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5. Economic Development Definition

Chapter 9,10,11,12,13,15,16,18 ● Meaning: Increase in national production
reflected by per capita GDP or GNI growth.
Chapter 9 – Newly Industrialized Country ● Wider Implications: Also implies widespread
Economic Development distribution of increased income, rapid
economic growth, and increases in
1. Global Economic Shifts consumer demand.
● Developing World's Attitude Change:
Previously hostile to foreign investment, now 6. Stages of Economic Development (United
seeking economic growth and higher living Nations Classification)
standards. ● MDCs: Industrialized countries with high per
● Projected Growth: Latin America and other capita incomes (e.g., Canada, England,
emerging markets predicted to account for France, Germany, Japan, the United
75% of global growth in the next decades. States).
● Transition Factors: Shift from socialist to ● LDCs: Industrially developing, entering world
market economies, liberalization of trade trade with lower per capita incomes.
and investment, privatization of public ● LLDCs: Industrially underdeveloped,
sectors, and development of regional market agrarian societies with minimal trade
alliances. involvement.

2. Emerging Markets Dynamics 7. Newly Industrialized Countries (NICs)

● Countries Undergoing Changes: Argentina, ● Characteristics: Rapid industrialization,
Brazil, Mexico, China, South Korea, Poland, higher per capita incomes, open trade
Turkey, India, Vietnam. policies, significant free market reforms.
● The N-11 Designation: High-growth, high- ● Examples and Roles: Chile, Brazil, Mexico,
population economies including some of South Korea, Singapore, Taiwan as major
these countries. exporters and markets.
● Consumer Behavior Evolution: Exposure to ● Brazil as a Case Study: Diverse exports
global networks influencing traditions, including alcohol-based fuels, carbon steel,
habits, and consumer behavior. orange juice, poultry, soybeans, and
weapons.
3. Examples of Market Penetration
● Brand Penetration: Luxury cars in China, 8. Economic Growth Factors in NICs
Avon in South Korea, Walmart in various Political Stability
countries, beefless Big Macs in India, etc.
● Significance: These examples highlight the ● Critical for Development: Political stability
adaptation and opportunity in emerging creates a predictable environment
markets. conducive to economic activities. It
reassures investors, both domestic and
4. Economic Level and Marketing international, leading to increased
● Influence on Marketing Task: The economic investment and economic planning.
level of a country greatly affects foreign ● Impact: Stable political environments often
business activities, demand for goods, see more consistent policies that aid in long-
distribution systems, and overall marketing. term economic planning and reduce the risk
● Dynamic vs. Static Economies: Dynamic of abrupt policy changes that can disrupt
economies have rapidly changing markets and investments.
consumption patterns, posing continuous
challenges and opportunities for marketing.

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Economic and Legal Reforms Factors of Production
● Foundation for Growth: Reforms in ● Key Resources: The availability of land,
economic policies and legal frameworks are labor, capital, management, and technology
essential to foster a business-friendly is critical for development.
environment. This includes reforming tax ● External Sourcing: In cases where these
codes, financial systems, and labor laws. factors are deficient, the ability to source
● Property and Contract Rights: Strong legal them externally is essential. This could
systems that protect property rights and involve attracting foreign investment or
enforce contracts are vital. They provide importing technology.
security for investments and facilitate
business operations, which are crucial for Targeted Industries
economic growth. ● Strategic Policies: NICs often create
strategic industrial and trade policies to
Entrepreneurship identify and support sectors with high growth
● Driving Economic Growth: Entrepreneurship potential.
is the backbone of new economic ● Resource Allocation: By focusing on key
development. Entrepreneurs create jobs, industries, these countries can effectively
introduce innovations, and drive allocate resources to areas where they have
competitiveness. competitive advantages or significant
● Role of Self-Employed: The growth of self- potential.
employed individuals and private enterprises
signifies a healthy entrepreneurial Incentives and Infrastructure
ecosystem, crucial for dynamic economic ● Saving and Investment: Policies that
growth. encourage high domestic savings rates and
direct capital to strategic areas are crucial.
Planning These areas might include infrastructure
● Development Goals: Effective economic development, education, or technology.
planning involves setting clear, observable, ● Infrastructure Investment: Investing in
and measurable goals. These goals guide infrastructure like transportation,
policy decisions and resource allocations. communication networks, and energy is
● Policy Linkage: Development plans are most fundamental for supporting economic
effective when they are linked to specific activities and attracting foreign investment.
policies, ensuring that the goals are
actionable and attainable. Privatization
● From State to Private: Moving enterprises
Outward Orientation from state ownership to private hands often
● Export and Domestic Focus: Economies that leads to increased efficiency and innovation.
focus on both domestic and export markets It can also alleviate financial burdens on
tend to grow faster. This dual focus governments.
encourages production efficiency and ● Economic Growth: Privatization can spur
diversification. economic growth by introducing competition
● Global Competition: Being outward-oriented and efficiency in formerly state-dominated
means competing globally, which drives sectors.
innovation and efficiency.

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 Infrastructure Challenges and Economic
Consequences
9. Role of Technology and International Markets ● Case Example – Mexico: Inadequate
● Information Technology and the Internet: transport systems, like outdated railroads
Key to economic growth, reducing and poor highways, hinder economic
transaction costs, enabling global reach. activities.
● Impact on Emerging Economies: ● Latin America’s Challenges: Issues with
Accelerates economic growth, allows harbors and port equipment increase
leapfrogging in development stages. shipping costs and impact trade economics.

10. Objectives of Developing Countries Marketing’s Role in Economic Development

● Industrialization as a Key Goal: Viewed as a ● Undervalued Aspect: Economic planners
path to achieving social and economic often overlook marketing, focusing more on
objectives. production, investment, and finance.
● Changing View of Foreign Businesses: From ● Critical Balance: Marketing bridges
exploiters to vital partners in development. productive capacity and consumer demand,
● Privatization Trend: Recognizing the essential for utilizing increased production
efficiency and economic benefits of private and fostering consumption.
management.
Adjusting Marketing in Emerging Markets
Infrastructure as an Indicator of Economic ● Jagdish Sheth’s Insights: Highlights five
Development weaknesses in emerging markets: market
● Definition: Infrastructure includes capital heterogeneity, sociopolitical governance,
goods serving many industries – roads, unbranded competition, resource shortages,
railroads, seaports, communication and and inadequate infrastructure.
financial networks, energy supplies. ● Strategic Recommendations: Focus on
● Impact on Growth: The quality of fusion products, affordability, accessibility,
infrastructure directly affects a country's and national brand advantage for effective
economic growth potential and business marketing in emerging markets.
effectiveness.
● Marketing Challenges: Inadequate Challenges of Marketing in Developing
infrastructure increases distribution costs Countries
and limits market access. Educational ● Customization Requirement: Marketing
assets influence communication abilities and strategies must be tailored to the literacy
local managerial talent. level, economic conditions, and specific
circumstances of each market.
Infrastructure's Role in Marketing and Business ● Market Development Levels: Parallel stages
Efficiency of economic development, but with
● Marketing Efficiency: Relies on infrastructure significant deviations due to various factors.
like advertising agencies, warehousing,
credit facilities, and specialized Evolution of Distribution Channels and Market
intermediaries. Institutions
● Development Disparity: Less developed ● Retail Sector Development: Transition from
countries often have inadequate small outlets to larger establishments like
infrastructure, necessitating adaptation in supermarkets.
business strategies. ● Emergence of Marketing Infrastructure:
Advertising agencies, market research
facilities, consumer finance agencies, etc.,
evolve with market demands.

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● Dynamic Nature: Marketing structures in
developing countries often exist at multiple
stages simultaneously.

Understanding Demand in Developing Countries

● Consumption Patterns: Vary significantly
between developed and developing
countries, with higher food expenditures in
the latter.
● Sectoral Market Division: Traditional rural,
modern urban, and transitional low-income
urban sectors have distinct production and
consumption patterns.

Market Research and Strategy in Emerging

Markets
● Targeting Low-Income Segments: Focused
research on understanding the behavior of
lower-income consumers.
● Case Study – Nestlé SA: Adapting product
positioning and advertising strategies to
local consumer perceptions and needs.

Long-Term Investment and Market Entry Timing

● Early Investment Benefits: Establishing a
presence in developing markets during early
stages can lead to future profitability.
● Market Entry Risks: Delayed entry might
result in blocked opportunities and lack of
market access.

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Chapter 10 - European Union Economic internal trade, adopts common external
Development tariffs, and allows free movement of capital
Patterns of Multinational Cooperation and labor.
● Unified Economy: Represents a single
market for goods, services, and capital,
General Overview lacking only political unity.
● World Trade Organization (WTO): ● Historical Example: European Economic
Represents the most comprehensive global Community (EEC) established by the Treaty
trade agreement, setting a framework for of Rome, leading to the creation of the
international commerce. European Union.
● Variety of Forms: Beyond the WTO,
multinational market groups vary Political Union
significantly in cooperation, dependence, ● Complete Integration: Involves total
and interrelationship among nations. economic and political integration.
● Five Fundamental Groupings: These range - Enforced and Voluntary Forms:
from regional cooperation for development - Enforced: COMECON, organized by the
to complete political union. Soviet Union.
● Voluntary: British Commonwealth, a loose
Regional Cooperation Groups association based on historical and
● Regional Cooperation for Development traditional ties.
(RCD): The most basic form of economic ● Recent Examples: Commonwealth of
integration. Involves joint development of Independent States (CIS) and the European
industries beneficial to each economy, with Union (EU).
shared financing and output. - EU Integration: Economic and political
● Example: Colombia and Venezuela's joint integration under the Maastricht Treaty,
hydroelectric plant on the Orinoco River. including common currency, foreign policies,
justice system, and cooperation in crime and
Free Trade Area (FTA) immigration.
● More Integrated than RCD: Agreements to
reduce or eliminate customs duties and non- Impact of Brexit
tariff trade barriers among member ● Disruption to EU: UK's 2016 vote to leave
countries, while maintaining individual the EU, with formal exit in 2020, leading to
external tariffs. economic and political complexities.
● Mass Market Creation: Aimed at creating a ● Trade and Economic Implications: Increased
large market without internal barriers. red tape and trade challenges, decline in
Britain's trade with the EU, and significant
Customs Union economic impact compared to COVID-19.
● Next Stage of Cooperation: Combines FTA's
internal tariff reductions with a common La Raison d’Etre (“Reason to Exist”)
external tariff on imports from non-member ● Importance of Factors for Success: The
countries. success of an economic union requires
● Transition Stage: Seen as a step from FTA favorable economic, political, geographic,
to a common market. and cultural factors.
- Examples: France-Monaco, Italy-San ● Sovereignty and Benefits: The benefits of
Marino, Switzerland-Liechtenstein. economic union must outweigh
disadvantages for nations to forgo part of
Common Market their sovereignty.
● Comprehensive Economic Integration:
Eliminates all tariffs and restrictions on

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 ● Varied Progress: Different countries exhibit
Economic Factors different levels of success in economic
● Market Opportunities: Economic unions aim reform and growth.
to develop and enlarge market opportunities,
often through preferential tariffs and Commonwealth of Independent States
common barriers against non-members. ● Formation and Membership: Formed after
● Complementary Economies: Nations with the dissolution of the Soviet Union, initially
complementary economies face fewer including 12 nations.
frictions in common market units. ● Loose Alliance: The CIS is characterized by
open borders but no central government,
European Integration focusing on economic and political
● Turmoil and Growth: Despite challenges like cooperation.
Brexit, economic growth returned to Europe
in 2017. Challenges and Future Outlook
● Historical Integration Issues: Europe's ● Ongoing Challenges: Includes issues like
diverse economies, distinctive monetary Brexit, economic performance, political
systems, and different resources have integration, and potential further
historically caused integration issues. enlargement.
● EU's Influence: Despite challenges, the EU
EU Institutions remains a significant economic and political
● Structure: The EU consists of executive entity.
(European Commission), parliamentary
(Council of Ministers and the European Africa's Economic Development Overview
Parliament), and judicial (Court of Justice)
branches. Foreign Investment and Growth
● Decision-Making Powers: The institutions ● Stimulated by Foreign Direct Investment:
have extensive powers in common policy Significant investment from countries like
areas. China in infrastructure projects.
● Growth Trends: Pre-COVID, countries like
Economic and Monetary Union (EMU) - The Ethiopia, Angola, and Malawi saw annual
Eurozone growth rates over 8%. Other sub-Saharan
● Introduction of Euro: The EMU established a countries experienced over 5% growth
common currency for the EU, the euro. annually.
● Eurozone Expansion: Initial members
included 12 states, with more countries Multinational Market Integration
joining over time. ● Limited Progress Despite Activity: Numerous
Expansion of the European Union economic arrangements and agreements
● Enlargement Process: Significant exist, but actual economic integration is
enlargement occurred in the 2000s, with 10 minimal due to political instability and an
new countries in 2004, followed by Bulgaria, unstable economic base.
Romania, and Croatia. ● African Union Membership: Almost all
● Challenges: Concerns over illegal African countries, except Morocco, are part
immigration and labor mobility among new of the African Union, comprising 55 member
and potential member states. states.

Eastern Europe and the Baltic States

● Post-Communist Transition: These regions
are transitioning from socialist to market-
driven economies.

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 ● Wealthy in Resources, Poor in Wealth:
Regional Economic Communities Africa is rich in natural resources but has a
● Economic Community of West African predominantly poor population, contrasting
States (ECOWAS): Aims for full economic with resource-poor but economically
integration with plans for a regional booming East Asia.
monetary integration and a single West
African currency. Leapfrogging in Technology
● Southern African Development Community ● Innovative Technological Adoption:
(SADC): The most advanced regional Examples include web-based mobile money
organization, led by South Africa, with a in Tanzania.
significant market share. A free trade ● Investments in Technology and Education:
agreement among 13 members has been Significant investments from companies like
approved. Google in AI and educational initiatives.
● East African Community (EAC): Active in
regional cooperation, but specific details not Educational Development
mentioned in the provided text. ● African Virtual University: Provides degrees
in IT and engineering, linking African
Trade Within Africa campuses to global resources.
● Intra-Regional Trade: Only 14.5% of Africa's ● Government and Private Sector Initiatives:
trade occurs within the continent, which is Programs like South Africa's School Net and
low compared to Asia and Europe. Distance Education program, and
investments in local content development.
South Africa's Economic Role
● Post-Apartheid Growth: Increased economic Europe vs Africa Economic Comparison
growth following the end of apartheid and
lifting of the UN economic embargo. Europe's Economic Development
● Infrastructure and Regional Importance:
Developed infrastructure makes South Multinational Market Integration:
Africa a key player in serving nearby ● The European Union (EU) is a highly
markets. integrated economic and political union with
● Challenges and Potential: High established mechanisms to resolve disputes
unemployment, low savings rate, and an and maintain cohesion.
unskilled labor force are challenges. ● Integration includes shared monetary
Potential for growth and investment, policies (e.g., the Eurozone), open borders
especially from the U.S. for goods and services, and coordinated
foreign and security policies.
BRICS and BEM Potential
● South Africa in BRICS: Identified as a Institutional Structure:
gateway to the African market. ● The EU has robust institutions like the
● BEM Potential: Dependent on government European Commission, the European
action and external investment. Parliament, and the Court of Justice, which
play key roles in maintaining the union's
Trade with China economic and political integrity.
● Growing Trade Relations: Africa's trade with
China is significant, though less than its Challenges and Evolution:
trade with the West. ● The EU has faced challenges such as Brexit
and varying degrees of implementation of
Cultural and Resource Paradox union directives among member states.

