494, 503 Boeing, 193 bonding, 185 Booms, B. H., 28991 Booz Allen Hamilton, 246 Borden, 307 Boulstridge, E., 501 boundaries, blurring of market, 161 boycotts, consumer, 5012 brand(s), 240, 2529, 371, 459 awareness, 253, 379 co-branding, 2546, 258 corporate, 371, 373 counterfeiting see counterfeiting equity, 253 global, 2589 and grey market, 635, 1978 international, 448 international consistency, 124, 256 leverage, 310 local, 255 loyalty, 253 luxury, 4501 in marketing research, 95 national, 2546, 258 own-label, 2548 piracy, 3546 preference strategy, 3401
508
Index
relationship quality, 253 retail, 124 single and multiple, 255 strategy, 26, 2534 value, 198, 253 Brazil, 61, 162, 447 bribery, 41, 48, 50, 141, 320, 327 brick-and-click organizations, 405 see also retailing, websites Brock, D., 222 Brodie, R. J., 410, 411 Buckley, P J., 1920 . bulletin boards, 978 business definition of, 226 structures, 141 see also organization business-to-business marketing, 40130 channel control, electronic, 40622, 468 relationship lifecycle, 411 segmentation, 214 standardization in, 164 transaction process, 41720 business-to-consumer (B2C) marketing on the Internet, 4046, 4628 buy-back agreements, 185, 193, 360 see also counter-trade Buy British, 3801 buyer behaviour segmentation, 214 buying alliances, 323, 406 process, 41416, 448 C C&A, 447 Cadbury, 323, 503 Caf Direct, 4934 Calori, R., 432 Calvin Klein, 64 Campbell, A., 117 Campbells Soup, 247, 248 Carnegie, A., 487 Carrefour, 125, 217, 384, 442, 447, 448 Carrigan, M., 502 Carroll, A. B., 487 cars see automobiles cashflow issues, 153 finance for, 1869 Casson, M. C., 1920
category killers, 125, 446 Cateora, P R., 7, 199 . censorship, 297 Chae, M. S., 117, 119 change marketers wish for, 24 organizational, 222 see also innovation channel disintermediation and reintermediation, 415, 423, 458 international, 3923 members and promotions, 384 natural, 3067 power, 384 structures, 1212, 30413 see also distribution Chartered Institute of Marketing, 94 Chee, H., 128, 140 chemicals sector, 175 Chen, L., 466 Chiat Day, 399 chief executive officer (CEO) level of involvement, 11718 China, 42, 45, 54, 601, 153, 163, 337, 443 market opportunities and barriers, 2831 piracy in, 3556 Choi, J. W., 464 Citibank, 165, 392 Clarke, I., 63 classical trade theory, 17 clearing accounts, 360 Clipper Teas, 493 co-marketing see alliances, strategic Coca-Cola, 51, 112, 114, 247, 325, 375, 395, 398 Cockfield, Lord, 201 codes of conduct, 94, 97, 318 colonialism, 3 Comercial Mexicana, 156 commitment, 387 common market, 200 see also trade blocs communications, 367400 adaptation of, 2478 between consumers, 409 integrated international marketing (IIMC), 371 via the Internet, 409, 458, 459 key elements of international marketing, 372
process of, 36870 in relationship marketing, 388 see also advertising, promotion comparative advantage, 1416, 10511 and technology, 56 comparative marketing approach, 4 competencies, 143, 221 core, 105, 113, 228 core national, 11 competition competitive legislation, 1545, 319 imperfect, 201 and the Internet, 406 level of, 40 and marketing channels, 311 and pricing, 338, 346 in service provision, 2978 competitive advantage, 70, 10511, 126, 286, 33941, 469 (see also comparative advantage) analysis, 401 marketing strategies, 10437 scope, 107, 1089 significance of markets, 1467 strategy see under strategy sustainable advantage, 11011 competitiveness, companys international, 143 mechanisms for, 149 competitors as barrier to internationalization, 8 drivers, 287 influence on market selection, 1467 international, 394 and products, 242 as push to internationalization, 13 threat and strategic alliances, 161 complexity, environmental, 119 computers penetration, 423, 468 sales of, 413 use see information technology concurrent engineering, 243 confectionery, 108, 323
Index
509
consignment payment system, 182 consortium agreements, 322 consumer(s) activism, 5012 behaviour, 373, 41416 commonalities and differences of global, 488 environmental awareness of, 497 and ethical issues, 497501 information, 97 innovativeness, 268 international differences, 4 orientation, 26, 240 product adoption categories, 2667 protection, 52 satisfaction, 241 sophistication, 499 vulnerable, 484 see also customer consumer-to-consumer (C2C) marketing, 409 consumption patterns, 25 contingency approach to internationalization, 9 contracts B2B, 407 for barter and counter-trade, 1923 with intermediaries, 179, 180, 31820, 3223 lacking in ecommerce, 329 control internal and external loci of, 147 strategic, 372 tools for planning, 2305 copyright see intellectual property corporate social responsibility, 135, 48491, 501 business responses to pressure, 493 definition, 486 corruption, 320 see also bribery cost(s) of advertising, 378 of branding, 253 cost-based strategy, 106, 108, 112, 114, 340 of distribution channels, 325 -driven pricing, 346, 350 drivers, 288
