CHAPTER THREE

INTERNATIONAL MARKETING
ENVIRONMENT

By: Yazachew M.
 3.1 CULTURAL ENVIRONMENT
The task facing marketing executives is becoming more complex
because our cultural patterns- life styles, social values, beliefs-are
changing much more quickly than they used to.

In order to develop an appreciation for the role of culture in society as

well as the marketing implications of culture, this explores the
following:

i) What culture is?

ii) What its characteristics are, and ?

iii) How culture affects consumer behavior? 2

“Culture is a set of traditional beliefs and values that

are transmitted and shared in a given society. Culture

is also the total way of life and thinking patterns that

are passed from generations to generation. “

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 3.2 CHARACTERISTICS OF CULTURE
Culture means many things to many people because the
concept encompasses norms, values, customs, art and more.

Behavior can be interpreted differently depending on

where in the world it occurs. Consider these examples
that could cause problems for an uniformed marketer.
i) Standing with your hands on your hips is a gesture of
defiance in Indonesia. 4
ii). When you shake your head from side to side, that
means, “yes” in Bulgaria, India
iii). Crossing your legs to expose the sole of your shoe
is unacceptable in Muslim countries.
iv). It is rude to leave anything on your plate when
eating in Norway, Malaysia or Singapore.
In Egypt, it is rude not to leave something.

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 a) Culture is prescriptive

Culture prescribes the kinds of behavior considered acceptable in

the society. That is, certain behavior is not acceptable in some
countries. The prescriptive characteristics of culture simplify a
consumer decision making process by limiting product choices to
those which are socially acceptable.
I.e. smoking was once socially acceptable behavior, but recently it
has become more and more undesirable – both socially and
medically.
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 b) Culture is socially shared

Culture, must be based on social interaction and creation. It

cannot exist by itself. It must be showed by members of a
society, thus acting to reinforce culture’s prescriptive nature. I.e.
Chinese parents at one time have the preference of wanting their
girl children to have small feet.

Large feet viewed as characteristics of peasants and low – class

people;

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 c) Culture facilitates communication
One useful function provided by culture is to facilitate
communication.
Thus, within a given group culture makes it easier for people to
communicate with another.
This is one reason why a standardized advertisement (i.e. a global
advertisement prepared for many countries) may have difficulty
communicating with consumers in foreign counties.

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 d) Culture is learned

1. Culture is not inherited genetically – it must be

acquired. Socialization or enculturation occurs when a
person absorbs or learns the culture in which he or she
is raised. In contrast, if a person learns the culture of a
society other than the one in which he or she was
raised, the process of acculturation occurs.

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The ability to learn culture makes it possible for
people to absorb new cultural trends.
I.e. Indian women never used to shake hands with the
opposite sex, however, after a while they have started
doing so.

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 e) Culture is subjective
People in different cultures often have different ideas about the
same object. What is acceptable in one culture may not
necessarily be so in another.

As a result the same phenomenon appearing in different

cultures can be interpreted in very different manners

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 f) Culture is enduring

Because culture is shared and passes along from generation to

generation, it is relatively stable and somewhat permanent.
Old habits are hard to break and a people tend to maintain its
own heritage in spite of a continuously changing world.

I.e. India and China, despite serve overcrowding, have a

great deal of difficulty with birth control.

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 g) Culture is cumulative

Culture is based on hundreds or even thousands of years

accumulated circumstances. Each generation adds something of its
own to the culture before passing the heritage on to the next
generation.

Therefore, culture tends to become broader based overtime,

because new ideas are incorporated and become a part of the
culture. Of course, during the process, come old ideas one also
discarded. 13
 h) Culture is dynamic

Culture is passed along form generation to generation, but one

should not assume that culture is static and immune to change. For
from being the case, culture is constantly changing. It adapts itself
to new situations and new sources of knowledge. I.e. length of hair
serves as a good example of cultural change.

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 3.3 INFLUENCE OF CULTURE
culture influence the consumption pattern, the thinking
process and the communication process,. As illustrated
below:
i) Influence of culture on consumption

Consumption patterns, living styles, and the priority of needs

are all dictated by culture. Culture prescribes the manner in

which people satisfy their desires.

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I.e. Thai and Chinese do not consume beef at all, believing
that it is improper to eat cattle that work on farms, thus
helping to provide foods such as rice and vegetables.

Not only culture influence what is to be consumed, but it also

affects what should not be purchased.
 Muslims do not purchase chickens unless they have been
hallaled.
 In Jewish no consumptions of pork
 Alcoholic beverages restricted in Islamic countries. Etc.
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 ii) Influence of culture on thinking process
In addition to consumption habits, thinking processes are also
affected by culture. When traveling overseas, it is virtually
impossible for a person to observe foreign cultures with out
making references, perhaps unconsciously, back to personal
cultural values. This phenomenon is known as the self –
reference criterion (SRC). Because of the effect of the SRC,
the individual tends to be bound by his or her own cultural
assumptions.
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iii) Influence of culture on communication process

A country may be classified as either a high – context culture or

a low – context culture.
The context of culture is either high or low in terms of in – depth
background information. This classification provides an
understanding of various cultural orientations and explains how
communication is conveyed and perceived.

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I.e. North America and North Europe (e.g. Germany,
Switzerland, and Scandinavian countries) are examples of low
context cultures. In these types of society, messages are explicit
and clear in the sense that actual words are used to convey the
main part of information in communication.