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● Despite setbacks, the EU has shown significant tech investments from companies
resilience and progress toward deeper like Google.
integration.

Economic Diversification:
● EU countries have diverse economies with Educational Initiatives:
developed agricultural bases and distinctive ● Programs like the African Virtual University
monetary systems, contributing to complex and South Africa's School Net indicate a
economic dynamics within the union. focus on leveraging technology for
educational and economic advancement.
Regional Economic Groups: Comparative Analysis
● Other forms of cooperation, such as the
European Economic Area and the ● Integration Depth: Europe's economic
Commonwealth of Independent States, integration is far more advanced, with
exist, reflecting a varied approach to established institutions and policies, while
regional economic integration. Africa's integration efforts are still
developing, hindered by instability and lack
Africa's Economic Development of cohesive economic policies.
Growth and Investment: ● Economic Challenges: Both continents face
● African economies, particularly in the sub- unique economic challenges - Europe with
Saharan region, have shown promising political issues like Brexit and Africa with the
growth, stimulated by foreign direct need for more effective integration and
investment, notably from China. stability.
● Growth has been seen in infrastructure ● Role of Foreign Investment: Africa
development and in retail sectors, like significantly relies on foreign investment for
Starbucks opening its first store in Africa. its economic growth, whereas Europe's
economic development is more internally
Market Integration Challenges: driven and diversified.
● Despite numerous economic agreements, ● Technological Development: Africa shows
Africa's economic integration has been potential in leapfrogging traditional
limited due to political instability and an development stages through technology, a
unstable economic base. pathway that was different from Europe's
● The African Union and various regional more gradual economic evolution.
groups like ECOWAS and SADC aim for ● Natural Resources vs. Economic Wealth:
economic integration but face challenges in Africa’s rich natural resources contrast with
implementation and cohesion. its general economic underdevelopment,
while Europe, with limited natural resources,
Economic Paradox: has developed strong economies through
● Africa faces the paradox of being resource- integration and institutional frameworks.
rich but with a largely impoverished
population, contrasting with East Asia's
resource-poor but economically booming
countries.

Technological Leapfrogging:
● Some African countries are bypassing
traditional development stages, embracing
innovations like mobile money and

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 Chapter 11 - Asian Tigers Economic necessitate diverse growth strategies. This
Development regional diversity, coupled with China’s central
governance, presents both challenges and
Asia's Economic Growth and Resilience: The opportunities for economic development.
chapter highlights Asia's position as the fastest-
growing region over the past three decades. China's Future Challenges: Key future challenges
Despite financial crises, like the one in 1996 for China include human rights issues, legal
involving Japan, Hong Kong, South Korea, system reform, and managing economic
Singapore, and Taiwan, and external factors like volatility. The transition from rural to urban living
the appreciation of the dollar and a slowdown in and the demographic shifts due to the one-child
exports, Asian economies have demonstrated policy are also major considerations.
resilience and continued growth. The IMF's
prediction of Asian economies holding 29% of Hong Kong's Role Post-1997: Hong Kong's
global output by 2000 was accurate, transition to a Special Administrative Region of
underscoring the region's robust economic China in 1997 marked a significant economic
development. and political shift. The "one country, two
systems" principle intended to maintain Hong
Greater China's Economy and Cross-Strait Kong's economic autonomy and free-market
Relations: The economic dynamics of Greater system, although recent political developments
China, comprising the People's Republic of have raised concerns about this autonomy.
China (PRC) and the Republic of China
(Taiwan), are significant. Despite political Taiwan's Economic Interactions with China:
tensions, direct trade between these two entities Taiwan's economic relationship with China,
has helped ease historical tensions and especially post-WTO entry, is complex. Despite
contributed to regional economic stability. The political tensions, economic interdependence is
PRC's dual economic system that combines evident, with significant Taiwanese investment in
socialism and capitalism has facilitated China.
remarkable economic growth, making it a critical
global market. China's efforts in deregulating Japan's Economic Situation: Japan, once a
industries, modernizing technology, privatizing rapidly growing economy, faced stagnation and
state-owned enterprises, and attracting foreign economic challenges in the 1990s. Various
investment are pivotal to its economic trajectory. factors such as economic policies, political
dynamics, global circumstances, and cultural
Impact of COVID-19 and China's International aspects have influenced its economic
Trade Relations: The pandemic had a mixed performance.
impact on China, affecting its supply chain but
also bringing a boost through events like the India's Economic Liberalization: India’s shift from
2020 Beijing Olympics. China's admission to the a protectionist economy to one that embraces
WTO and the establishment of Permanent globalization and economic reforms under Prime
Normal Trade Relations with the U.S. have been Minister Modi highlights a significant transition.
crucial in integrating China into the global Despite challenges, India shows potential as a
economy. However, challenges in trade major player in the global economy, particularly
compliance and the enforcement of WTO rules in technology and services.
remain.
The Four Asian Tigers: Hong Kong, South Korea,
Regional Economic Disparities in China: The Singapore, and Taiwan, known as the Four
chapter notes the significant regional economic Asian Tigers, have undergone rapid
disparities within China. The varied economic industrialization and economic growth, playing a
conditions and governance in different regions pivotal role in regional economic development.

9
 Impact of Trade Agreements: Their rapid economic
Vietnam's Emerging Market Potential: Vietnam, progress prompted the pursuit of free trade
recovering from years of war and socialism, is agreements with major economic players like
an emerging market with potential for significant the United States. Singapore and South Korea,
growth, particularly following trade agreements for instance, have already engaged in such
with the U.S. agreements, highlighting their openness to
global trade and investment.
Importance of Bottom-of-the-Pyramid Markets
(BOPMs): The chapter discusses the potential Japan's Influence and Diversification: Initially,
of markets consisting of low-income consumers, Japan was a key player in the economic
emphasizing the need for innovative products development of these nations. However, as the
and services tailored to their needs. Tigers' economies strengthened, they began to
assert more regional economic leadership
Asia Pacific Trade Associations: Regional trade themselves. South Korea, for example, emerged
associations like ASEAN, ASEAN+3, and APEC as a central trade link with North China and the
play critical roles in fostering economic Asian republics of the former Soviet Union.
cooperation and trade liberalization in the Asia
Pacific region. Industrial and Consumer Product
Competitiveness: The Tigers have become
"Four Asian Tigers," namely Hong Kong, competitive in exporting high-tech goods like
South Korea, Singapore, and Taiwan, represent electronics and machinery, directly challenging
a noteworthy segment in the economic products from Japan and the U.S. In consumer
landscape of the Asia Pacific region products, brands from these countries have
become household names globally.
Rapid Industrialization and Growth: The Four
Asian Tigers experienced significant economic Investment Dynamics: These nations have made
growth and industrialization during the 1980s significant investments both within their borders
and 1990s. This transformation was so and internationally, contributing to global
remarkable that it earned them the title of the economic dynamics. For example, South Korean
"East Asian Miracle." These nations transitioned companies have made notable investments in
from developing to newly industrialized foreign markets, including the United States.
countries, setting a benchmark for economic
development in the region.

Influential Role in Regional Economy: Each of

these economies has become a major player in
both trade and development within the region.
Their growth has not only bolstered their own
economies but also significantly influenced
economic activities in surrounding countries.
Shift from Commodity to Manufacturing-Based
Economies: A pivotal decision that spurred their
growth was the shift from commodity-based
economies to ones focused on manufacturing.
This move was accompanied by a strategy to
specialize in manufacturing components where
they had comparative advantages, diversifying
their industrial outputs and increasing trade
opportunities.

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Chapter 12 - Strategic Alliance, Methods International Joint Ventures (IJVs):
Strategic Alliance ● IJVs are partnerships formed to create a
separate legal entity.
Strategic International Alliances (SIAs): ● They are a means of lessening political and
● Defined as business relationships economic risks, especially in markets that
established by two or more companies to pose legal and cultural barriers.
cooperate out of mutual need and to share ● IJVs are distinct due to their establishment
risk in achieving a common objective. as separate legal entities, shared
● SIAs have grown in importance as a global management, partnership between legally
competitive strategy. incorporated entities, and equity positions
● Reasons for forming SIAs include held by each of the partners.
opportunities for rapid expansion, access to ● Examples include ventures in
new technology, production and innovation telecommunications and the Internet market,
efficiency, reduced marketing costs, where joint ventures are favored for market
strategic competitive moves, and additional entry.
sources of products and capital. ● IJVs are particularly popular in regions like
● SIAs are driven by complementarity, where the Asia Pacific Rim due to unfamiliar legal
one partner's weakness is offset by the and cultural barriers.
other's strength.
● Examples include alliances between Nokia Challenges in Managing IJVs:
(Finland)/ATT, Alibaba (China)/Microsoft, ● Management of IJVs can be challenging due
Tata (India)/Starbucks, and Renault to factors like differing positions in industrial
(France)/Nissan (Japan). networks, control sharing, relations with
● In the airline industry, strategic alliances are parent companies, legal environments,
prominent, as seen in the Oneworld marketing capabilities, experience, and
Alliance, Star Alliance, and SkyTeam. knowledge sharing.

Consortia as a Form of Strategic Alliance:

Importance of Trust and Systematic Approach in ● Consortia involve multiple participants and
SIAs: often operate in markets where none of the
● Emphasis on building trust in interpersonal participants are currently active.
and institutional relationships as a ● They are formed to pool resources and
prerequisite for success. lessen risks, usually in large-scale projects.
● The need for a systematic approach to ● A key example is Airbus, a consortium of
forming SIAs is recognized, focusing on European aerospace firms.
building a strong foundation and aligning
goals. Methods?

Challenges and Considerations in SIAs: Forming Strategic International Alliances (SIAs):

● SIAs can face challenges in coordination ● SIAs are formed for mutual benefits, such as
due to differing ethical, cultural, and legal rapid expansion, access to technology, and
systems. shared risks.
● Partnerships can change, rendering ● Key methods for forming SIAs include
agreements untenable, and often such identifying complementary strengths and
relationships are short-lived. weaknesses between partners and aligning
● The choice of partners and the quality of common objectives.
relationships between executives are crucial Building Trust and Systematic Approach:
for success.

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● Trust-building is emphasized as a critical
method in the formation and success of
SIAs.
● A systematic approach is advocated for
forming alliances, which involves careful
planning and alignment of goals and
strategies.

Coordination and Management of SIAs:

● The text highlights the importance of
effective coordination among partners,
especially in cross-cultural and diverse legal
environments.
● Management of SIAs involves shared
decision-making, balancing control, and
ensuring that each partner’s contributions
and benefits are aligned.

International Joint Ventures (IJVs):

● The method for establishing IJVs includes
creating a separate legal entity with shared
management and equity investment by each
partner.
● Factors like control sharing, relationship with
parent companies, and marketing
capabilities are crucial in managing IJVs.

Consortia:
● Consortia are formed as a collaborative
method involving multiple companies, often
in large-scale projects. They share
similarities with IJVs but are distinct in their
focus on pooling resources for specific
projects or objectives.

Factors Influencing SIA and IJV Success:

● The success of SIAs and IJVs is influenced
by factors such as compatibility of partners,
ability to manage complex relationships,
cultural understanding, legal environment
adaptability, and resource sharing.

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Chapter 13 - Adaptation, Target Market, Host different products in various countries (like
vs Home Country, Green Marketing the adaptation of cell phones in Japan and
China or the unique demands in the Russian
Product Adaptation chocolate market) illustrates how cultural
preferences and local regulations can
Market-Perceived vs. Performance Quality: dictate product adaptation for successful
● The distinction between market-perceived market penetration.
quality (consumer perceptions) and
performance quality (product's functional
performance) is emphasized.
● Example: In the airline industry, consumers Impact of Country Stereotypes on Brand
expect more than just a safe flight Perception:
(performance quality); they value additional ● The country-of-origin effect plays a
services like comfort, timely service, etc. significant role in how products are
(market-perceived quality). perceived in foreign markets. Stereotypes
about products and their countries of origin
Adaptation to Local Tastes: can significantly influence consumer
● Products often need adaptation to suit local behavior and brand perception,
tastes and preferences. Example: necessitating careful brand management
UTStarcom’s success in China with non- and marketing strategies.
roaming mobile phones.
Cultural Influences on Service Expectations:
Physical or Mandatory Adaptation: ● Cultural factors also significantly impact the
● Products may need changes due to local delivery and reception of services. The text
legal, economic, political, technological, and discusses how American-style service
climatic requirements. Examples include expectations might clash with the norms in
different electrical standards, climatic other cultures, requiring service providers to
adjustments for automobiles, etc. adapt their approaches to local customs and
expectations.
Differences Between Home and Target
Countries Adapting to Local Market Dynamics:
● Understanding and adapting to local market
Quality Perceptions and Expectations: dynamics, such as consumer buying power,
● Consumers globally have diverse standards local competition, and distribution
for what constitutes quality, shaped by challenges, are crucial for success in foreign
cultural and economic factors. For instance, markets. The case of Mars's chocolates in
the quality of hybrid cars is perceived Russia highlights how external factors like
differently in Japan and the U.S., influenced competition and distribution issues can
by prevalent driving conditions and cultural impact market performance.
preferences. Japanese consumers, dealing
with frequent traffic, may prefer fuel Target Market
efficiency in city driving, while American
consumers might favor performance on Customer-Driven Quality Definition:
highways. ● Quality is defined by the customers
themselves, based on their individual needs
Adaptation to Local Tastes and Regulations: and available resources.
● The text emphasizes the necessity of ● The shift towards a customer-centric
adapting products to meet local tastes and perspective places more power in the hands
regulatory requirements. The success of of consumers, who have access to a wide

13
 range of choices and extensive information, preferences of a target market is crucial for
largely due to advancements in technology product acceptance.
like the Internet and smartphones.
Product Adaptation for Local Markets:
Market Segmentation Using Perceived Quality: ● Adapting products to meet local tastes,
● Perceived quality is used as a variable for cultural preferences, and regulatory
market segmentation. requirements is emphasized. For example,
● Different markets or customer groups have the success of UTStarcom in China with
different perceptions of quality, which non-roaming mobile phones highlights the
significantly influences their product importance of aligning products with local
preferences and choices. For instance, what market expectations.
is considered high quality in one market
might not hold the same perception in
another. Perceived Quality and Market Segmentation:
● The concept of perceived quality is used as
Green Marketing a market segmentation tool. This implies
that the market's acceptance of a product
Increasing Importance Globally: can vary based on how different segments
● There is a growing global emphasis on perceive its quality.
green marketing, especially in Europe and
the U.S. Cultural Influences and Product Utility:
● The importance of understanding cultural
Adaptation for Environmental Standards: influences on product perception and utility
● Products need adaptation to meet is discussed. This includes how a product’s
environmental standards and consumer non-physical attributes, like brand and
demand for eco-friendly products. Example: design, may need adaptation to align with
The European Commission's ecolabeling cultural values and expectations.
affecting product development.
Green Marketing and Environmental
Influence on Product Development: Considerations:
● Green marketing is influencing product ● The growing significance of green marketing
innovation and packaging. Companies are indicates that environmental friendliness can
integrating environmental concerns into impact market acceptance. Adapting
product development and packaging to meet products to environmental standards can
local and global environmental standards. influence brand perception and consumer
choice.
Impact on Brand Perception:
● The environmental friendliness of products Impact of Country-of-Origin and Brand Image:
is becoming a significant factor in brand ● The country-of-origin effect and brand image
perception and consumer choice. can significantly influence a product's
acceptance in the market. Stereotypes
Market’s acceptance of a product about products from certain countries and
the strength of the brand can sway
Customer Definition of Quality: consumer perceptions and acceptance.
● Quality is defined by customers based on
their needs, leading to varied perceptions in Consumer Expectations Beyond Performance
different markets. This suggests that Quality:
understanding the specific needs and ● The text highlights that consumers expect
more than just functional performance

14
 (performance quality); they also value
additional attributes that contribute to
market-perceived quality.