and Internet marketing, 408, 470 leadership, 37, 340 product development, 246 of promotions, 384 reductions, 245 transaction cost, 420 see also price counter-trade, 11, 185, 1925, 35963 benefits from, 361 counter-purchase, 360, 3623 difficulties of, 3612 forms of, 360 reasons for, 193, 35960, 361 counterfeiting, 51, 199, 3545 country of origin, 250, 497, 499 Courtney, H., 210 Coviello, N. E., 410, 411 credit buyer, 187 risks, 186 cross-impact analysis, 2 culture, national, 235, 35, 415, 4356 and buying processes/ behaviour, 413 and communications, 3967 differences between, 235, 82 dimensions to, 44 east and west, 234 ethical issues, 479 high and low-context, 234 Hofstedes dimensions of, 25, 296 impediments to internationalization of services, 297 and Internet usage, 459, 472 and market selection, 141, 1513 and marketing development, 234 and marketing research, 92 and marketing strategy, 11314, 21112, 313, 440 and negotiations, 320 and product adaptation, 241, 249 and product relevance, 31011 and promotion, 382, 384 and psychic distance, 11417, 1512 and publicity, 37980 culture, organizational, 118, 231, 3956
and social responsibility, 48791 currency controls, 46 devaluation, 162 issues and policies, 3569 single European, 2, 24, 328, 356 customer ability to buy, 242 alliances, 406, 448 -based strategy, 11213, 2267, 370 buying behaviour, 41316 choice criteria, 113 commitment, 387 experience, 292, 3878 features and marketing channels, 313 focus, 26 international, 392, 3956 needs, 242 new and repeat, 253 orientation, 387, 408 regional, 393 relationship management/marketing, 332, 3701, 372, 3868, 408, 40912, 468 rights, 482 satisfaction, 3878, 469 service, 243 support, 5, 243 see also consumer customs unions, 200 Czinkota, M.R., 147, 2289, 497 D data analysis and validation, 901 controls over, 297, 466 primary and secondary, 7981, 94 protection, 523 public domain, 98 reliability, 81 security, 468 see also knowledge, information database marketing, 410 Davenport, E., 492 Davies, G., 321 Dawson, J. A., 4578 Day Chocolate, 4934 De Burca, S., 243, 325 De Mooij, M., 24
510
Index
deinternationalization, 11 decision making for advertising, 375 for brands, 2534 centralized vs delegated, 443 changes in, 2 for international retailing, 4346 on market entry mode, 14751 personality as influence on, 211 purchasing, 416 strategic process, 11617, 21011 use of IT, 767 delivery terms, 1802 Dell Computers, 245, 281, 408, 412 demand chain management (DCM), 408 demographics and market segmentation, 214 trends, 37 Department for Business Enterprise and Regulatory Reform (UK), 18990 DeSarbo, W. S., 465 development costs, 56 differentiation strategies, 1068 direct marketing, 3889 via the Internet, 4045 discounts, 3856 structures, 317 distribution/distributors, 5, 1768, 198, 220, 30334 alternative and charitable networks, 492 network, 315 vs agents, 322 see also channel documentation, export see under export domestic preference policies, 296 Doole, I., 41, 240, 242 drinks, 3379, 362 dual economy, 60 Duerr, E., 194 dumping, 3534 Duncan, T., 371, 3734 Dunning, J. H., 19, 21 Dupuis, M., 211 Dussart, C., 456 E e-business, 402, 412
e-commerce, 512, 545, 3301, 40227, 4558, 4627 national shares in, 458 transaction process, 418 uses of, 456 see also Internet e-marketing, 40327 Eagle, L., 195, 368, 370 early adopters, 163 eastwest dichotomy, 4 eBay, 331 economic analysis of international pricing, 3438 degree of stability, 21 development level, 311, 313 environment, international, 3941 impediments to internationalization of services, 297 issues in market selection, 141 market classification, 5961 policies, 41 responsibilities, 486 systems, 39 union, 200 economies of scale, 14, 16, 154, 288, 328, 393, 447 economy, informal, 327 education, 44 levels and market selection, 141 efficiency and marketing channels, 3067 prompted by internationalization, 14 in supply chain, 41617 eight Os model, 2289 electronic data interchange (EDI), 4078 Electronic Arts, 355 Ellsworth, J. H., 470 Ellsworth, M. V., 470 emerging markets/economies, 40, 601, 87, 912, 286, 433 characteristics of, 92 ethical issues, 479 examples of business in, 163 features of, 162 lack of infrastructure, 4 ranking of, 443 research in, 913 employees costs, 328