15
Chapter 15 - Intermediaries ● Pressures from multinational companies are
Complexities in International Distribution: transforming traditional distribution
● Distribution includes not just physical channels.
handling but also ownership transfer and Retail and Direct Selling Variations:
negotiating sales. ● Retail structures show significant global
● International marketing success hinges on diversity, ranging from specialty stores to
understanding and navigating these large supermarkets.
complex distribution relationships. ● Direct selling emerges as an effective
strategy in both underdeveloped and affluent
Channel Structures' Variability: markets, bypassing traditional
● Channel structures differ greatly across intermediaries.
countries, influenced by market
characteristics, competition, tradition, and Challenges and Resistance to Distribution
economic development. Change:
● The adaptability of channel strategies in ● Attempts to modernize or alter traditional
response to different market environments is distribution channels often encounter
crucial. resistance.
● Companies must carefully choose between
Import-Oriented Distribution in Developing fully controlling distribution or employing
Countries: intermediaries.
● Predominantly found in economies ● Channel selection has long-term
dependent on imported goods. implications, often challenging to alter once
● Features a limited supply controlled by a established.
few, leading to high prices and exclusive
targeting of affluent customers. Home vs. Foreign Country Intermediaries:
● Distribution is often localized with limited ● Home-country intermediaries help
support services due to the dominance of companies with limited international
importer-wholesalers. experience or those seeking minimal
commitment.
Japanese Distribution System: ● Foreign-country intermediaries bring the
● Uniquely characterized by dense networks manufacturer closer to the market but
of small intermediaries. introduce challenges like language barriers
● Controlled largely by manufacturers, and different business practices.
influenced deeply by Japanese cultural
values, and supported by laws favoring Strategic Factors in Channel Choice:
small retailers. ● Selection of channels is influenced by target
● Reflects consumer habits of frequent, small- market characteristics, company's marketing
scale shopping and strong manufacturer- goals, financial and personnel resources,
wholesaler relationships. and desired level of control and ownership.
● In-depth market understanding and strategic
Global Trends in Channel Structures: alignment are critical for effective channel
● Influenced by global economic and political selection.
shifts.
● Movement from traditional structures to Internet's Impact on Distribution:
more modern, efficient systems, exemplified ● E-commerce has revolutionized distribution,
by major global retailers adapting to online offering direct marketing opportunities.
and smaller store formats. ● Cultural adaptation, payment methods,
delivery logistics, and local presence are key
considerations for online sales.

16
 ● Media Limitations: In some markets with
Logistics and Physical Distribution Management: limited media access, sales promotions take
● Comprehensive management of a larger share of the promotional budget.
transportation, inventory, warehousing, and ● Rural Markets: Strategies like carnival trucks
overall logistics is vital. (Pepsi-Cola and Coca-Cola in Latin
● The goal is to optimize the total distribution America) show adaptation to local market
cost while maintaining desired service challenges.
levels. ● Emerging Markets: Variance in promotional
Chapter 16 - Integrated Marketing strategies based on market development
Communications & International Advertising stages, cultural nuances, and local laws.

Definition: Sales promotions are strategic Product Sampling

marketing activities aimed at boosting consumer ● Effective for New Products/Small Market
purchases and enhancing the effectiveness of Share: Nestlé Baby Foods in France used
retailers and intermediaries. rest-stop structures for product sampling,
demonstrating an innovative approach to
Types: Includes cents-off, in-store reach target consumers.
demonstrations, samples, coupons, gifts,
product tie-ins, contests, sweepstakes, point-of- Cultural Adaptations in Product Launch
purchase displays, sponsorship of events (e.g., ● Oreo in China: Adapted to local tastes and
concerts, Olympics), and loyalty programs. used grassroots campaigns to align with
cultural practices and preferences.
Cultural Influence: The effectiveness and
preference for different types of sales Creative Sales Promotions
promotions vary across cultures, influenced by ● Microsoft/Burger King in Japan: Windows 7
factors like power distance, collectivism, and Whopper as a unique promotional tactic
uncertainty avoidance. demonstrating the importance of local
market adaptation.
Objectives of Sales Promotions
● Short-term Goals: Encourage product trials, The Importance of Local Adaptation
immediate purchases, brand introduction, ● Local laws and cultural responses to
and retailer cooperation. promotions can vary, necessitating
● Long-term Goals: Augment advertising and adaptations for success. Example: Different
personal sales efforts, improve brand responses to loyalty programs based on
visibility, and foster retailer relationships. cultural dimensions like power distance and
uncertainty avoidance.
Examples and Case Studies
● Procter & Gamble's Ariel Detergent in Egypt:
Utilized a local puppet show for market
penetration and brand awareness.
● Fox's "The Simpsons" International Festival:
An example of leveraging popular culture for
global brand promotion.
● Software Piracy: Recognized by firms as an
inadvertent form of product trial that may
boost genuine software sales.

Sales Promotion Challenges in Different Markets

17
 ● Local vs Global Strategy: Balancing
standardized global campaigns with local
cultural nuances.

International Advertising Strategy

● Goals Variance: Goals differ based on
market conditions (e.g., brand establishment
in emerging markets vs. quality image
upgrade in developed markets).
● Strategic Balance: Multinational companies
International Public Relations seeking a balance between standardized
themes and localized customization.
Role of Public Relations
● Definition: Managing relationships with Product Attribute and Benefit Segmentation
various publics (customers, general public, ● Cultural Relevance: Aligning product
regulators) through media communication. attributes and benefits with cultural
● Objectives: Positive brand storytelling, preferences and values.
managing unfavorable events, and shaping ● Examples: Variance in product perception
public perception. and utility across cultures (e.g., Dannon's
Recent Global PR Controversies health and pleasure balance in different
● Google in China: Issues over censorship markets).
and market re-entry.
● Foxconn in China: Handling of employee Regional Segmentation
welfare issues. ● Pan-European Strategies: Identifying cross-
● Toyota's Quality Image: Managing global European market segments and developing
recalls and maintaining brand reputation. unifying promotional concepts.
Corporate Sponsorships
● Sales Promotions/PR Blend: Corporate The Message: Creative Challenges
sponsorships, like Proctor & Gamble's International Communications Process
school-building initiative, serve both ● Steps: From information source to feedback,
promotional and public relations purposes. each step can be affected by cultural factors
● Examples: McDonald's Olympic sponsorship and misinterpretations.
and Intel's Tour de France support, ● Encoding and Decoding Challenges:
demonstrating the integration of sponsorship Cultural influences on symbolism, humor,
in overall marketing strategies. and spokesperson selection.
International Advertising ● Receiver Interpretation: Varying consumer
Global Advertising Trends interpretations based on cultural
● Expenditure Growth: Significant increase in backgrounds.
global advertising spending with a shift
towards digital media. Legal Constraints
● Media Shifts: Digital media surpassing ● Comparative Advertising: Diverse
traditional media in terms of investment and regulations across countries.
reach. ● Product-Specific Restrictions: Various
restrictions on pharmaceuticals, toys,
Cultural Impact on Advertising tobacco, and alcohol advertising.
● Cultural Interpretation: Advertisements must
align with cultural norms, values, and Linguistic Limitations
perceptions for effectiveness.

18
● Translation and Interpretation: Challenges in
accurately translating and culturally adapting
advertising messages.

Cultural Diversity
● Global vs Local Perception: Navigating
global brand messages in diverse cultural
contexts.
● Subcultures and Changing Traditions:
Addressing diverse consumer segments
within individual markets.

Media Planning and Analysis

Availability and Cost
● Media Access: Variability in media
availability across countries.
● Pricing Strategies: Negotiable media prices
and varying cost structures.

Coverage and Market Data

● Market Reach: Challenges in achieving
effective market coverage.
● Data Limitations: Lack of reliable market
data for informed decision-making.

Media Types
● Newspapers and Magazines: Differences in
circulation, reach, and effectiveness.
● Radio and Television: Varied availability and
impact in different markets.
● Satellite and Cable TV: Expanding reach
and implications for global messaging.
● Direct Mail: Effectiveness influenced by
cultural factors and market access.
● The Internet: Growing importance in global
advertising with coverage limitations.
● Social Media: Emerging as a powerful tool in
global marketing strategy.

Mobile Phone Applications

● Rapid Growth: Increasing use of mobile
applications for marketing and customer
engagement.
● Market-Specific Uses: Varied applications
based on market needs and technological
access.

19
Chapter 18: International Pricing Strategies ● Exporting Costs: The added costs incurred
in exporting (shipping, insurance, financing,
Cultural and Economic Influences on Pricing tariffs, taxes, etc.) can lead to significant
● Price Volatility: Significant variations in price price escalation in foreign markets.
volatility across different countries. Cultural ● Inflation and Currency Fluctuations: The
elements, such as collectivism, are found to impact of inflation and changing exchange
influence this variance. rates is crucial in determining final prices in
● Power Distance and Price Sensitivity: In international markets.
cultures with high power distance, there is a
stronger reliance on price as an indicator of Approaches to International Pricing
quality, and consumers exhibit lower price ● Full-Cost vs. Variable-Cost Pricing:
sensitivity. They tend to pay higher prices Decisions on whether to cover all costs
and engage less in price comparisons. (fixed and variable) or just the incremental
● Preference for Local Products: A notable costs for products sold in international
trend where consumers are willing to pay markets.
more for products perceived as local, ● Skimming vs. Penetration Pricing: Strategies
regardless of their actual origin. This affects depend on the level of competition,
pricing strategies, as the perceived origin innovation, and market characteristics.
can influence consumers' willingness to pay. Skimming is used for less price-sensitive
segments, while penetration pricing aims to
Pricing Objectives and Strategies quickly acquire market share.
● Active vs. Static Pricing Views: Companies
either view pricing actively, using it as a tool Exchange Rate and Currency Implications
to achieve specific marketing goals (like ● Currency Stability and Exchange Rates: The
targeted returns or sales volumes), or see it instability in currency values can greatly
as a static element in overall business affect pricing strategies in international
decisions. contracts.
● Importance of Pricing Objectives: In ● Impact of Currency Value Variations:
international business, total profits, return on Changes in the value of a country's currency
investment, market share, and sales volume relative to others can significantly affect
are crucial factors in setting prices. Different international pricing.
priorities in different markets influence
pricing decisions. Intermediary and Transportation Costs
● Channel Costs: The length of distribution
Parallel Imports and Gray Markets channels and the costs associated with
● Challenges of Parallel Imports: The issue of intermediaries can influence final product
products being sold at lower prices in one prices.
country, only to be exported to another ● Transportation Costs: Additional costs for
market, undercutting prices there. This is international transportation can be a
particularly prevalent in industries like significant factor in price escalation.
pharmaceuticals.
● Gray Market Dynamics: High-value goods Strategies to Reduce Price Escalation
and luxury items are particularly susceptible ● Reducing Tariffs: Finding ways to lower or
to gray markets. Price discrepancies across circumvent tariffs can help reduce final
countries due to factors like tariffs and taxes prices.
create opportunities for gray market ● Distribution and Manufacturing Costs:
activities. Streamlining distribution channels and
reducing manufacturing costs can mitigate
Price Escalation Factors price escalation.

20
 ● The necessity to consider import quotas and
Dumping and Countertrade other local regulations.
● Dumping Practices: Selling products at
lower prices in foreign markets than in home Competitive Pricing Analysis:
markets, potentially leading to charges of ● Evaluating local and global competition.
dumping. ● Strategies based on market share, sales
● Countertrade: Engaging in barter or volume, and competitive conditions.
countertrade agreements as a strategic
pricing tool, especially in markets with Dynamic Pricing Models:
currency restrictions. ● Adapting prices based on market demand
and external factors.
Administered Pricing and Cartel Influence ● Use of promotional and seasonal pricing
● Government-Influenced Pricing: The role of adjustments.
governments in setting prices, either directly
or through encouragement of industry Role of Technology in Pricing:
collusion. ● Influence of e-commerce and digital
● Cartels in Price Control: The influence of platforms.
cartels like OPEC on international pricing, ● Opportunities and challenges in online
especially in commodities markets. pricing.

Payment Methods in International Trade Ethical Pricing Practices:

● Letters of Credit and Bills of Exchange: ● Avoiding exploitative pricing in lower-income
Reliance on secure payment methods like markets.
letters of credit to ensure payment upon ● Maintaining fairness across different
delivery. international markets.
● Cash in Advance and Open Accounts: The
use of advance payments for high-risk Crisis-Responsive Pricing:
transactions and open accounts for trusted ● Adjusting prices in response to economic
customers. downturns or political instability.
● Forfaiting: Selling accounts receivable to a
forfaiter to mitigate risks associated with Customization of Pricing Strategies:
long-term financing in international trade. ● Tailoring prices for different market
segments.
Cultural Influence on Pricing: ● Understanding diverse customer groups in
● Importance of understanding cultural international markets.
differences.
● Higher price fluctuations in collectivistic Aligning with Long-Term Objectives:
societies. ● Ensuring pricing strategies are in line with
● In high power distance cultures, price often company’s long-term goals.
equates to perceived quality. ● Balancing short-term and long-term pricing
considerations.
Impact of Regulatory Environment:
● Variations in tax rates and tariffs across
countries.

21
Question 1 (Chapter 9)

(i) State any five (5) of the factors that have contributed to the growth of Newly Industrialized
Countries [NICs] (5 marks)

Political Stability:
o Crucial for Development: Political stability in NICs is vital for fostering a conducive environment for
economic activities. It creates predictability and reassurance for investors, both domestic and
international, which is crucial for long-term economic planning and investment.
o Impact on Policies: Stable political climates often result in more consistent and effective economic
policies, reducing the risk of abrupt changes that can disrupt markets and business operations. This
stability is key in creating a favorable business environment.

Economic and Legal Reforms:

o Foundation for Growth: NICs have implemented significant economic policy and legal framework
reforms. These reforms are essential for fostering a business-friendly environment, which includes
modernizing tax codes, financial systems, and labor laws.
o Property and Contract Rights: Strengthening legal systems, particularly in terms of property rights and
contract enforcement, provides security for investments and facilitates smoother business operations.
This legal stability is crucial for attracting and retaining both local and foreign investment.

Entrepreneurship:
o Driving Force: Entrepreneurship is a significant driver of economic growth in NICs. The growth of self-
employed individuals and private enterprises is indicative of a healthy entrepreneurial ecosystem,
which is crucial for dynamic economic growth.
o Innovation and Jobs: Entrepreneurs in these countries play a key role in job creation, innovation, and
driving competitiveness in the global market.

Strategic Planning:
o Goal-Oriented Development: NICs have focused on setting clear, observable, and measurable
economic development goals. These goals guide policy decisions and resource allocation, ensuring
that economic growth is targeted and effective.
o Policy Integration: The most effective development plans in NICs are those that are directly linked to
specific policies, ensuring that the goals are actionable and attainable.

Outward Orientation:
o Dual Market Focus: NICs have an outward orientation, focusing on production for both domestic and
export markets. This dual focus encourages production efficiency and market diversification.
o Global Competitiveness: By focusing outwardly, NICs compete on a global scale, which drives
innovation, efficiency, and competitiveness in the international market.

(ii) What are Big Emerging Markets [BEMs] and how do they differ from other developing
countries? (6 marks)

Definition of BEMs: BEMs refer to a small core of developing countries identified as having significant
populations and being sizable markets for a wide range of products. They have strong rates of growth or
potential for significant growth, and have undertaken significant programs of economic reform.

Differences from Other Developing Countries:

Larger Scale:
 Geographic and Population Size: BEMs are characterized by their significantly larger geographical
areas and populations compared to other developing countries. This larger scale not only provides a

22
 wider range of natural resources but also creates more diverse economic activities across different
regions within these countries.
 Market Size and Scope: The large scale of BEMs translates into broader and more varied markets.
These markets often encompass a wide range of economic sectors, from agriculture to advanced
technology, each contributing to the overall economic landscape.

Higher Economic Influence:

 Regional Dominance: Due to their size and economic capabilities, BEMs often hold dominant
positions in their respective regions. They can influence regional economic trends, trade flows, and
investment patterns.
 Global Impact: The economic decisions and growth trajectories of BEMs have significant implications
for the global economy. Their development strategies, policy reforms, and economic health can affect
global trade, investment trends, and international economic stability.

More Advanced Economic Reforms:

 Comprehensive Policy Changes: BEMs have generally undertaken more extensive and profound
economic reforms compared to other developing countries. These reforms may include liberalization
of trade policies, modernization of financial systems, deregulation of industries, and improvements in
governance and legal frameworks.
 Transition to Market Economies: Many BEMs have transitioned from closed, state-controlled
economies to more open, market-oriented systems. This transition often involves significant structural
changes in the economy, aiming to improve efficiency, competitiveness, and integration into the
global market.

Higher Import Levels:

 Manufacturing and Infrastructure Development: BEMs typically import more goods, especially capital
goods, to develop their manufacturing bases and infrastructure. This is reflective of their efforts to
modernize industries and enhance economic capacities.
 Consumer Market Growth: As BEMs develop, there is an increasing demand for a wide range of
products, including those not produced locally. This leads to higher import levels to satisfy the
growing and diversifying consumer demands within these markets.

(iii) List four (4) common characteristics of Big Emerging Markets [BEMs] (4 marks)

Geographical Size:
 BEMs are generally characterized by their large geographic areas. This extensive land area often
contributes to a variety of natural resources and diverse economic activities.
 The vast geographical spread can influence regional and global trade patterns, as these countries
often act as significant players in their respective regions.

Significant Populations:
 BEMs typically have large populations, which is a critical factor in defining their market size and
potential.
 A significant population base provides a substantial workforce and creates a vast consumer market,
driving both production and consumption within these economies.
 The demographic profile, including a young and growing population, can significantly influence market
dynamics, consumer behavior, and future economic prospects.

Sizable Markets:
 BEMs offer extensive markets for a wide array of products and services, attributable to their large
populations and increasing consumer demand.
 These markets are often characterized by growing middle classes with increasing purchasing power,
which attracts foreign investments and multinational corporations seeking new growth opportunities.
 The market size in BEMs is not just extensive domestically but also influential internationally, as these
countries often serve as significant export and import hubs.

23
Growth Potential:
 BEMs are known for their strong rates of economic growth or the potential for significant growth in the
future.
 This potential is driven by factors such as economic reforms, industrialization, urbanization, and
integration into the global economy.
 The growth potential also attracts foreign direct investment, as businesses and investors seek to
capitalize on the dynamic economic expansion and emerging opportunities in these markets.

Question 2 (Chapter 12)

A company has a number of different modes of foreign market entry from which to select. Identify
and discuss any three (3) of these alternative foreign market entry strategies (15 marks)

*4 strategies provided choose 3*

Exporting:
 Low Risk and Investment: Exporting is often the first step a company takes to enter a foreign market
since it involves less risk and investment compared to other entry methods. Companies don't need to
invest in new production facilities in the target market.
 Familiarization with the Market: It allows companies to learn about the foreign market's dynamics,
preferences, and competitive environment without the commitment of significant resources.
 Flexibility and Adaptability: Companies can quickly respond to changes in the market or demand
without being heavily invested. Export strategies can be easily modified or withdrawn.
 Control over Product and Brand: Exporting maintains a high level of control over the product and its
branding, ensuring consistency in different markets.
 Reliance on Local Distribution Networks: Exporting requires building relationships with local
distributors or agents, which can be a limitation if these networks are not well-developed or reliable.

Contractual Agreements:
 Lower Cost and Risk: Licensing and franchising involve lower costs and risks compared to
establishing wholly owned subsidiaries. They require less capital and allow for sharing of risk with the
local partner.
 Rapid Market Entry: These agreements can be executed relatively quickly, allowing for faster market
entry and the ability to capitalize on market opportunities.
 Local Market Knowledge: The local licensee or franchisee brings in-depth knowledge of the local
market, which can be crucial for the success of the product or service.
 Control and Compliance Issues: Companies might face challenges in ensuring quality control and
compliance with their standards and practices.
 Revenue and Profit Limitations: The company may have to share a significant portion of the revenue
with the licensee or franchisee, potentially limiting overall profits.

Strategic International Alliances:

 Access to Local Resources: Partnerships can provide access to local resources, including distribution
networks, marketing expertise, and local market knowledge.
 Shared Risk and Investment: The financial burden and risk are shared with the partner, making it
more manageable, especially in uncertain markets.
 Combination of Strengths: Alliances allow companies to combine strengths, whether in technology,
expertise, or market reach, which can create a competitive advantage.

24
 Potential for Conflict: Differences in culture, management styles, and business goals can lead to
conflicts, impacting the effectiveness of the alliance.
 Dependency and Loss of Control: There can be a dependency on the partner and potential loss of
control over certain business aspects, which can impact long-term strategies.

Direct Foreign Investment:

 Full Control and Profit Retention: Companies have complete control over their operations and retain
all profits, without needing to share with local partners.
 Long-Term Market Presence: This strategy demonstrates a long-term commitment to the local
market, which can strengthen brand presence and loyalty.
 Local Market Access and Benefits: Direct investment may grant access to certain local benefits,
including tax advantages and government incentives.
 High Risk and Capital Requirement: This approach requires a significant upfront investment and
carries a higher risk, especially in politically or economically unstable regions.
 Cultural and Operational Challenges: Understanding and adapting to local business practices and
cultural nuances can be challenging and requires substantial managerial effort.

Question 3 (Chapter 10)

Multinational market groups can take several forms – varying significantly in the degree of
cooperation, dependence and interrelationship among participating nations. List and describe
each of these fundamental groupings for regional economic integration (15 marks)

Regional Cooperation Groups (RCD):

 This is the most basic form of economic integration and cooperation. In RCD, governments agree to
participate jointly in developing basic industries beneficial to each economy.
 Each country commits to financing a new joint venture and to purchasing a specified share of the
output.
 An example is the hydroelectric project between Colombia and Venezuela on the Orinoco River,
where both countries shared construction costs and electricity production.

Free Trade Area (FTA):

 An FTA involves more cooperation and integration than an RCD. It is an agreement between two or
more countries to reduce or eliminate customs duties and non-tariff trade barriers among partner
countries, while maintaining individual tariff schedules for external countries.
 It provides a mass market without internal barriers to impede the flow of goods and services.

Customs Union:
 A customs union is the next stage in economic cooperation. It combines the FTA’s reduced or
eliminated internal tariffs with a common external tariff on products imported from countries outside
the union.
 This type of union is a step towards a common market, offering both reduced internal trade barriers
and a unified external trade policy.

Common Market:
 A common market eliminates all tariffs and other restrictions on internal trade, adopts a common
external tariff, and removes all restrictions on the free flow of capital and labor among member
nations.
 It is essentially a unified economy lacking only political unity, representing a significant step toward
full economic integration. The European Economic Community (EEC) was an example before it
evolved into the European Union.

Political Union:
 Political union represents the most fully integrated form of regional cooperation, involving complete
political and economic integration, either voluntary or enforced.

25
 It signifies a level of integration where there is not only a unified economic policy but also a degree of
political centralization. The European Union, after the ratification of the Maastricht Treaty, is a notable
example of a political union.

Question 4 (Chapter 15)

(i) What is the difference between agent middlemen and merchant middlemen?
(3 markah/marks)

Agent middlemen
 Intermediaries who act on behalf of the manufacturer, facilitating sales and transactions without
taking ownership of the goods.
 Work on a commission basis and are responsible for arranging sales in foreign markets.
 Do not bear the trading risks and typically do not set prices for the products.
 Their primary role is to connect sellers with buyers and facilitate transactions.

Merchant middlemen
 Purchase and take title to the goods.
 They buy the products from the manufacturer and then resell them, assuming the risks associated
with owning the goods.
 Have more control over the sale process, including pricing and terms of sale.
 They are primarily concerned with sales and profit margins on the merchandise they own.

(ii) What is the difference between home-country middlemen and foreign country middlemen? (4
markah/marks)

Home-country middlemen
 Intermediaries based in the producer's own country.
 Provide various services to the exporting company, including market research, finding buyers, and
handling the export process, without the exporter needing a physical presence in the foreign market.
 Ideal for companies with small international sales volumes, limited experience in foreign markets, or
those seeking to minimize financial and management investments abroad.

Foreign country middlemen

 Based in the overseas market where the goods are being sold.
 Have direct contact with the market and are often better equipped to handle local customs, language
barriers, and specific market needs.
 They offer shorter channels and direct market insight but require more involvement from the company
in terms of managing international complexities.

(iii) Give four (4) examples of home-country middlemen and four examples of foreign country
middlemen (8 markah/marks)

Examples of Home-Country Middlemen:

 Export Management Companies (EMCs): They operate as an outsourced export division for
manufacturers, handling all aspects of exporting.
 Trading Companies: Engage in the trade of a wide range of products, often acting as a bridge
between domestic producers and foreign buyers.
 Export Trading Companies: Firms that collaborate under the Export Trading Company Act, focusing
on increasing exports by pooling resources and expertise.
 Complementary Marketers: Companies that expand their product range by including non-competitive
but complementary products from other manufacturers for international distribution.

26
Examples of Foreign Country Middlemen:

 Importers: Businesses or individuals in the foreign country who purchase goods directly from the
manufacturer to sell in their local markets.
 Foreign Distributors: Entities that buy and distribute products in their own or adjacent countries, often
providing additional value-added services.
 Manufacturer's Representatives: Agents based in the foreign market who represent the
manufacturer's products and assist in sales and marketing efforts.
 Foreign Retailers: Retail outlets in the target market that purchase products from the manufacturer
and sell them directly to the end consumers.

Question 5 (Chapter 13)

(i) To identify all the possible ways a product may be adapted to a new market, it helps to separate
its many dimensions into three (3) components which affect a market’s acceptance of a product.
Identify and briefly discuss these three components (10 marks)

Core Component:
 The core component refers to the essential elements of the product itself. This includes the physical
product, the technology it incorporates, its design, and functional features.
 Variations can be made on this platform to meet local requirements, such as changes in design,
features, flavors, or colors.
 Major adjustments to the core component can be costly as they might require changes in production
processes and additional capital investment.
 This component is crucial for adapting a product to different cultural expectations and regulatory
standards of the target market.

Packaging Component:
 This encompasses the external aspects of a product, including its packaging, labeling, style features,
trademarks, brand name, quality, and price.
 Packaging components often require both discretionary and mandatory changes to comply with local
regulations or cultural preferences.
 The importance of each element varies depending on the need the product is designed to serve.
 Mistakes in this component can severely impact the product's acceptance, as it significantly
influences consumer perceptions and buying decisions.

Support Services Component:

 This includes all the additional services that come with the product, like repair and maintenance,
installation, instructions, warranties, deliveries, and availability of spare parts.
 Successful marketing often hinges on the quality of these services, particularly in markets where such
support is not as readily available or culturally normative.
 The adaptation of this component can involve adjusting to different levels of infrastructure, consumer
expectations, and cultural norms in the target market.
 The support services component is essential for maintaining customer satisfaction and loyalty,
especially in markets where after-sales service is a key differentiator.

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(ii) Name the five characteristics of an innovation that can help determine the rate of acceptance
or resistance of the market to a product (5 marks)

 Relative Advantage: This is the perceived marginal value of the new product compared to the old
one. If the new product is seen as significantly better, it's more likely to be accepted quickly.
 Compatibility: This refers to how well the new product fits with the existing values, past experiences,
and needs of potential adopters. Products that align well with these factors are more readily
accepted.
 Complexity: The degree of complexity associated with the product's use. Simpler products are
typically adopted more quickly than those perceived as complicated.
 Trialability: The extent to which a product can be experimented with on a limited basis. Products that
can be tried easily and without significant risk are more likely to be adopted.
 Observability: This characteristic pertains to how easily the benefits of the product can be observed
and communicated to others. Products with more visible benefits tend to be adopted more rapidly.

Question 6 (Chapter 18)

(i) Within the context of pricing for international markets, explain briefly what is meant by price
escalation, and list the factors that contribute to price escalation (5 marks)

Definition: Price escalation is the increase in the final retail price of goods when they are exported to
international markets, compared to their domestic market price.

Contributing Factors:
 Taxes and Tariffs: Various forms of import taxes, including tariffs, contribute significantly to price
escalation. These can vary greatly depending on the country and the specific classification of the
product.
 Transportation Costs: The costs associated with moving goods across international borders, including
freight and shipping fees, contribute to price escalation.
 Insurance Costs: Ensuring the safety of goods during international transit incurs insurance costs,
adding to the total price.
 Packaging and Handling: Adaptations in packaging for international markets and additional handling
requirements can increase costs.
 Regulatory Costs: Compliance with the regulatory standards of the export market often requires
additional spending.
 Intermediary and Distribution Costs: Complex distribution channels in foreign markets, often longer
and involving more intermediaries than domestic channels, lead to higher costs.

(ii) Name the different approaches to reducing price escalation. (4 marks)

 Lowering Distribution Costs: Shortening distribution channels, optimizing intermediary costs, and
leveraging efficient logistics strategies can reduce distribution-related price escalation.
 Lowering Tariffs: Seeking classifications for products that attract lower tariffs, negotiating trade
agreements, and adapting products to meet lower tariff criteria can help reduce tariff-induced costs.
 Lowering the Cost of Goods: Strategies like manufacturing in countries with lower labor costs,
minimizing costly features, or adapting products to suit the economic conditions of the target market
can reduce the cost of goods.
 Using Foreign Trade Zones (FTZs): Utilizing FTZs can allow for the deferral, reduction, or elimination
of customs duties, thus reducing overall costs.
 Streamlining Supply Chain: Reducing the complexities and inefficiencies in the supply chain can help
in mitigating additional costs associated with exporting.

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 (iii) What are the main factors that drive international pricing policy? (6 marks)

 Market Demand and Competition: Understanding and adapting to local market demand, competitive
landscape, and customer price sensitivity.
 Cost Considerations: Factoring in production, shipping, marketing, and additional costs specific to
international operations.
 Economic Conditions: Considering inflation, deflation, and the overall economic environment of the
target market, including aspects like disposable income and purchasing power.
 Regulatory Environment: Navigating tariffs, trade agreements, and local regulations that impact
pricing.
 Cultural Factors: Acknowledging cultural differences in price perception and value assessment.
 Exchange Rate Fluctuations: Monitoring and responding to changes in currency value which can
affect pricing strategies.
 Marketing Objectives: Aligning pricing with the company’s strategic objectives, such as market
penetration, skimming, or brand positioning.
 Legal and Ethical Considerations: Ensuring compliance with legal standards and ethical pricing
practices in different markets.