and international strategy, 395 in service delivery, 290 see also human resources employment as corporate responsibility, 486 regulations, 46, 296 endogenous growth models, 21 Endresen, I., 468 enterprise model of the firm, 767 entry and channel strategy, 3256 high-control and low-control strategies, 139 mode, 9, 309 mode for services, 2934 strategy, 567, 13871 strategy for retailers, 43942 environment, international marketing, 3467, 867, 126, 221, 435 cultural, 415 economic, 3942 environmental analysis, 57, 435 environmental audit, 219 environmental scanning, 578 internal and external, 11719 legal, 4955 micro and macro, 367, 3378 political, 459 technological, 557 environment, natural damage and responsibility, 485 global policies on, 10 protection of, 497 Ericsson, 413 Erramilli, M. K., 279, 280 ESOMAR, 97 Esper, T. L., 328 ethical issues, 35, 937, 3967, 478506 consumer attitudes to, 497501 see also bribery, corruption euro, the, 2, 24, 328, 356 Euro Disney, 37980, 448 European Central Bank, 201 European Community, 201 European Union, 4, 46, 61, 64, 425 direct marketing in, 388 enlargement and integration, 433
Index
511
as free trade area, 199, 201 regulations and legislation, 49, 51, 523, 161, 180, 186, 354 Evans, J., 21011, 435 evidence accounts, 195 exchange rate risk, 147, 162, 312, 3569 exhibitions, international, 144, 179 exit barriers, 150 experience, corporate, 143, 148 export(ing), 17291, 309, 322 controls, 4950, 173 credit insurance, 185 direct, 17680 documentation, 173, 1834 indirect, 149 logistics, 1809 modes of, 17680 planning, 1901 pricing, 34850 of services, 275, 293 success criteria, 174 Export Credit Guarantee Department (UK), 1867 export-led growth thesis, 14 expropriation, risk of, 147 extranets, 457 ExxonMobil, 483 F factor proportion theory, 17 factoring, 1878 factors of production, 16 fair trade movement, 4915 national sales, 493 retailer engagement with, 494 Fairhurst, A., 436 fast moving consumer goods (FMCG), 36, 492 Fiat, 340 finance for exporting, 1869 Fisk, R. P 460 ., five forces, 1078 Ps, 3, 166 Fletcher, R., 7 flexible response systems, 162 focus groups, 823 focused differentiation strategy, 340 food, 141, 338 fair trade, 492 organic, 48990, 496 supply chain, 204, 327
see also agriculture, drinks, restaurants Food Standards Agency (UK), 499 Foot Locker, 442 Foote, Cone and Belding, 124 Ford Motor Corp., 124, 156, 160, 161, 262 foreign direct investment (FDI), 9, 1923, 49, 294 in China, 289 forfeiting, 1889 four Ps, 174, 229, 289 framing, 545 France, 338, 37980, 385 franchising, 139, 1535, 321, 434, 441, 442 example, 1679 types of, 154 free trade agreements, 46, 168 free trade areas see trading blocs free trade zones, 192 Friendship, Commerce and Navigation (FCN) Treaty, 50 Fuji, 311 G Gap, The, 217, 501 gases, industrial, 175 Gates, Bill, 70 Gavlen, M., 469 General Agreement on Tariffs and Trade (GATT), 50, 199, 275, 433 General Electric, 161, 362, 392 General Foods, 141 genetically modified (GM) crops, 2047 geographical clusters, 434 concentration and dispersion, 110 market segmentation, 214 Germany, 319, 339, 385, 388 Ghauri, P 7, 199 ., Girod, S., 439 global consumers, 61 market, 61 non-existence of global marketing, 6 vs international, 6 vs multinational, 443 globalization, 73, 2756, 392, 488 of communications, 373 of services, 275 glocalisation, 6 government
attitudes, 8 drivers, 288 grants, 22 issues and B2B transactions, 4256 policy, 3, 4, 21, 467, 18990 procurement, 425 procurement, 46 relations, 48 representation abroad, 8 support for key industries, 37 Govindarajan, V., 432 green marketing, 495 Gregory, K., 467 grey market, 635, 1959, 3267 Gronroos, C., 386, 410 gross domestic product (GDP), 12, 39 influence of trade on, 1214 gross national product (GNP), 40, 92 growth corporate objective for, 2256 rate of markets, 1501 organic growth strategy, 153, 441 Gummesson, E., 410 Gupta, A., 432 Gupta, S. F., 43 Guy, C., 442 H Haagen-Dazs, 390 Hall, E. T., 23 Hall, M. R., 23 Hallen, L., 114 Hamill, J., 467 Hardock, P 421 ., Harris, R., 128, 140 Hecksher, E., 17 hedonic surfers, 414 Heffernan, T., 411 Heilwasser, 338 Heldal, A. F., 403, 458 Heldal, F., 403, 458 Helsen, K., 173 Hennes & Mauritz (H&M), 217 Hewlett-Packard, 259, 393 high-tech industries, 120 positioning, 1289 high-touch positioning, 1289 Hill, J. S., 117, 119 Hofacker, C. F., 413 Hofstede, G., 25, 115, 151, 296 Hollander, S., 437
512
Index
Hollensen, S., 242, 369 Hong Kong, 42 human computer interaction, 459 human resources, 220 management, 329 planning, 231 policies on, 149 see also employees human rights issues, 10 Hyundai, 163 I IBM, 413 IKEA, 217, 256, 412, 447 image, international corporate, 153 import(ing), 1919 controls, 16, 192 direct and indirect, 11 parallel, 635, 1959 pricing, 352 restrictions, 186, 326 incentives to internationalization, 89 promotional, 489 see also motivation Incoterms, 1812 India, 51, 54, 320 Indonesia, 61 industry alliances, 48 and competitive scope, 109 profitability levels, 107 strategically important, 150 as unit of analysis, 107 information available from OTS, 18990 in B2B transactions, 41720 consumer, 52 control over use, 466 and e-commerce, 456 on ethical issues, 501 exchange, 407 flow, 305 gathering approach, 713 industry and companyspecific, 150 lack of, 149, 435 in marketing research, 68103, 166, 462 need for marketing, 702, 232 overload, 415 primary, 7981 processing in the marketing mix, 166 in promotions, 383