Question 7 (Chapter 16)

Describe in detail the International Communication Process and explain its relevance to global
advertising. (15 marks)

- Message Source and Encoding:

The process begins with the message source, typically the marketing or advertising team of a company,
who creates the core message or idea to be communicated. This message is then encoded, meaning it is
crafted into a form (such as an advertisement) that can be easily understood by the target audience. The
encoding process must consider cultural nuances, local languages, and societal norms of the target
market to ensure the message is relevant and effective.

- Message Transmission via Media Channels:

The encoded message is then transmitted to the target audience through various media channels. These
channels can include traditional media like TV, radio, and print, as well as digital platforms like social
media, online advertising, and email marketing. The choice of media channels depends on the media
habits of the target audience in different international markets.

- Decoding by the Receiver:

Upon receiving the message, the target audience (receivers) decode it. Decoding is the process by which
the audience interprets and understands the message. Effective decoding is contingent on the message
being appropriately encoded for the target market's cultural and contextual understanding.

- Feedback Mechanism:
Feedback is an essential part of the communication process. It is the response or reaction of the
audience to the message, which can be measured through various metrics like sales numbers, customer
inquiries, social media engagement, etc. Feedback helps companies assess the effectiveness of their
communication and make necessary adjustments.

- Noise:
Noise represents any external factors that can distort or interfere with the transmission of the message. In
international communication, noise can include cultural misunderstandings, poor translations, or the use
of inappropriate symbols or references. It can significantly affect the clarity and effectiveness of the
message.

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Relevance to Global Advertising

- Message Source and Encoding

Crafting a culturally sensitive and engaging advertisement is crucial for global brands. The ability to
encode a message that resonates with diverse cultural groups without losing the brand's core message is
essential for successful global advertising campaigns. This involves not just translating content but also
adapting it to cultural norms, values, and expectations of each target market.

- Message Transmission via Media Channels

Understanding and effectively using the most appropriate media channels in each international market is
critical for ensuring that advertising messages reach the intended audience. This includes choosing
between digital and traditional media based on the media consumption habits of each target market,
which can vary significantly between countries and regions.

- Relevance of Decoding by the Receiver

The way the target audience interprets the advertising message can have a significant impact on the
success of an international campaign. Misinterpretation or cultural insensitivity can lead to advertising
failures. Hence, it’s important for global advertisers to ensure that their messages are clear, easily
understandable, and culturally relevant.

- Relevance of Feedback Mechanism

Feedback, such as consumer responses, sales data, and social media engagement, is vital for assessing
the effectiveness of global advertising campaigns. It helps advertisers understand how their message is
being received and whether it’s achieving the desired impact, allowing for timely adjustments to strategies
and tactics.

- Relevance of Noise
Identifying and mitigating noise, such as cultural misunderstandings or inappropriate references, is crucial
in global advertising. Advertisers must navigate the complexities of varying cultural contexts to ensure
their message is not distorted or misinterpreted.

Additional answer of relevance to global advertising

- Cultural Sensitivity and Adaptation:

Understanding cultural differences and sensitivities is crucial in international advertising. A message that
works well in one culture might be ineffective or even offensive in another. Therefore, marketers must
adapt their messages to fit the cultural context of each target market.

- Language and Translation:

Effective communication requires careful consideration of language differences, including nuances,
idioms, and local expressions. Literal translations often do not convey the intended meaning, so
messages must be localized to ensure clarity and relevance.

- Regulatory Compliance:
Different countries have various regulations governing advertising, including what can be advertised and
how. Understanding and complying with these regulations is essential for effective and lawful international
communication.

- Media Planning and Selection:

Different markets have different dominant media channels. A deep understanding of local media
consumption habits is crucial to ensure that the advertising reaches the intended audience effectively.

- Brand Consistency vs. Local Relevance:

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Balancing global brand consistency with local relevance is a key challenge in international advertising.
While maintaining a consistent brand image, adaptations are often necessary to ensure local relevance
and effectiveness.
1) Explain the importance of time zones for trade relationships and marketing operations. What are
the three multinational market regions that comprise major trading blocs?

Time zones make a difference in international business, on several important dimensions. Jet lag is
an important problem. Virtual meetings across time zones are more than just inconvenient; they can
disrupt sleep and family life. Among three kinds of distances that international marketers must traverse
—miles, time zones, and cultural distances—time zones have the greatest influence on the success of
their commercial efforts abroad. Moreover, most countries also maintain good trade relationships with
contiguous countries. Thus, we can also see an associated pattern of economic growth and global
trade that will extend well into the 21st century. It consists of three multinational market regions that
comprise major trading blocs: the Americas, Europe, and Asia. Further, the common time zones give
the Europeans advantages in both Africa and the Middle East. Within each trading bloc are fully
industrialized countries, as typified by the United States, Germany, and Japan; rapidly industrializing
countries such as Brazil, Russia, and China that are nearing the level of the fully industrialized; and
other countries that are achieving economic development but at more modest rates. Many American
companies have organized their international operations according to these geographic or temporal
constraints.

2) Describe the political and economic changes affecting developing countries, including foreign
investment, transition from socialist to market-driven economies, and trade policies.

Not many years ago, large parts of the developing world were hostile to foreign investment and
imposed severe regulatory barriers to foreign trade. But few nations are content with the economic
status quo; now, more than ever, they seek economic growth, improved standards of living, and an
opportunity for the good life as part of the global consumer world. The transition from socialist to
market-driven economies, the liberalization of trade and investment policies in developing countries,
the transfer of public-sector enterprises to the private sector, and the rapid development of regional
market alliances are changing the way countries will trade and prosper in the 21st century. Argentina,
Brazil, Mexico, China, South Korea, Poland, Turkey, India, and Vietnam are some of the countries
undergoing impressive changes in their economies and are emerging as vast markets. The N-11
(“Next 11”) designation, including some of these countries, represents an opportunity for marketers in
a collection of high-growth, high-population (Indonesia at 274 million in 2022) economies. Still other
countries have an ever-expanding and changing demand for goods and services. As countries prosper
and their people are exposed to new ideas and behavior patterns via global communications networks,
old stereotypes, traditions, and habits are cast aside or tempered, and new patterns of consumer
behavior emerge.

3) Explain the concept of economic development.

Economic development is generally understood to mean an increase in national production reflected

by an increase in the average per capita gross domestic product (GDP) or gross national income
(GNI). Besides an increase in average per capita GNI or GDP, most interpretations of the concept also
imply a widespread distribution of the increased income. Economic development, as commonly
defined today, tends to mean rapid economic growth and increases in consumer demand—
improvements achieved “in decades rather than centuries.”

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 4) Describe the three categories used by the United Nations to classify a country’s stage of
economic development on the basis of its level of industrialization.

The three categories in which the United Nations classifies a country’s stage of economic
development on the basis of its level of industrialization are:
1. MDCs (more-developed countries). Industrialized countries with high per capital incomes, such
as Canada, England, France, Germany, Japan, and the United States.
2. LDCs (less-developed countries). Industrially developing countries just entering world trade,
many of which are in Asia and Latin America, with relatively low per capita incomes.
3. LLDCs (least-developed countries). Industrially underdeveloped, agrarian, subsistence societies
with rural populations, extremely low per capita income levels, and little world trade involvement. Such
LLDCs are found in Central Africa and parts of Asia. Violence and the potential for violence are often
associated with LLDCs.

5) List and briefly describe five of the nine factors that existed during the economic growth of newly
industrialized countries (NICs).

The factors that promote the economic growth of NICs are as follows:
1. Political stability in policies affecting their development.
2. Economic and legal reforms—Poorly defined and/or weakly enforced contract and property rights
are features that the poorest countries have in common.
3. Entrepreneurship—In all of these nations, free enterprise in the hands of the self-employed was
the seed of the new economic growth.
4. Planning—A central plan with observable and measurable development goals linked to specific
policies was in place.
5. Outward orientation—Production for the domestic market and export markets with increases in
efficiencies and continual differentiation of exports from competition was the focus.
6. Factors of production—If deficient in the factors of production—land (raw materials), labor,
capital, management, and technology—an environment existed where these factors could easily come
from outside the country and be directed to development objectives.
7. Industries targeted for growth—Strategically directed industrial and international trade policies
were created to identify those sectors where opportunity existed. Key industries were encouraged to
achieve better positions in world markets by directing resources into promising target sectors.
8. Incentives to force a high domestic rate of savings and direct capital to update the infrastructure,
transportation, housing, education, and training.
9. Privatization of state-owned enterprises (SOEs) that had placed a drain on national budgets—
Privatization released immediate capital to invest in strategic areas and gave relief from a continuing
drain on future national resources. Often when industries are privatized, the new investors modernize,
thus creating new economic growth.

6) Explain how the Internet impacts economic development in emerging economies.

The Internet cuts transaction costs and reduces economies of scale from vertical integration. It can
also reduce the economically optimal size for firms. Lower transaction costs enable small firms in Asia
or Latin America to work together to develop a global reach. Smaller firms in emerging economies can
now sell into a global market. The Internet accelerates the process of economic growth by speeding up
the diffusion of new technologies to emerging economies. Unlike the decades required for many
developing countries to benefit from railways, telephones, or electricity, the Internet is spreading
rapidly throughout Latin America and the rest of the world. Information technology can jump-start
national economies and allow them to leapfrog from high levels of illiteracy to computer literacy.

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 7) Describe the United States, Mexico, and Canada Agreement (USMCA), including some of its key
provisions and how it is similar to the North American Free Trade Agreement (NAFTA).

When U.S. President Donald Trump called for the dismantling of NAFTA, some American business
leaders expressed their desire for a restructuring of the long-standing trade agreement rather than
totally starting over. Nevertheless, after much debate among policymakers in Congress, the
Commerce Department, and the White House, on all sides of the political spectrum, President Trump,
along with Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau,
signed the United States, Mexico, and Canada Agreement (USMCA) as a replacement to NAFTA. The
background remains the same for the USMCA as for NAFTA, the basic idea being that added tariffs
are eliminated or significantly lower for member countries to trade among each other, bringing prices
and costs down and making goods from USMCA countries cheaper for consumers and more
competitive in the global marketplace. The agreement also provides more access to markets through
the reductions of quotas determining how much of a certain product will be allowed in a country from
other member nations. Provisions of the agreement cover a wide range of products and issues,
including agricultural produce, homelessness, manufactured products, labor conditions, and digital
trade, among others. Some of the more prominent aspects of the agreement include giving U.S. dairy
farmers more access to the Canadian market, guidelines to have a higher proportion of automobiles
manufactured among the three nations rather than imported from elsewhere, and a dispute resolution
system similar to that which was used under NAFTA.

8) Why was Caribbean Community and Common Market (CARICOM) created? What are its goals?

The success of the Caribbean Free Trade Association led to the creation of the Caribbean
Community and Common Market. CARICOM member countries continue in their efforts to achieve
true regional integration. The group has worked toward a single-market economy and in 2000
established the CSME (CARICOM Single Market and Economy) with the goal of a common currency
for all members. The introduction of a common external tariff structure was a major step toward that
goal. CARICOM continues to seek stronger ties with other groups in Latin America and has signed a
trade agreement with Cuba.

9) Briefly explain the concept of a multinational market region, and explain why they are important
today.

Multinational market regions are those groups of countries that seek mutual economic benefit from
reducing interregional trade and tariff barriers. They are the most important global trends today.
Although organizational form varies widely among market regions, the universal goals of multinational
cooperation are economic benefits for the participants and the associated peace between (as the 19th-
century French economist Frédéric Bastiat proclaimed, “If goods don’t cross borders, soldiers will”)
and within countries.

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 10) Successful economic union requires favorable economic, political, cultural, and geographic
factors. Briefly explain how these four factors impact regional integration.

The factors that facilitate the formation of a successful economic union include the following:
Economic factors: Every type of economic union shares the development and enlargement of market
opportunities as a basic orientation; usually, markets are enlarged through preferential tariff treatment
for participating members, common tariff barriers against outsiders, or both. Enlarged, protected
markets stimulate internal economic development by providing assured outlets and preferential
treatment for goods produced within the customs union, and consumers benefit from lower internal
tariff barriers among the participating countries. In many but not all cases, external and internal
barriers are reduced because of the greater economic security afforded to domestic producers by the
enlarged market.

Political factors: Political amenability among countries is another basic requisite for the development
of a supranational market arrangement. Participating countries must have comparable aspirations and
general compatibility before surrendering any part of their national sovereignty. State sovereignty is
one of the most cherished possessions of any nation and is relinquished only for a promise of
significant improvement of the national position through cooperation.

Geographic and temporal proximity: Although geographic and temporal proximity are not absolutely
imperative for cooperating members of a customs union, such closeness does facilitate the functioning
of a common market. Transportation networks are likely to be interrelated and well developed when
countries are close together. Issues of immigration, legal and illegal, also promote closer economic
integration between close neighbours.

Cultural factors: Generally, cultural similarity eases the shock of economic cooperation with other
countries. The more similar the culture, the more likely an agreement is to succeed, because members
understand the outlook and viewpoints of their colleagues.

11)What is the purpose of the regional cooperation for development?

The regional cooperation for development (RCD) is the most basic economic integration and
cooperation form. In the RCD arrangement, governments agree to participate jointly to develop basic
industries beneficial to each economy. Each country makes an advance commitment to participate in
the financing of a new joint venture and to purchase a specified share of the output of the venture.

12)Compare and contrast the concepts of free trade area, customs union, common market, and
political union.

A free trade area is an agreement between two or more countries to reduce or eliminate customs
duties and nontariff trade barriers among partner countries while members maintain individual tariff
schedules for external countries.

A customs union enjoys the free trade area’s reduced or eliminated internal tariffs and adds a
common external tariff on products imported from countries outside the union.

A common market agreement eliminates all tariffs and other restrictions on internal trade, adopts a
set of common external tariffs, and removes all restrictions on the free flow of capital and labor among
member nations.

The political union is the most fully integrated form of regional cooperation. It involves complete
political and economic integration.

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 13) What is a commonwealth? Discuss the features of this form of economic integration.

A commonwealth of nations is a voluntary organization providing for the loosest possible relationship
that can be classified as economic integration. The British Commonwealth includes Britain and
countries formerly part of the British Empire. Some of its members still recognize the British monarch
as their symbolic head, though Britain has no political authority over any commonwealth country. A
commonwealth can best be described as the weakest of political unions and is mostly based on
economic history and a sense of tradition. Heads of state meet every three years to discuss trade and
political issues they jointly face, and compliance with any decisions or directives issued is voluntary.

14) What was the intent of the Maastricht Treaty, and what has been its result?

After the ratification of the Maastricht Treaty, the members of the European Union committed
themselves to economic and political integration. The treaty allows for the free movement of goods,
persons, services, and capital throughout the member states; a common currency; common foreign
and security policies, including defense; a common justice system; and cooperation between police
and other authorities on crime, terrorism, and immigration issues. Each year European Union
members become more closely tied economically and politically. Now that the Economic and Monetary
Union is in place and most participating members share a common currency, the European Union is
headed toward political union as well. However, taxation is one of the areas where implementation
lags and reform continues to be necessary.

15) Discuss the functions of each of the four institutions under the European Union.

The European Union’s institutions form a federal pattern with executive, parliamentary, and judicial
branches: the European Commission, the Council of Ministers, the European Parliament, and the
Court of Justice, respectively.

The European Union uses three legal instruments: (1) regulations binding the member states directly
and having the same strength as national laws; (2) directives also binding the member states but
allowing them to choose the means of execution; and (3) decisions addressed to a government, an
enterprise, or an individual, binding the parties named.

The European Commission initiates policy and supervises its observance by member states. It also
proposes and supervises execution of laws and policies. Commission members act only in the interest
of the European Union, and their responsibilities are to ensure that the European Union rules and the
principles of the common market are respected.

The Council of Ministers is the decision-making body of the European Union; it is the Council’s
responsibility to debate and decide which proposals of the Single European Act to accept as binding
on European Union members. The Council can enact into law all proposals by majority vote except for
changes in tax rates on products and services, which require unanimous vote.

The European Parliament originally had only a consultative role that passed on most Union
legislation. It can now amend and adopt legislation, although it does not have the power to initiate
legislation. It also has extensive budgetary powers that allow it to be involved in major European Union
expenditures.

The European Court of Justice (ECJ) is the European Union’s Supreme Court. It is responsible for
challenging any measures incompatible with the Treaty of Rome and for passing judgment, at the
request of a national court, on the interpretation or validity of points of European Union law. The
court’s decisions are final and cannot be appealed in national courts.

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 16)Discuss the establishment of the Economic and Monetary Union (EMU) and the “eurozone.”
Mention some of the countries that are part of the eurozone.

The EMU, a provision of the Maastricht Treaty, established the parameters for the creation of a
common currency for the European Union, the euro, and established a timetable for its
implementation. Thus, the “eurozone” was born. In 2002, a central bank was established, conversion
rates were fixed, circulation of euro banknotes and coins was completed, and the legal tender status of
participating members’ banknotes and coins was canceled. To participate in the EMU, members must
meet strict limits on several financial and economic criteria, including national deficit, debt, and
inflation. Not all EU nations qualified nor wanted to give up their home currencies for the euro. The
original 12 member states employing the euro beginning on January 1, 2001, were Austria, Belgium,
Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.
Denmark voted in 2000 not to join the monetary union, leaving Britain and Sweden still undecided. In
2007 Slovenia and in 2008 both Malta and Cyprus switched their currencies to the euro, as did
Slovakia in 2009, Estonia in 2011, Latvia in 2014, and Lithuania in 2015, bringing the total number of
countries in the eurozone to 19.

17) What countries make up the Commonwealth of Independent States? How does this group work?

Europe (and Asia) has a trade group that has emerged and persisted since the dissolution of the
Soviet Union: the Commonwealth of Independent States (CIS). Twelve republics—excluding the Baltic
States of the former USSR, collectively known as the Newly Independent States (NIS) —regrouped
into the Commonwealth of Independent States. The CIS is a loose economic and political alliance with
open borders but no central government. The main provisions of the commonwealth agreement are to
repeal all Soviet laws and assume the powers of the old regimes; launch radical economic reforms,
including freeing most prices; keep the ruble but allow new currencies; establish a European Union–
style free trade association; create joint control of nuclear weapons; and fulfill all Soviet foreign treaties
and debt obligations. The Slavic republics of Russia and Belarus have interests and history in
common, as do the five Central Asian republics. But the ties between these two core groups of the CIS
are tenuous and stem mainly from their former Soviet membership.

18)Describe the opportunities offered by economic integration.

Economic integration creates large mass markets. Many national markets take on new dimensions
and significance when combined with markets from cooperating countries. Large markets are
particularly important to businesses accustomed to mass production and mass distribution because of
the economies of scale and marketing efficiencies that can be achieved. Most multinational groups
have coordinated programs to foster economic growth as part of their cooperative efforts. Such
programs work to the advantage of marketers by increasing purchasing power, improving regional
infrastructure, and fostering economic development. Despite the problems that are sure to occur
because of integration, the economic benefits from free trade can be enormous.

19) Which areas come under “The Greater China”? What is the history of the relationship between
these areas?

The term “The Greater China” refers to both the People’s Republic of China (PRC) and the Republic
of China (ROC) or Taiwan. The two separate political units divided in 1949, and each government
claimed the other as its territory. The dispute has persisted to this day. Although the ROC was one of
the founding members of the United Nations in 1945, the PRC government was officially recognized
with a seat on the UN Security Council in 1971. Over the years the relationship between the disputants
has been both politically difficult and militarily dangerous. However, direct trade between the formerly
hostile neighbours has increased dramatically, easing much of the historical tension in all of East Asia.

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 20)What two major events of 2000 had a major impact on China’s economy? Explain each one.

Two major events of 2000 that had a profound effect on China’s economy are admission to the World
Trade Organization and the United States granting normal trade relations (NTR) to China on a
permanent basis (PNTR). The PNTR status and China’s entry to the WTO cut import barriers
previously imposed on American products and services. The United States is obligated to maintain the
market access policies that it already applies to China, and has for over 30 years, and to make its
normal trade relation status permanent. After years of procrastination, China has begun to comply with
WTO provisions and made a wholehearted and irrevocable commitment to creating a market economy
that is tied to the world at large.

21 )What is the “one country, two systems” approach of China? How did it come about?

After 155 years of British rule, Hong Kong reverted to China in 1997 when it became a special
administrative region (SAR) of the People’s Republic of China. The Basic Law of the Hong Kong SAR
forms the legal basis for China’s “one country, two systems” agreement that guarantees Hong Kong a
high degree of autonomy. The Hong Kong government negotiates bilateral agreements (which are
then “confirmed” by Beijing) and makes major economic decisions on its own. The central government
in Beijing is responsible only for foreign affairs and defense of the SAR.

The Hong Kong dollar continues to be freely convertible, and foreign exchange, gold, and securities
markets continue to operate as before. Hong Kong is a free society with legally protected rights. The
Hong Kong SAR government continues to pursue a generally noninterventionist approach to economic
policy that stresses the predominant role of the private sector. The decision to let Hong Kong handle a
financial crisis on its own is considered strong evidence that the relationship is working for the best for
both sides, considering that China has so much riding on Hong Kong.

Most business problems that have arisen stem from fundamental concepts such as clear rules and
transparent dealings that are not understood the same way on the mainland as they are in Hong Kong.
Many thought the territory’s laissez-faire ways, exuberant capitalism, and gung-ho spirit would prove
unbearable for Beijing’s heavy-handed communist leaders. But except for changes in tone and
emphasis, even opponents of communist rule concede that Beijing is honoring the “one country, two
systems” arrangement.

22) What political factors were behind the Japanese crisis of 1990?

Political analysts found two major villains that led to the Japanese crisis: the Country’s long
entrenched Liberal Democratic political party and the hidebound Japanese bureaucracy. Frank Gibney
has written that Japan became the victim of “one-party sickness,” an ailment brought on by a 40-year
hardening of political arteries. Meanwhile, many observers thought politicians had to share blame with
Japan’s powerful bureaucracy. Many observers, both inside and outside Japan, had long since come
to believe that the bureaucracy actually controlled its elected politicians. Of course, in a consensus-
type society, it is not easy, particularly for outsiders, to tell where one institution’s power leaves off and
another’s begins. In any event, to those who championed a political explanation of Japan’s woes,
these two national institutions were viewed as joint culprits. Meanwhile, other observers, particularly
within Japan, were dissatisfied with either the economic or political explanations they were hearing.

37
 23) Describe the rampant corruption in India. What effect has this corruption had on the attitude of
investors toward India?

In India, widespread corruption and a deeply ingrained system of bribery make every transaction
complicated and expensive. One noted authority on India declared that corrupt practices are not the
quaint custom of “baksheesh” but pervasive, systematic, structured, and degraded corruption running
from the bottom to the top of the political order. Nevertheless, a survey of U.S. manufacturers shows
that 95 percent of respondents with Indian operations plan on expanding, and none say they are
leaving. They are hooked on the country’s cheap, qualified labor and the potential of a massive
market.

24) What are the countries referred to as the Asian Tigers, and why are they referred to this way?

The most rapidly growing economies in the Asia Pacific region during the 1980s and 1990s were the
group sometimes referred to as the Four Asian Tigers (or Four Dragons): Hong Kong, South Korea,
Singapore, and Taiwan. Often described as the “East Asian miracle,” they were the first countries in
Asia, after Japan, to move from a status of developing countries to newly industrialized countries. In
addition, each has become a major influence in trade and development in the economies of the other
countries within their spheres of influence. The Four Tigers are rapidly industrializing and extending
their trading activity to other parts of Asia.

25) What are BOPMs? According to C. K. Prahalad, why have they been ignored by international
marketers?

C. K. Prahalad and his associates introduced a new concept into the discussion of developing
countries and markets—bottom-of-the-pyramid markets (BOPMs)—consisting of the 4 billion people
across the globe with annual incomes of less than $1,200. These markets are not necessarily defined
by national borders but rather by the pockets of poverty across countries. These 4 billion consumers
are, of course, concentrated in the LDCs and LLDCs, as defined in the UN classification scheme,
particularly in South Asia and sub-Sahara Africa. Prahalad’s basic point is that these consumers have
been relatively ignored by international marketers because of misconceptions about their lack of
resources, both in terms of money and technology, and the lack of appropriateness of products and
services usually developed for more affluent consumers.

26) Discuss the economic growth of the member nations of ASEAN, including the four major events
that led to their economic growth.

The primary multinational trade group in Asia is ASEAN. Most of the early economic growth came
from trade outside the ASEAN group. Similarities in the kinds of products they had to export, in their
natural resources, and other national assets hampered earlier attempts at intra-ASEAN trade. Four
major events account for the vigorous economic growth of the ASEAN countries and their
transformation from cheap-labor havens to industrialized nations:
(1) the ASEAN governments’ commitment to deregulation, liberalization, and privatization of their
economies;
(2) the decision to shift their economies from commodity based to manufacturing based;
(3) the decision to specialize in manufacturing components in which they have a comparative
advantage (which created more diversity in their industrial output and increased opportunities for
trade); and
(4) Japan’s emergence as a major provider of technology and capital necessary to upgrade
manufacturing capability and develop new industries.

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 27)Analyze APEC’s role in international trade.

Formed in 1989, APEC provides a formal structure for the major governments of the region, including
the United States and Canada, to discuss their mutual interests in open trade and economic
collaboration. APEC is a unique forum that has evolved into the primary regional vehicle for promoting
trade liberalization and economic cooperation. APEC includes all the major economies around the
Pacific Rim, from Russia to Chile to Australia, the most dynamic, fastest growing economies in the
world. APEC has as its common goals a commitment to open trade, to increase economic
collaboration, to sustain regional growth and development, to strengthen the multilateral trading
system, and to reduce barriers to investment and trade without detriment to other economies.
Representatives from APEC member nations meet annually to discuss issues confronting the group, to
propose solutions to problems arising from the growing interdependence among their economies, and
to continue their quest for ways to lower barriers to trade.

28)Describe the four major regional economies of China.

Today’s China is divided into mutually competitive, complementary economic “warring states.” Four
regional economies stand out from the north to the south of the country, along the Pacific Coast:
· The traditional industrial heartland in Northeast China, with the coastal Dalian city as its hub
among the three provinces of Liaoning, Jilin, and Heilongjiang.
· The Beijing–Tianjin information technology (IT) corridor in north China.
· The Yangtze River Delta, known as the Greater Shanghai area, with its emerging IT
manufacturing center of Suzhou.
· The Pearl River Delta, containing Hong Kong, Macau, Guangzhou, and Shenzhen, as the
world’s manufacturing base for the IT industry.

29)How have multinational companies contributed toward the development of rural China?

Rural China is the part of China that doesn’t yet participate in the global economy. The average
income for a Chongqing resident was over $20,000 in 2021, compared with rural neighbors at about
20 percent of that. But the government actually is not spending much in the area. Instead, we find
multinational companies funding development. For example, BP has built a $200 million chemical plant
in the area, Volvo has begun producing its small S40 series there, and Yamaha has a motorcycle plant
nearby. Much, much more work needs to be done. But as wages rise along with the recent labor
shortages along the east coast, the “market” will pull development westward. “How fast?” is the
question of the day.

30)Describe three benefits of marketing to diverse customers with global marketing operations.

When large international market segments can be identified, economies of scale in production and
marketing can bring important competitive advantage for multinational companies. Global marketing
facilitates a transfer of experience and know-how across countries through improved coordination and
integration of marketing activities. It also ensures access to the toughest customers. Such demanding
customers help companies develop highest quality products and services. Moreover, diversity of
markets served carries with it additional financial benefits. Spreading the portfolio of markets served
brings important stability of revenues and operations to many global companies.

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 31)Compare and contrast corporate, strategic, and tactical planning.

Corporate planning is essentially long term, incorporating generalized goals for an enterprise as a
whole. Strategic planning is conducted at the highest levels of management and deals with products,
capital, and research, and the long- and short-term goals of a company. Tactical planning, or market
planning, pertains to specific actions and to the allocation of resources used to implement strategic
planning goals in specific markets. Tactical plans are made at the local level and address marketing
and advertising questions.

32) Describe the four phases of the international planning process.

The four phases are:

(a) Phase 1—Preliminary analysis and screening (matching company/country needs). A critical first
step in the international planning process is deciding in which existing country market to make a
market investment. Research has shown three entry criteria to be most useful: analyses of institutional
context, cultural context, and transaction costs. The next step is to establish screening criteria against
which prospective countries can be evaluated. Once evaluation criteria are set, a complete analysis of
the environment within which a company plans to operate is made. With the analysis in Phase 1
completed, the decision maker faces the more specific task of selecting country target markets and
segments, identifying problems and opportunities in these markets, and beginning the process of
creating marketing programs.
(b) Phase 2—Defining target markets and adapting the marketing mix accordingly. A more detailed
examination of the components of the marketing mix is the purpose of Phase 2. The primary goal of
Phase 2 is to decide on a marketing mix adjusted to the cultural constraints imposed by the
uncontrollable elements of the environment that effectively achieves corporate objectives and goals.
Frequently, the results of the analysis in Phase 2 indicate that the marketing mix will require such
drastic adaptation that a decision not to enter a particular market is made. Based on the results in
Phase 2, a second screening of countries may take place, with some countries dropped from further
consideration. The next phase in the planning process is the development of a marketing plan.
(c) Phase 3—Developing the marketing plan. At this stage of the planning process, a marketing plan
is developed for the target market—whether it is a single country or a global market set. The marketing
plan begins with a situation analysis and culminates in the selection of an entry mode and a specific
action program for the market.
(d) Phase 4—Implementation and control. A “go” decision in Phase 3 triggers implementation of
specific plans and anticipation of successful marketing. However, the planning process does not end
at this point. All marketing plans require coordination and control during the period of implementation.
Many businesses do not control marketing plans as thoroughly as they could, even though continuous
monitoring and control could increase their success.

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 33) A company has a choice of four different modes of foreign market entry. Briefly describe each of
these modes, and explain when each would be the best option.

The modes of foreign entry are exporting, contractual agreements, strategic alliances, and direct
foreign investment. Exporting can be either direct or indirect. With direct exporting, a company sells to
a customer in another country. Indirect exporting usually means that the company sells to a buyer
(importer or distributor) in the home country, which in turn exports the product. Exporting is a common
approach for mature international companies with strong marketing and relational capabilities. The
Internet is becoming increasingly important as a foreign market-entry method.

Contractual agreements are long-term, nonequity associations between a company and another in a
foreign market. Contractual agreements generally involve the transfer of technology, processes,
trademarks, and/or human skills. In short, they serve as a means of transfer of knowledge rather than
equity. Research has shown that when legal systems differ substantially across partners’ countries,
informal aspects of business relationships will be more important. Two examples are franchising and
licensing.

A strategic international alliance (SIA) is a business relationship established by two or more

companies to cooperate out of mutual need and to share risk in achieving a common objective.
Strategic international alliances are sought as a way to shore up weaknesses and increase
competitive strengths—that is, complementarity is key. Many companies also are entering SIAs to be
in a strategic position to be competitive and to benefit from the expected growth in international
markets.