real-time, 77 reliability and accuracy, 78, 147, 149, 150 richness, 464 and risk, 23, 147 search (by consumers), 415, 41819, 464 sources of, 7781, 470 transparency of, 505 information technology, 56, 6977, 166, 221, 402 advantages of, 75 and direct marketing, 389 spending on, 745 stages of application, 332 suppliers, 417 use in marketing research, 835 see also computers, Internet infrastructure communications, 380 corporate, 106 development projects, 60 lack of, 34, 55, 87, 92 level of, 250, 326 and marketing channels, 311, 313 innovation, 245 as basis for marketing strategy, 112, 113 diffusion of, 424, 4635 five main sources, 11011 and lead countries, 393 in marketing processes, 4578 and strategic alliances, 161 strategies for, 228 see also Internet; product, new insurance, export credit, 185, 1867 integration strategies, 156 intellectual property, 253, 356 infringements, 535, 3546 licensing of see licensing and parallel markets, 196 piracy, 3546 and power, 320 protection, 46, 512, 534 interaction marketing, 410 intermediaries, 322 in B2B, 417 desirable characteristics, 179 eliminated by e-commerce, 421, 458 motivation of, 31517
new types in e-commerce, 4212, 458 selection of, 17880, 31415 see also agents, distribution international business (as field of work/study), 56 International Coffee Organization (ICO), 492 International Federation of the Phonographic Industry 355 international management, 6 international marketing contextual determinants, 34 definition, 5 development of, 3, 4 nature of, 23 relationship with other fields, 56 theoretical framework, 7 see also marketing International Marketing and Purchasing (IMP) Group, 412 International Monetary Fund (IMF), 50 international sophisticate, 112, 114, 1223 internationalization, 252, 43442 advantages, 19 approaches to, 711 definition, 7, 31 of eco firms, 4967 factors causing, 89, 433 factors favouring FDI decisions, 22 inward and outward, 1011 process of, 9 of services, 279 stages in, 9, 142 Internet, the, 2, 36, 81, 142, 288, 32932, 40227, 45471 advantages of, 472 alliances in sector, 161 applications, 329 availability, 92 based companies, 221, 331, 402, 403, 405 business uses of, 46870 consumer lobby groups on, 489 cookies, 96 consumer sites, 989 development of, 45667 domain names, 55 eight revolutions, 4567 general applications of, 32930
Index
513
impact on market selection and entry, 1656 information on, 148, 409 legal issues, 515 marketing, 221, 2889, 325, 330, 40327, 447, 4678, 4701 for marketing research, 84, 97100, 166 privacy issues, 97 problems and limitations, 4056, 409 protocols, 4078 as promotional medium, 10, 3301 retailing, 3302, 4035, 417, 462 searching, 4034, 405 service quality, 466 strategic application positioning matrix, 471 technological aspects, 4601 three usage aspects, 461 usability, 4589, 464 user categories, 41314, 4612 and the value chain, 3312 vs physical stores, 417 see also e-business, ecommerce Internet Corporation for Assigned Names and Numbers (ICANN), 55 interview techniques, 834 intranets, 99, 457 investment, international theory, 21 Iraq war, 35 J Jackson, B. B., 410, 412 Jacobs, L., 354 Jaguar plc, 156, 262 James, D., 97 Janson, L., 243 Japan, 42, 45, 61, 153, 161, 202, 2423, 307, 312, 343, 346, 353, 385, 397, 423 Javalgi, R. G., 278, 285 Jedlik, T., 354 Johanson, J., 497 Johansson, J. K., 142, 149 Johnson, G., 433 joint ventures, 11, 129, 144, 1556, 263, 2712, 320, 324, 441
criteria for, 157 mandatory, 447 strategies for, 1568 just-in-time, 263, 328 K Kafka, S., 422 Kant, I., 480 Kapferer, J.N., 6 Kearney Global Retail Index, 4445 Keegan, W. J., 36, 122, 225, 245, 261 Keiretsu, 423 Kelloggs, 248, 338 key account management, 412 Kiang, M. Y., 469 Kirkland, J., 210 Kitchen, P J., 368, 370 . knowledge management, 408 transfer, 20, 439 (see also technology transfer) Koch, A. J., 147 Kodak, 160, 311 Konica, 160 Kotabe, M., 173 Kotler, Philip, 4, 36, 230, 240, 245, 403 L Lands End, 331 Lane, H., 114, 116, 435 languages, national, 44, 45, 81, 241, 377, 380 Laura Ashley, 153, 212, 440 lead markets, 1467 learning approach to internationalization, 9 and psychic distance, 114 leasing, 185 Lee, F. M., 464 legal issues, 5, 35, 44, 4955, 251 legislation on advertising, 377 on agency, 179 anti-dumping, 353 impact on economic growth, 21 impact on products, 251 on promotional activities, 3845 restrictive preventing internationalization, 456, 324 restrictive prompting