The fourth means of foreign market development and entry is direct foreign investment, that is,
investment within a foreign country. Companies may invest locally to capitalize on low-cost labor, to
avoid high import taxes, to reduce the high costs of transportation to market, to gain access to raw
materials and technology, or as a means of gaining market entry. The growth of free trade areas that
are tariff-free among members but have a common tariff for nonmembers creates an opportunity that
can be capitalized on by direct investment.

34)Describe the two basic contractual agreements that most companies follow in their attempt to
enter a foreign market: licensing and franchising. Illustrate a situation in which each type of agreement
would be appropriate. Students’ answers will vary.

Contractual agreements generally involve the transfer of technology, processes, trademarks, or

human skills. The two basic forms of contractual agreements are licensing and franchising. Licensing
is associated with patent rights, trademark rights, and the rights to use technological processes in
foreign markets. It is a favorite strategy for small- and medium-sized companies. Franchising is a
rapidly growing form of licensing in which the franchiser provides a standard package of products,
systems, and management services, and the franchisee provides market knowledge, capital, and
personal involvement in management.

35)Briefly explain a strategic international alliance (SIA).

A strategic international alliance (SIA) is a business relationship established by two or more

companies to cooperate out of mutual need and to share risk in achieving a common objective. SIAs
are sought as a way to shore up weaknesses and increase competitive strengths. Firms enter into
SIAs for several reasons: opportunities for rapid expansion into new markets, access to new
technology, more efficient production and innovation, reduced marketing costs, strategic competitive
moves, and access to additional sources of products and capital. Studies have demonstrated that
affiliations with prominent financial institutions makes potential partners more attractive and resource
deployment stability enhances alliance performance. Finally, evidence suggests that SIAs often
contribute nicely to profits.

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 36)What two characteristics differentiate consortia from joint ventures? What is a prominent example
of a consortium?

Joint ventures are partnerships of two or more participating companies that join forces to create a
separate legal entity. Consortia are similar to joint ventures but have two distinguishing characteristics:
(a) they typically involve a large number of participants and
(b) they frequently operate in a country or market in which none of the participants is currently active.

The two most prominent examples of consortia are the following:

· Without a doubt, the most prominent international consortium has been Airbus, Boeing’s
European competitor in the global commercial aircraft market. Airbus Industrie was originally formed
when four major European aerospace firms agreed to work together to build commercial airliners. In
2000, the four agreed to transform the consortium into a global company to achieve operations
efficiencies that would allow it to compete better against Boeing.

· Sematech, the other candidate for most prominent consortium, was originally an exclusively
American operation. Sematech is an R&D consortium formed in Austin, Texas, during the 1980s to
regain America’s lead in semiconductor development and sales from Japan. Members included firms
such as IBM, Intel, Texas Instruments, Motorola, and Hewlett-Packard. However, at the turn of the
millennium, even Sematech went international. Several of the founding American companies left and
were replaced by firms from Taiwan, Korea, Germany, and the Netherlands (still none from Japan).

37)You have just been hired as a consultant by Physical Mobility to advise the company on how to
enter the European market. You have decided that direct foreign investment would be the best mode
for Physical Mobility to follow. Write a one-paragraph memo that outlines the benefits of direct foreign
investment in this scenario. Students’ answers may vary.

Direct foreign investment is investment within a foreign country. Companies may invest locally to
capitalize on low-cost labor, to avoid high import taxes, to reduce the high costs of transportation to
market, to gain access to raw materials and technology, or as a means of gaining market entry. Firms
may either invest in or buy local companies or establish new operations facilities. The local firms enjoy
important benefits aside from the investments themselves, such as substantial technology transfers
and the capability to export to a more diversified customer base.

38)Assume that you are a consultant for a telecom giant based in the United States that wishes to
create a joint venture with a Chinese electronics company. The joint venture is expected to enter and
compete in the eastern European market. Suggest an organizational structure that would be most
suitable for this joint venture. Also, comment on why the structure might be a good one to use.

The three organizational structures: global product divisions, geographical divisions, and matrix
organizations. Students could select any of the three options; however, the text suggests that the
matrix form is popular with companies as they reorganize for global competition. A matrix structure
permits management to respond to the conflicts that arise between functional activity, product, and
geography. Since the new venture will be a joint venture, the matrix structure should encourage
sharing of experience, resources, expertise, technology, and information among global business units.
At its core is better decision making, in which multiple points of view affecting functional activity,
product, and geography are examined and shared.

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 39)Describe what is meant by the term “locus of decision,” as used by the authors.

Considerations of where decisions will be made, by whom, and by which method are a major
element of organizational strategy. For example, management policy must be explicit about which
decisions are to be made at corporate headquarters, which at international headquarters, which at
regional levels, and which at national or even local levels. Most companies also limit the amount of
money to be spent at each level.

Decision levels for determination of policy, strategy, and tactical decisions must be established.
Tactical decisions normally should be made at the lowest possible level, without country-by-country
duplication.

40)How has the increased presence of global competition changed business strategies in the
marketplace?

Global competition is placing new emphasis on some basic tenets of business. It is shortening
product life cycles and focusing on the importance of quality, competitive prices, and innovative
products. The power in the marketplace is shifting from a sellers’ market to a customers’ market, and
the latter have more choices because more companies are competing for their attention. More
competition and more choices put more power in the hands of the customer, and that of course drives
the need for quality.

41)Compare and contrast the two ways consumers determine a product’s quality.

Quality can be defined on two dimensions: market-perceived quality and performance quality. The
market-perceived quality attributes are embedded in the total product, that is, the physical or core
product and all the additional features the consumer expects. Consumer perceptions of a quality
product often have more to do with market-perceived quality than performance quality. But, since the
consumer expects performance quality to be a given, quality to the consumer is more important than
compliance.

42) In the context of product adaptation, what is product homologation?

Product homologation is a term used to describe the changes mandated by local product and service
standards. A product may have to change in a number of ways to meet the physical or mandatory
requirements of a new market ranging from simple package changes to total redesign of the physical
core product.

43) What are the five factors that influence product adaptation in new markets?

Legal, economic, political, technological, and climatic requirements of the local marketplace often
dictate product adaptation.

44) Describe green marketing and how it affects product development.

Green marketing is a term used to identify concern with the environmental consequences of a variety
of marketing activities. It is a quality issue of growing importance all over the world. Two critical issues
that affect product development are the control of the packaging component of solid waste and
consumer demand for environmentally friendly products.

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 45)According to Everett Rogers, what are the four crucial elements that affect the diffusion of new
ideas?

Everett Rogers noted that “crucial elements in the diffusion of new ideas are
(1) an innovation,
(2) which is communicated through certain channels,
(3) over time,
(4) among the members of a social system.” Rogers continued with the statement that it is the
element of time that differentiates diffusion from other types of communications research.

46)Describe the five characteristics of an innovation that assist in determining the rate of acceptance
or resistance of the market to a product.

The five characteristics of an innovation that help to determine the rate of acceptance or resistance
of the market to a product are as follows:
(1) relative advantage (the perceived marginal value of the new product relative to the old),
(2) compatibility (its compatibility with acceptable behavior, norms, values, and so forth),
(3) complexity (the degree of complexity associated with product use),
(4) trialability (the degree of economic and/or social risk associated with product use), and
(5) observability (the ease with which the product benefits can be communicated). In general, the
rate of diffusion can be postulated as positively related to relative advantage, compatibility, trialability,
and observability but negatively related to complexity.

47) What are the four barriers faced by consumer services marketers when they enter the global
market?

The barriers to consumer services are (a) protectionism, (b) controls on transborder data flows, (c)
protection of intellectual property, and (d) cultural requirements for adaptation.

48)Define the term global brand. How are global brands important?

A global brand is defined as the worldwide use of a name, term, sign, symbol (visual and/or
auditory), design, or combination thereof intended to identify goods or services of one seller and to
differentiate them from those of competitors. The importance of a brand name, even in the nonprofit
sector, is unquestionable. Companies with strong brands strive to use those brands globally. Even
perceived “globalness” can lead to increases in sales. Ideally, a global brand gives a company
uniformly positive worldwide brand associations that enhance efficiency and cost savings when
introducing other products with the brand name.

49)Define country-of-origin effect. How can a company overcome this effect?

Country-of-origin effect (COE) can be defined as any influence that the country of manufacture,
assembly, or design has on a consumer’s positive or negative perception of a product. A company
competing in global markets today manufactures products worldwide; when the customer becomes
aware of the country of origin, there is the possibility that the place of manufacture will affect product or
brand images. Once the market gains experience with a product, negative country stereotypes can be
overcome. Moreover, country stereotyping or “nation equity” can be overcome with good marketing.

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 50)What happens in an import-oriented distribution structure? How are intermediaries affected?

In an import-oriented or traditional distribution structure, an importer controls a fixed supply of goods,

and the marketing system develops around the philosophy of selling a limited supply of goods at high
prices to a small number of affluent customers. In the resulting seller’s market, market penetration and
mass distribution are not necessary because demand exceeds supply, and in most cases, the
customer seeks the supply from a limited number of intermediaries. This configuration affects the
development of intermediaries and their functions. Distribution systems are local rather than national in
scope, and the relationship between the importer and any intermediary in the marketplace is
considerably different from that found in a mass-marketing system. The idea of a channel as a chain of
intermediaries performing specific activities and each selling to a smaller unit beneath it until the chain
reaches the ultimate consumer is not common in an import-oriented system. Because the importer–
wholesaler traditionally performs most marketing functions, independent agencies that provide
advertising, marketing research, warehousing and storage, transportation, financing, and other
facilitating functions found in a developed, mature marketing infrastructure are nonexistent or
underdeveloped.

51)What are the four distinguishing features of the Japanese distribution structure? Discuss each
one and explain how they impact Japan’s market.

Distribution in Japan has long been considered a most effective nontariff barrier to the Japanese
market. The Japanese system has four distinguishing features:
· a structure dominated by many small intermediaries dealing with many small retailers,
· channel control by manufacturers,
· a business philosophy shaped by a unique culture, and
· laws that protect the foundation of the system—the small retailer.
The density of intermediaries, retailers, and wholesalers in the Japanese market is unparalleled in
any Western industrialized country. The traditional Japanese structure serves consumers who make
small, frequent purchases at small, conveniently located stores. An equal density of wholesalers
supports the high density of small stores with small inventories. It is not unusual for consumer goods to
go through three or four intermediaries before reaching the consumer—producer to primary,
secondary, regional, and local wholesaler, and finally to retailer and to consumer.

52)What are the main features of export management companies? Describe their advantages and
disadvantages.

The export management company (EMC) is an important intermediary for firms with relatively small
international volume or those unwilling to involve their own personnel in the international function.
Typically, the EMC becomes an integral part of the marketing operations of its client companies.
Working under the names of the manufacturers, the EMC functions as a low-cost, independent
marketing department with direct responsibility to the parent firm. The working relationship is so close
that customers are often unaware they are not dealing directly with the export department of the
company.

The export management company may take full or partial responsibility for promotion of the goods,
credit arrangements, physical handling, market research, and information on financial, patent, and
licensing matters. An EMC’s specialization in a given field often enables it to offer a level of service
that could not be attained by the manufacturer without years of groundwork. Traditionally, the EMC
works on commission, though an increasing number are buying products on their own account. Two of
the chief advantages of EMCs are minimum investment on the part of the company to get into
international markets, and no commitment of company personnel or major expenditure of managerial
effort. The result, in effect, is an extension of the market for the firm with negligible financial or
personnel commitments. The major disadvantage is that EMCs seldom can afford to make the kind of

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 market investment needed to establish deep distribution for products because they must have
immediate sales payout to survive.

53)How does complementary marketing extend a company’s distribution? When is a company most
likely to use it?

Companies with marketing facilities or contacts in different countries with excess marketing capacity
or a desire for a broader product line sometimes take on additional lines for international distribution;
though the formal name for such activities is complementary marketing, it is commonly called
piggybacking.

Most piggyback arrangements are undertaken when a firm wants to fill out its product line or keep its
seasonal distribution channels functioning throughout the year. Companies may work either on an
agency or merchant basis, but the greatest volume of piggyback business is handled on an ownership
(merchant) purchase-and-resale arrangement. The selection process for new products for piggyback
distribution determines whether
(1) the product relates to the product line and contributes to it,
(2) the product fits the sales and distribution channel presently employed,
(3) the margin is adequate to make the undertaking worthwhile, and
(4) the product will find market acceptance and profitable volume. If these requirements are met,
piggybacking can be a logical way of increasing volume and profit for both the carrier and the
piggybacker.

54)What is the Export Trading Company (ETC) Act? How has it effected U.S. firms?

The Export Trading Company (ETC) Act allows producers of similar products to form export trading
companies. A major goal of the ETC Act was to increase U.S. exports by encouraging more efficient
export trade services to producers and suppliers to improve the availability of trade finance and to
remove antitrust disincentives to export activities. By providing U.S. businesses with an opportunity to
obtain antitrust preclearance for specified export activities, the ETC Act created a more favorable
environment for the formation of joint export ventures. Through such joint ventures, U.S. firms can take
advantage of economies of scale, spread risk, and pool their expertise. In addition, through joint selling
arrangements, domestic competitors can avoid interfirm rivalry in foreign markets. Prior to the passage
of the ETC Act, competing companies could not engage in joint exporting efforts without possible
violation of antitrust provisions. The other important provision of the ETC Act permits bank holding
companies to own ETCs.

55)Describe a complementary marketer.

Companies with marketing facilities or contacts in different countries with excess distribution capacity
or a desire for a broader product line sometimes take on additional lines for international distribution;
though the formal name for such activities is complementary marketing, it is commonly called
piggybacking. Most piggyback arrangements are undertaken when a firm wants to fill out its product
line or keep its seasonal distribution channels functioning throughout the year. Companies may work
on either an agency or merchant basis, but the greatest volume of piggyback business is handled on
an ownership (merchant) purchase-and-resale arrangement. The selection process for new products
for piggyback distribution determines whether
(1) the product relates to the product line and contributes to it,
(2) the product fits the sales and distribution channel presently employed,
(3) the margin is adequate to make the undertaking worthwhile, and
(4) the product will find market acceptance and profitable volume. If these requirements are met,
piggybacking can be a logical way of increasing volume and profit for both the carrier and the
piggybacker.

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 56)Discuss the continuity problem associated with a channel of distribution.

Channels of distribution often pose longevity problems. Most agent intermediaries firms tend to be
small institutions. When one individual retires or moves out of a line of business, the company may
find it has lost its distribution in that area. Wholesalers and especially retailers are not noted for their
continuity in business either. Most intermediaries have little loyalty to their vendors. They handle
brands in good times when the line is making money but quickly reject such products within a season
or a year if they fail to produce during that period. Distributors and dealers are probably the most loyal
intermediaries, but even with them, manufacturers must attempt to build brand loyalty downstream in a
channel lest intermediaries shift allegiance to other companies or other inducements.

57) What are the various techniques that can be used to motivate intermediaries?

The level of distribution and the importance of the individual intermediary to the company determine
the activities undertaken to keep the intermediary motivated. The intermediary’s motivation is clearly
correlated with sales volume. Motivational techniques that can be employed to maintain intermediary
interest and support for the product may be grouped into five categories: financial rewards,
psychological rewards, communications, company support, and corporate rapport.

Financial rewards must be adequate for any intermediary to carry and promote a company’s
products. Margins or commissions must be set to meet the needs of the intermediary and may vary
according to the volume of sales and the level of services offered. Without a combination of adequate
margin and adequate volume, an intermediary cannot afford to give much attention to a product. Being
human, intermediaries and their salespeople respond to psychological rewards and recognition of their
efforts. A trip to the United States or to the parent company’s home or regional office is a great honor.
Publicity in company media and local newspapers also builds esteem and involvement among foreign
intermediaries.

In all instances, but particularly when cultural distances are great, the company should maintain a
continuing flow of communication in the form of letters, newsletters, and periodicals to all its
intermediaries. Finally, considerable attention must be paid to the establishment of close rapport
between the company and its intermediaries. In addition to methods noted, a company should be
certain that the conflicts that arise are handled skillfully and diplomatically.

58) What is secondary wholesaling and when might it be used?

Control over the system and control over intermediaries are necessary in international business.
Some manufacturers have lost control through “secondary wholesaling” or parallel imports. A
company’s goods intended for one country are sometimes diverted through distributors to another
country, where they compete with existing retail or wholesale organizations. This is known as
secondary wholesaling.

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 59) Company B found out that the intermediary it was using was skimming money from its profits, so
it decided it had to terminate the relationship. What does Company B need to know before terminating
an intermediary in a foreign country?

When intermediaries do not perform up to standards or when market situations change, requiring a
company to restructure its distribution, it may be necessary to terminate relationships. In the United
States, this termination is usually a simple action regardless of the type of intermediaries; they are
simply dismissed. However, in other parts of the world, the intermediary often has some legal
protection that makes termination difficult. In Colombia, for example, if you terminate an agent, you are
required to pay 10 percent of the agent’s average annual compensation, multiplied by the number of
years the agent served, as a final settlement.

Competent legal advice is vital when entering distribution contracts with intermediaries. But as many
experienced international marketers know, the best rule is to avoid the need to terminate distributors
by screening all prospective intermediaries carefully. A poorly chosen distributor may not only fail to
live up to expectations but may also adversely affect future business and prospects in the country.

60)What are the six issues that must be taken into consideration by an e-vendor?

The various issues that must be taken into consideration by an e-vendor are:
Culture: The website and the product must be culturally neutral or adapted to fit the uniqueness of a
market, because culture does matter.

Adaptation: Ideally, a website should be translated into the languages of the target markets. This
translation may not be financially feasible for some companies, but at least the most important pages
of the site should be translated.

Local contact: Companies fully committed to foreign markets are creating virtual offices abroad; they
buy server space and create mirror sites, whereby a company has a voice mail or fax contact point in
key markets. Foreign customers are more likely to visit sites in their own country and in the local
language.

Payment: The consumer should be able to use a credit card number—by email (from a secure page
on the website), by fax, or over the phone.

Delivery: For companies operating in the United States, surface postal delivery of small parcels is the
most cost effective but takes the longest time. For more rapid but more expensive deliveries, FedEx,
UPS, and other private delivery services provide delivery worldwide.

Promotion: Although the Web is a means of promotion, if you are engaging in e-commerce, you also
need to advertise your presence and the products or services offered.

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 61)What is the purpose of sales promotions? Describe five examples of sales promotions and give
an example of each.

Sales promotions are marketing activities that stimulate consumer purchases and improve retailer or
intermediary effectiveness and cooperation. Cents-off, in-store demonstrations, samples, coupons,
gifts, product tie-ins, contests, sweepstakes, sponsorship of special events such as concerts, the
Olympics, fairs, and point-of-purchase displays are types of sales promotion devices designed to
supplement advertising and personal selling in the promotional mix. They are short-term efforts
directed to the consumer or retailer to achieve such specific objectives as consumer product trial or
immediate purchase, consumer introduction to the store or brand, gaining retail point-of-purchase
displays, encouraging stores to stock the product, and supporting and augmenting advertising and
personal sales efforts. Students’ examples will vary.

62) Describe the main elements of integrated marketing communications (IMC). How do they work
together?

Integrated marketing communications (IMC) are composed of advertising, sales promotions, trade
shows, personal selling, direct selling, and public relations. All these mutually reinforcing elements of
the promotional mix have as their common objective the successful sale of a product or service. In
many markets, the availability of appropriate communication channels to customers can determine
entry decisions. Thus, product and service development must be informed by research regarding the
availability of communication channels. Once a market offering is developed to meet target market
needs, intended customers must be informed of the offering’s value and availability. Often different
messages are appropriate for different communications channels, and vice versa.

63) List the seven steps in creating an international advertising campaign.

The seven steps to be followed while creating an international advertising campaign are:
1) Perform marketing research.
2) Specify the goals of the communication.
3) Develop the most effective message(s) for the market segments selected.
4) Select effective media.
5) Compose and secure a budget based on what is required to meet goals.
6) Execute the campaign.
7) Evaluate the campaign relative to the goals specified.

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 64)What are the seven essential elements of the international communications process that affect
the accuracy of the message? Briefly describe each one.

The essential elements of a communication process are:

An information source: An international marketing executive with a product message to
communicate.

Encoding: The message from the source converted into effective symbolism for transmission to a
receiver.

A message channel: The sales force and/or advertising media that convey the encoded message to
the intended receiver.

Decoding: The interpretation by the receiver of the symbolism transmitted from the information
source.
Receiver: Consumer action by those who receive the message and are the target for the thought
transmitted.

Feedback: Information about the effectiveness of the message that flows from the receiver (the
intended target) back to the information source for evaluation of the effectiveness of the process.

Noise: Uncontrollable and unpredictable influences such as competitive activities and confusion that
detract from the process and affect any or all of the other six steps.

65) The encoding step has many factors that can affect the interpretation of the message. Explain
with an example.

At the encoding stage, factors such as color, timing, values, beliefs, humor, tastes, and
appropriateness of spokespersons can cause an international marketer to symbolize the message
incorrectly. For example, the marketer wants the product to convey coolness, so the color green is
used; however, people in the tropics might decode green as dangerous or associate it with disease.
Students’ examples will vary.

66)Language is one of the major barriers to effective communication through advertising. Explain
with an example.

Language is one of the major barriers to effective communication through advertising. The problem
involves different languages of different countries, different languages or dialects within one country,
and the subtler problems of linguistic nuance, argument style, vernacular, and even accent. Incautious
handling of language can create problems in all countries. For example, Tropicana brand orange juice
was advertised as jugo de China in Puerto Rico, but when transported to Miami’s Cuban community, it
failed. To the Puerto Rican, China translated into orange, but to the Cuban American it was China the
country—and the Cuban-Americans were not in the market for “communist” juice. Students’ examples
will vary.

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 67)How does cultural diversity influence the IMC process? Give examples.

The problems associated with communicating to people in diverse cultures present one of the great
creative challenges in advertising. One advertising executive puts it bluntly: “International advertising is
almost uniformly dreadful mostly because people don’t understand language and culture.”
Communication is more difficult because cultural factors largely determine the way various
phenomena are perceived. If the perceptual framework is different, perception of the message itself
differs. Existing perceptions based on tradition and heritages often render advertising campaigns
ineffective or worse. For example, Toyota introduced the Prado SUV in China only to learn that the
name sounded like the Chinese word for “rule by force.” This name reminded some Chinese of the
1937 invasion by Japan—not a nice memory at all. Students’ examples will vary.

68) In an international advertising process, what four factors must be considered by an advertiser
while selecting a medium? Describe them and give an example.

In international advertising, an advertiser must consider the following factors while selecting a
medium:
Availability: One of the contrasts of international advertising is that some countries have too few
advertising media and others have too many. In some countries, certain advertising media are
forbidden by government edict to accept some advertising materials.

Cost: Media prices are susceptible to negotiation in most countries. Agency space discounts are
often split with the client to bring down the cost of media. The per contract cost varies widely from
country to country.

Coverage: Closely akin to the cost dilemma is the problem of coverage. Two points are particularly
important: One relates to the difficulty of reaching certain sectors of the population with advertising and
the other to the lack of information about coverage.

Appropriateness of the media: Different types of communication media have different specific
characteristics. These characteristics must be taken into consideration while selecting a medium for a
particular target market. Students’ examples will vary.

69)What is the significance of radio and television in international advertising? How has this changed
over time?

Possibly because of their inherent entertainment value, radio and television have become major
communications media in almost all nations. Radio has been relegated to a subordinate position in the
media race in countries where television facilities are well developed. In many countries, however,
radio is a particularly important and vital advertising medium when it is the only one reaching large
segments of the population. Television and radio advertising availability varies between countries.
Some countries do not permit any commercial radio or television, but several of the traditional
noncommercial countries have changed their policies in recent years because television production is
so expensive.

70) How might social media be used as a marketing tool? What do international advertisers need to
do to take advantage of this medium?

Word-of-mouth (WOM) advertising and peer recommendations have always been key influencers of
brand choice globally, but the power of the Internet has changed the pace and reach of WOM. Social
media (such as social networking, blogs, virtual worlds, and video sharing) can be powerful marketing
tools, but marketers are just beginning to loosen control and let consumers interact with brands on
their own terms. Consumer-generated content is having an impact on brands (both positive and
negative), and new media are on the agendas of marketers of all products, not just those targeted at
young people. Consumers will create content about brands whether the marketers of those brands like

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 it or not. Thus, it is vital that marketers follow, and participate in, the conversations consumers are
having online.

71)Differentiate the two ways price decisions are viewed.

In general, price decisions are viewed two ways: pricing as an active instrument of accomplishing
marketing objectives, or pricing as a static element in a business decision. If prices are viewed as an
active instrument, the company sets prices (rather than following market prices) to achieve specific
objectives, whether targeted returns on profit, targeted market sales volumes, or some other specific
goals. The company that follows the second approach, pricing as a static element, probably exports
only excess inventory, places a low priority on foreign business, and views its export sales as passive
contributions to sales volume.

72)What is in parallel importing. Compare the advantages and disadvantages of this practice.

Because of the different prices possible in different country markets, a product sold in one country
may be exported to another and undercut the prices charged in that country. This is parallel importing.
This practice is lucrative when wide margins exist between prices for the same products in different
countries. Exclusive distribution, a practice often used by companies to maintain high retail margins to
encourage retailers to provide extra service to customers, to stock large assortments, or to maintain
the exclusive-quality image of a product, can create a favorable condition for parallel importing.
Parallel imports can do long-term damage in the market for trademarked products. Customers who
unknowingly buy unauthorized imports have no assurance of the quality of the item they buy, of
warranty support, or of authorized service or replacement parts. Furthermore, when a product fails, the
consumer blames the owner of the trademark, and the quality image of the product is sullied.

73)What is the difference between variable-cost pricing and full-cost pricing? When would a
company choose one over the other?

In variable-cost pricing, the firm is concerned only with the marginal or incremental cost of producing
goods to be sold in overseas markets. Such firms regard foreign sales as bonus sales and assume
that any return over their variable cost makes a contribution to net profit. These firms may be able to
price most competitively in foreign markets, but because they are selling products abroad at lower net
prices than they are selling them in the domestic market, they may be subject to charges of dumping.
In that case, they open themselves to antidumping tariffs or penalties that take away from their
competitive advantage. Companies following the full-cost pricing philosophy insist that no unit of a
similar product is different from any other unit in terms of cost and that each unit must bear its full
share of the total fixed and variable cost. This approach is suitable when a company has high variable
costs relative to its fixed costs.

74)What are common reasons why price escalation occurs in international marketing?

Excess profits exist in some international markets, but generally the cause of the disproportionate
difference in price between the exporting country and the importing country, here termed price
escalation, is the added costs incurred as a result of exporting products from one country to another.
Specifically, the term relates to situations in which ultimate prices are raised by shipping costs,
insurance, packing, tariffs, longer channels of distribution, larger margins for intermediaries, special
taxes, administrative costs, and exchange rate fluctuations. The majority of these costs arise as a
direct result of moving goods across borders from one country to another and often combine to
escalate the final price to a level considerably higher than in the domestic market.

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 75) How can inflation affect pricing in international markets?

In countries with rapid inflation or exchange variation, the selling price must be related to the cost of
goods sold and the cost of replacing the items. Goods often are sold below their cost of replacement
plus overhead, and sometimes are sold below replacement cost. In these instances, the company
would be better off not to sell the products at all. When payment is likely to be delayed for several
months or is worked out on a long-term contract, inflationary factors must be figured into the price.
Soaring inflation in many developing countries has made widespread price controls a constant threat
in many countries. Because inflation and price controls imposed by a country and/or the global
marketplace are beyond the control of companies, they use a variety of techniques to inflate the selling
price to compensate for inflation pressure and price controls. They may charge for extra services,
inflate costs in transfer pricing, or break up products into components and price each component
separately.

76)mWhat is a countertrade? What are the advantages and disadvantages of countertrading?

Countertrade is a pricing tool that every international marketer must be ready to employ, and the
willingness to accept a countertrade will often give the company a competitive advantage. The crucial
problem confronting a seller in a countertrade negotiation is determining the value of and potential
demand for the goods offered as payment. Frequently there is inadequate time to conduct a market
analysis; in fact, it is not unusual to have sales negotiations almost completed before countertrade is
introduced as a requirement in the transaction.

77) What is the process involved in making price quotations for international sales?

In quoting the price of goods for international sale, a contract may include specific elements affecting
the price, such as credit, sales terms, and transportation. Parties to the transaction must be certain
that the quotation settled on appropriately locates responsibility for the goods during transportation and
spells out who pays transportation charges and from what point. Price quotations must also specify the
currency to be used, credit terms, and the type of documentation required. Finally, the price quotation
and contract should define quantity and quality. A quantity definition might be necessary because
different countries use different units of measurement.

78) What is administered pricing, and how does it differ from price fixing? How is it arranged in
international markets?

Administered pricing is an attempt to establish prices for an entire market. Such prices may be
arranged through the cooperation of competitors; through national, state, or local governments; or by
international agreement. The legality of administered pricing arrangements of various kinds differs
from country to country and from time to time. In general, the end goal of all administered pricing
activities is to reduce the impact of price competition or eliminate it. Price fixing by business is not
viewed as an acceptable practice (at least in the domestic market), but when governments enter the
field of price administration, they presume to do it for the general welfare to lessen the effects of
“destructive” competition. Economists, the traditional champions of pure competition, acknowledge that
perfect competition is unlikely and agree that some form of workable competition must be developed.

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 79)Discuss the meaning and nature of cartels. Are these groups beneficial? State an example.

A cartel exists when various companies producing similar products or services work together to
control markets for the types of goods and services they produce. The cartel association may use
formal agreements to set prices, establish levels of production and sales for the participating
companies, allocate market territories, and even redistribute profits. The economic role of cartels is
debatable, but their proponents argue that they eliminate cutthroat competition and rationalize
business, permitting greater technical progress and lower prices to consumers. However, most experts
doubt that the consumer benefits very often from cartels. One important aspect of cartels is their
inability to maintain control for indefinite periods. Greed by cartel members and other problems
generally weaken the control of the cartel.

The students’ examples will vary. An international cartel that has a direct impact on international
trade exists among the world’s shipping companies. They do not refer to themselves as a cartel but
rather operate under such innocuous names as “The Trans-Atlantic Conference Agreement.”
Regardless of the name, they set the rates on about 70 percent of the cargo shipped between the
United States and northern Europe. Shipping between the United States and Latin American ports and
between the United States and Asian ports also is affected by shipping cartels.

80)What is the difference between forfaiting and factoring?

Forfaiting is similar to factoring, but it is not the same. In factoring, a company has an ongoing
relationship with a bank that routinely buys its short-term accounts receivable at a discount—in other
words, the bank acts as a collections department for its client. In forfaiting, however, the seller makes
a one-time arrangement with a bank to buy a specific account receivable.

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