internationalization, 13 see also regulations less developed countries (LDCs), 60 characteristics of, 92 research problems in, 913 see also emerging markets letters of credit, 185 Levi-Strauss, 634, 307, 359 Levitt, T., 166, 2489, 251, 386, 398 Lexus, 340 libel, 53 licensing, 11, 45, 129, 150, 1589, 160, 161, 296, 321 advantages of, 1589 drawbacks of, 159 non-licensed importers see grey market Linde, 175 living standards and market selection, 141 lobbying, 478 location advantages, 1920 as classification basis, 589 factors favouring FDI decisions, 22 Loescher, Peter, 423 logistics, 1809, 30334 corporate, 470 and e-commerce, 330 providers, 3289 Louis Vuitton Moet Hennessy (LVMH), 4501 Low, W., 492 Lowe, R., 41, 240, 242 Luna, D., 43 luxury goods, 4512 M machine-to-machine interaction, 412 macroenvironment, 367 macromarketing, 2 Malaysia, 320 Malhotra, N. K., 15960, 2956, 313 management/managers as factor affecting firm performance, 116, 213 centralized vs decentralized, 447 CEO involvement, 11718 dogmatic and open-minded, 2256
514
Index
experience, 310 factors causing internationalization, 8 of international services, 2937 intuition, 147, 434 issues in international marketing, 267 limited-term contracts, 439 processes, 3945 retail, 449 and strategic decision making, 211 manufacturing assembly operations, 3534 and branding, 2578 vs retailer power, 4478 see also under automobiles market(s) analysis, 219 -based strategic options, 12830 black see black market challengers, 1267 characteristics and product characteristics, 268 classification of international, 5861 concentration strategy, 1323 consolidation, 38 convergence, 294 differences, 251 diversification strategy, 1323 -driven pricing, 346, 350 elements, 308, 31112 emerging see emerging markets entry see entry entry mode selection process (MEMS) model, 139, 150 expansion motives, 4389 expansion sequence optimization, 145 followers, 1267 forces, 287 fragmented, 13, 378 grey see grey market leadership, 1267 mass, 412 mature, 38, 433 need for larger, 12, 13 niche, 13, 38, 1267, 433 portfolio congruity, 145 pricing, 342 ranking for retailers, 4434 regionalization and internationalization of, 86
segmentation see segmentation of markets selection see selection of markets size, 8, 13, 21, 124, 141, 328 tertiary, 437 undeveloped, 13, 141 unsuitable, 140, 141 marketing audit, 219 core activities of, 5 direct, 315 electronic, 2889 four types of, 410 implementation, 231 information analysis, 219 information systems, 6973 interactive, 469 of new products, 265 objectives, 219 operations and planning, 20938 (see also planning) plan, 79, 21819 (see also planning) programme, 26 research see under research of services, 278 skimming, 342 vertical systems, 304 marketing mix, 219, 221, 229 changes in, 756 for international services, 28993 standardization of, 2489 marketing transfer issues, 34 Marks & Spencer, 125, 157, 212, 312, 373, 384, 433, 440, 442 Marsh, G., 337 Martini effect, 408 Matsui, Kathy, 423 Mavondo, F. T., 21011 Mavondo, T., 435 Mazda, 160, 161 McAuley, A., ,208 McCall, J. B., 326, 406 McCann-Erickson, 395 McCarthy, J. E., 289 McDonalds, 51, 53, 112, 114, 1345, 325, 375 boycott, 489 McGoldrick, P J., 258, 321 . media availability of, 380 international and regional, 88 radio, 3645
selection for advertising, 3778 usage regulations, 381 mergers and takeovers, 432, 441 Messer Griesheim, 174, 175 Mexico, 89, 162, 1679, 355, 445 microenvironment, 367 Microsoft, 199, 245 Mill, J. S., 481 Miller, K. D., 23 Mintel, 3389 Mintzberg, H., 222 mission statements, 226 Moen, O., 469 monitoring performance, 41920 plans, 231 monopolies regulation of, 41 risk with GM crops, 206 motivation for intermediaries, 17980, 31517 motives for internationalization, 12 multidomestic firms, 3 multinational corporations definition of, 6 national origins of, 245 regional vs global, 432 Muslim states, pro-Western, 4 N Nader, R., 489 negotiation process, 419 network(s) approach to internationalization, 9 champions, 424 electronic, 4601 marketing, 410 Nestl, 448, 501 networking capabilities, 144 Network Solutions, Inc. (NSI), 55 new ventures, 424 newly industrialized countries, 262, 286 Nicholls, A. J., 494 Nicoulaud, B., 292 Nielsen, J., 458, 459 Nigeria, 45, 81, 327, 360 Nike, 64, 129, 502 Nordic School, 413 northsouth dichotomy, 34 North American Free Trade Agreement (NAFTA), 51, 61, 168, 1912, 199, 2012, 328 Novak, M., 486
Index
515
O OGrady, S., 114, 116, 434 objectives corporate, 139, 142, 219 pricing, 3435, 3489 of promotions, 383 offset trading, 193, 194, 360 Ohlin, B., 17 Ohlwein, M., 421 oil spills, 485, 501 Okamura, Ken, 423 Olympic Games, 390 Omar, O. E., 340 open account system, 184 operation risks, 147 opportunity cost, 15 organization(s) dynamically stable, 76 factors causing internationalization, 8 industry alliances, 48 structure, 6970, 309, 394, 435 virtual, 402 Osment, J., 328 outsourcing see subcontracting Overseas Trade Services (OTS), 18990 Owens, M., 63 ownership advantages, 1920 factors in FDI decisions, 22 restrictions, 45, 47, 150, 296, 320, 324 risks, 147 P Packard, V., 489 Paliwoda, S. J., 2 paradigms for international marketing, 7 parallel trading see counter-trade Parasuraman, A., 295 Parker Pens, 376 partnerships with local firms, 1602 Parvatiyar, A., 2, 3 pay levels, international, 328 payment methods, 407 payment terms for agents, 317 for exports, 1825 Pellegrini, L., 132 penetration pricing, 3423 Pepsi-Cola, 29, 362 perceived fairness, 498 perceived service quality, 466
perceived value, 26 performance, organizational factors affecting, 11516 personal selling, 374, 3812 PEST (political, economic, social and technological), 224 pharmaceuticals, 196 pirated, 355, 356 philanthropy, 135 physical evidence, 28992 piracy, 3546 planning (urban), 65 planning case study, 2356 deficiencies in, 117, 2323 export, 1901 modes of, 21721 process model, 227 range of, 218 role of, 2246 strategic marketing, 11720, 210, 21638 politics firm-level behaviour, 479 political issues, 44, 459 political stability, 3, 13, 23, 45 see also government Porter, Michael, 1057, 130, 136, 286, 331, 332 positioning, 108, 1246, 445 analysis, 126 strategy alternatives, 1268 post-purchase behaviour, 416 potential of markets, 146 power of buying groups, 323 and contract negotiation, 31819 distance, 23 imbalance between multinationals and consumers, 489 in international markets, 4478 of multinationals, 482 and political behaviour, 46 of retailers, 384 Prabhaker, P 55 ., premiums, 385 prestige, market, 345 price/pricing, 33566 assessment in marketing plan, 220 cost and market-driven, 346, 350 definitions, 343
determinants of, 3369 export pricing, 336, 34850 international reference price, 3523 and Internet, 405, 423, 469 market, 342 penetration, 3423 product, 246 quotations, export, 182 reductions/discounts, 3856 reference price, 347, 3523 searching on the net, 405 setting, 5, 197, 293, 344 stability, 345 tactics, 344 transfer pricing, 10, 3501 unaffordable and ethics, 483 variable and parallel imports, 1968 vs cost, 112 see also cost Prime, N., 211 privacy issues, 52, 957, 466 privatization, 4, 28 procurement systems, 329 product(s), 23973 adaptation, 174, 241, 24752 adoption process, 2656 assessment in marketing plan, 220 augmented product, 241 basic product, 241 characteristics, 2678, 310, 326 commodity-type, 246, 346 core benefit, 241 definition, 2401 deletion, 267, 269 development, 2625, 332, 393 development times, 2423, 246, 265 differentiation 345 diffusion, 2667 dumping, 3534 durable and non-durable, 250 ecological, 4956 expected product, 241 extension, 2457 failure, 2645 geographical scope, 240 global village, 129 high-tech, 129 high-touch and low-touch, 129 information vs market information, 76
516
Index
life cycle, 34, 93, 242, 2434, 246, 250, 25962, 437 life cycle trade theory, 1718, 261 line management, 269 mix, 269 national differences, 41, 45 new, 83, 2425, 246, 2627 offerings on the net, 464 performance, 246 piracy, 3546 policy, 2428 portfolio, 243, 262 positioning, 128, 244 potential product, 241 quality, 2423, 246 search and experience goods, 469 sourcing, 436, 447, 451 standards, 46, 49 standardization, 24852 unique, 448 use conditions, 252 variables and market segmentation, 122 production costs, 9 profit generation dynamics, 149 maximization and ethics, 483 shifting, 3501 targets, 149 promotion, 5, 198, 216, 220, 314, 317, 3826 adaptation, 247 international, 11 national attitudes to, 41 regulatory restrictions, 3845 techniques, 383 prospecting, 382 protectionism, 16, 2967 provincial market segment, 112, 114, 1223 psychic distance, 11417, 1445, 1512, 174, 176, 386 and organizational performance, 21011, 435 psychographic market segmentation, 214 public relations, 3, 48, 37981 public sector, 40 publicity, 37981 pushpull analysis, 12, 13, 4389 Q qualitative research, 82, 889, 978, 99100
quality perceived, 253 and pricing strategy, 340 of products, 2423, 246 of services, 2956 questionnaires, 81, 93, 96, 100 quotas, 186 R radio industry, 3645 Raghu, T. S., 469 Rank Xerox, 360 Reebok, 399 regulatory issues, 141, 150, 2967 and marketing channels, 311 and publicity, 3801 see also legislation Reid, D. A., 405 relationship marketing see customer relationship marketing religion, impact of, 445 reports, marketing research, 91 research and development (R&D), 8 cost payoff time, 242 joint ventures in, 159 research, marketing, 68103, 140, 212, 436 agencies, 90 environment for, 858 ethical issues, 937 Internet use, 97100, 462 problems, 801 reports, 91 researchers, local and nonlocal, 923 size of sector, 87 techniques, 825, 889, 92 resource allocation, 3940 based strategies, 12931 constraints, 220 corporate, 143 definition, 130 restaurants, 1345, 1679, 292 retailing, 13, 88, 116, 196, 211, 212, 217, 294, 3067, 31617, 383, 412, 43043, 458 and branding, 254, 2568 clothing, 217, 331 drivers for internationalization, 4378 and fair trade, 4945 food, 445 global, 312
groups, 323 joint ventures, 1567 and manufacturing networks, 433 market entry strategies, 43942 market expansion motives, 4389 positioning of retailers, 1245 power of, 4478 store format, 445, 447 supermarket groups, 634, 206, 217, 259, 319 return on revenue, 344 returns to scale, 16 reward systems, 231 Ricardo, D., 17 risk and benefit assessment, 143 in countertrade, 194 credit see credit risks in emerging markets, 162 estimation, 149 and expansion strategies, 132, 149, 173 external uncertainty, 23, 11921 in FDI, 213 foreign exchange see exchange rate risk in the grey market, 197 internal uncertainty, 223 and lack of information, 23 management attitudes to, 1489 and new products, 244 perceived higher in foreign markets, 8 political, 312 two major categories, 147 Rockwell, 362 Roddick, A., 5034 Rogers, E. M., 463 Rolex, 165 Romania, 497 Ronkainen, I. A., 147, 2289 Rossetti, C., 309 Royal Ahold, 217, 256, 445 Rugman, A., 438 S Sainsburys, 125, 254, 504 sales, regulations of, 386 salespeople, 3812, 413 Samiee, S., 294 Samli, A. C., 354
Index
517
samples of products, 386 sampling methods, 8990, 96, 100 Sara Lee, 495 Sarathy, R., 337 Sarnin, P 432 ., Schellhase, R., 421, 424 screwdriver plants, 353 Sears, Roebuck, 433 segmentation of markets, 47, 79, 88, 1089, 112, 1213, 21316 basis for international, 216 criteria for successful, 21314 determinants for international, 215 factors used in, 121 primary bases for, 214 regional, 11314 selection of markets, 13871 external factors, 1437 internal factors, 140, 1425 strategies for, 15365 see also entry self-start entry strategies, 153 selling process, 382 services asset-based, 278, 280, 283 characteristics, 27684 contact-based, 278, 280, 282 distribution channels for, 317 and e-commerce, 456 hard and soft, 2801 international process matrix, 2845 logistics, 3289 (see also logistics) meta-classification, 27880 object-based, 278, 280, 2834 sectors, 277 strategies for, 274302 supplementary, 2856 tangible element of, 279, 281 vehiclebased, 278, 280, 2823 seven Ps, 28991 Shang, K. H. M., 470 share, market, 149 Shell, 502 Sheth, J. N., 2, 3 Silver Streak, 1679 Singapore, 42, 81 single-product dependence, 60 size of markets see market size organizational, 119, 120, 147 Sjovold, E., 403, 458 skimming strategy, 342
SLEPT model, 35 small and medium-sized organizations, 37, 120, 147, 462, 469 SMH, 3401 Smith, Adam, 12, 14, 17 social contract, 4878 socioeconomic factors, 212, 313, 435 software companies, 4735 piracy, 355 Software and Information Industry Association 355 Soil Association, 48990 Sony, 245, 375 sophisticate market segment, 112, 1223 South Korea, 381 Spar, 323 specialization, 1415 spiders web strategy, 156 sponsorship, 390 stakeholder(s), 368, 479 for marketing research, 934 relationships, 372 standardization strategy (vs adaptation), 1635, 395 for advertising, 3747 for services, 2945 standards for ecoproducts, 496 for food, 500 international, 311 national, 46 national, harmonization of, 425 of suppliers, 504 see also regulations Starbucks, 494 Stone, M. A., 326, 406 Strandskov, J., 194 strategic alliances see alliances, strategic approach, 8 choice, 224 management, 222, 223 orientation of companies, 142 planning see planning platform, 109 thrust, 228 strategy branding, 2539 communication, 3712 (see also communications)
competitive marketing, 10437, 3467 cost domination see costbased strategy creative, 377 differentiation see differentiation strategies distribution see distribution entry see entry and fair trading, 494 formulation, 578 generic, 121 intended and emergent, 2224 international retail marketing, 445 longterm, 326 marketing and corporate, 11112 market positioning, 1268 meaning of, 2224 pricing, 33943, 344 product development, 2458 regional, local or standardized, 11314 services, 274302 simple international, 110 supplier, 263, 2712, 287 types of joint venture, 156 see also planning strengths, weaknesses, opportunities and threats (SWOT), 220, 224 structure, organizational, 212 subcontracting, 227, 243 subsidiaries marketing, 149 service, 293 setting up, 147 suppliers long-term sources, 11 strategy, 263, 2712, 285 supply chain, 412 agri-food, 204, 327 and e-commerce, 456 efficiency, 41617 ethical standards in, 504 management, 332, 408 surveys, market research, 823 switch trading, 194 synergies between markets, 145 T Taiwan, 42, 54 Tan, J., 466 targeting strategies, 1234
518
Index
tariff barriers, 37, 47, 150 impact, 252 reduction/removal see trading blocs taxation issues, 150, 296, 351 teamwork, 245 technology acceptance model (TAM), 4635 competition, 2889 development, 329 drivers, 2878 endogenization of, 19 fast-changing, 394 frontier, 19 gaps, 19 high-tech economies, 61 and logistics, 328 and material culture, 44 products, 2423, 246, 259 risk and distrust, 206 technological environment, 356, 557 transfer, 14, 20, 159 telecommunications, 92, 279, 2878, 413, 423 phone call restrictions, 97 see also Internet tendering, 4256 consortia for, 144 termination of agreements, 180 terms of payment, 1825 of sale and delivery, 1802 Terpstra, V., 337 Tesco, 635, 157, 217, 256, 258, 384, 405 test marketing, 2645 Tiessen, J. H., 462 time cultural views of, 234 to market, 246 Titan, 341 tobacco, 4812, 483 Tommy Hilfiger, 64 total quality management, 243 tourism, 240, 299300 Toyota, 398 toy industry, 449 ToysRUs, 125, 294, 307, 312, 442, 447 trade case for free, 16 cycles, 18, 261 fair, 4915 fairs, 144, 179
groupings, 10 international theory, 6, 1618 levels of integration, 199 policies, 21 shows, 389 theories, 1218 volume of world, 276 trading blocs,199203, 252 training of franchisees, 154 in industrial gas company, 175 lack as barrier, 8 transaction cost analysis, 420 marketing, 410 transfer pricing, 10, 3501 risks, 147 transferable marketing, 393 Treadgold, A., 21011, 434 trust in internet businesses, 466 Turner, I., 461 turnkey operations, 159 Tzokas, N., 348 U uncertainty see risk Unilever, 163, 165, 221, 247 United Nations Human Development Report, 92 United States, 382, 397 counter-trade, 360 help for exporters, 190 radio industry, 3645 regulations, 50, 52 Universal Feeder Ltd., 263 Uppsala Model, 497 UPS, 112, 114 Uruguay Round, 275 utilitarian searchers, 414 utilitarianism, 480 V Vahine, J., 498 Valamo Monastery, 299300 value(s) added, 383, 3956 added in the distribution chain, 422 chain, 106, 2278, 3312, 422 of consumers, 26, 44, 5001 corporate, 267 and culture, 151 customer perceptions of, 26 dimensions of, 44 ethical, 48891
national cultural, 245 organizational, 118 perceived, 350, 383 system, 1078 tangible and intangible, 343 vs price, 343 webs, 422 venture teams, 265 Vernon, R., 17, 261 Vida, I., 436, 446 videoing of consumers, 83 of focus groups and interviews, 94 Viguerie, P 210 ., Virgin, 125 W Wal-Mart, 125, 217, 306, 319, 405, 4312, 442, 443, 445, 447 waste treatment, 51 watches, 165, 3401 water, bottled, 3389 websites, 4045 characteristics of good, 471 links, 545 marketing of, 471 for virtual stores, 417 see also Internet Welch, L., 11 Wells, L. T. Jr., 17 Whirlpool, 162, 311, 339 White, D. S., 278, 285 Wiedersheim-Paul, F., 114, 497 Williams, L. R., 328 Woodside, A., 412 Woolworth, 153, 431 World Intellectual Property Organization (WIPO), 51, 54 World Tourism Organization, 299 World Trade Order, 10 World Trade Organization (WTO), 28, 46, 50, 51, 190 wrecks and environmental damage, 485 Wright, R. E., 461 Y Yaohan, 153 Young and Rubicam, 399 Z Zara, 217 Zeithaml, V. A., 295 Zeng, A. Z., 309 Zimmerman, A., 293

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Contents overview

212 215 216 223 227 232

8.1 8.2 8.3 8.4 8.5 8.6 9.1 9.2 9.3

438 441 444 456 459 461 493

Mini case studies

The nature of international marketing

Product life cycles

Fear of colonialism Figure 1.1

Contextual determinants of international marketing

Subsets of international business

A theoretical framework for international marketing

The process of firms internationalization

Approach 1 The stages approach

The learning approach

The contingency approach

The network approach

Internal environment Management characteristics Organization characteristics

External environment External impediments External incentives

A holistic approach to internationalization

Trade theories and economic development

MINI CASE 1.1

Example of retail internationalization (push and pull factors)

MINI CASE 1.2

Example of specialized production

Selected theories of international trade

Classical trade theory

Foreign direct investment (FDI)

Decision based question

Why undertake FDI?

Why internationalize via FDI instead of other forms?

Where to undertake FDI?

Key decisions in the FDI process

The determinant factors of FDI

Factors favouring FDI decisions

Culture and international marketing development

Management issues in international marketing

SEMINAR CASE STUDY

Market opportunities and barriers in the Chinese emerging market

Managerial assignment task

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