I.e. Japan, France, Spain, Italy, Asia, Africa, and the middle
eastern Arab nations, in contrast are high – context cultures.

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In such cultures, the communication may be indirect, and the
expressive manner in which the message is delivered becomes
critical. Because the verbal part (i.e. words) does not carry most of
the information, much of the information is contained in the non-
verbal part of the message to be communicated. The context of
communication is high because it includes a great deal of
additional information, such as the message sender’s values,
position, background, and associations in the society.

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 3.4. SUB CULTURE
“A subculture is a distinct and identifiable cultural
group that has values in common with the overall
society but also has certain characteristics that are
unique to itself. “

3.4.1 Functions of Subculture

Subculture is important to person because it serves at

least three important functions: 21
i) Group identification
ii) A network of groups and institutions and
iii) A frame of references

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 3.5.ECONOMIC ENVIRONMENT

People alone do not make a market. They must have money to

spend and be willing to spend it. Consequently, the economic
environment is a significant force that affects the marketing
activities of just about any organization. Firms are very sensitive
for the following major and other economic factors: Energy price;
Interest rates; Exchange rates; Taxation; Inflation/deflation
and Economic growth of the nation

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There is also a range of economic factors at an
industry level such as the availability of land, capital
and labor in different economies and regions. In
economic language, the three central economic tasks
of every society are really about choices among on
economy's inputs and outputs.

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 5.2 ECONOMIC SYSTEMS
In the earliest societies, custom ruled every facet of behavior.
What, how and for whom were decided by tradition passed on
from elders to youth. Different societies face the demands for
change through alternative economic systems and economic
studies the different mechanisms that a society can use to
allocate its scarce resources.

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 1. Command Economy

 A command economy is one in which the government makes

all decisions about production and distribution.

 In a command allocation system, the state has broad powers to

serve the public interest. These include deciding which products to
make and how to make them. Consumers are free to spend their
money on what is available, but decisions about what is produced
and, therefore, what is available are made' by state planners.
Because demand exceeds supply, the elements of the marketing
mix are not used as strategic variables.
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2 .Market Economy
 A market economy is one in which individuals and private firms
make the major decisions about production and consumption.

 The products that a country produces, and the quantity in which

they are produced, are not planned by anyone. Rather,
production is determined by the interaction of supply and
demand and signaled to producers through the price system.
 If demand for a product exceeds supply, prices will rise,
signaling producers to produce more. If supply exceeds
demand, prices will fall, signaling producers to produce less. In
this system consumers are sovereign.
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 3. Mixed Economy

 In a mixed economy, certain sectors of the economy are left to

private ownership and free market mechanisms, while other
sectors have significant state ownership and government
planning. Mixed economies are relatively common in Western
Europe; although they are becoming less so. France, Italy, and
Sweden can all be classified as mixed economies. In these
countries the governments intervene in those sectors where they
believe that private ownership is not in the best interests of
society. For example, Britain and Sweden both have extensive
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state-owned health systems that provide free universal health care
to all citizens (it is paid for through higher taxes).
 3.3. POLITICAL ENVIRONMENT

The political environment, that a firm operating in international

market face is a complex one because they must cope with the
politics of more than one nation. The complexity forces to
consider that environment as composed of three different types of
political environment: foreign, domestic and international.

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 3.3.1 Types Of Politics
A). Foreign politics
Foreign politics are the politics of host country. This part of
international business environment can range from being favorable
and friendly to being hostile and dangerous. The host country’s
political and economic circumstances determine the kind of political
climate a company faces.
 When the company decides to export a product from its home –
base country, it may quickly discover that the host country’s
political environment is not always hospitable. The host
government, as a rule, views imports negatively, because of
imports adverse contribution to the host country’s balance of 30
payments.
 B).Domestic politics
Domestic politics that exists in the company’s home country,
also known as the parent or source county.

Although a company’s major political problems

usually derive form political developments at home.

Domestic criticism of the company’s international

activities comes largely from labor and political
organizations. Which frequently accuse the company
of exporting capital and job.
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 C). International politics
International politics are the interaction of the overall
environmental factors of two or more countries. The
complexity of the political environment increases significantly
when the interest of the company, the host country, and the
home country do not coincide

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 3.3.2. Political Risks

There are a number of political risks with which marketers must

contend. Hazards based on a host government’s action include
confiscation, expropriation, nationalization and domestication.
a. Taxes
It is common practice for multinational companies to undertake
business in various countries. The tax structures and rules are quite
different. When government wants to protect the domestic company
they might levy heavy tax rates on international marketers higher
than the domestic companies. This might impede the competitiveness
of the global companies. 33
 b. Expropriation
 Expropriation is the Sevier form of political risk. The other name
is socialization. Expropriation refers to governmental action to
take ownership from individual owners. Compensation is
generally provided to foreign Owners even if that is not adequate.
More often than not, a company whose property is being
expropriated agrees to sell its operations-not by choice but rather
because of some explicit or implied coercion.
c. Confiscation
 Confiscation is the process of a government's taking ownership
of a property without compensation. An example of confiscation
in Ethiopia is Derg’s nationalization of various manufacturing
facility owned by various foreign and local investors assets 34

without compensation.
 After property has been confiscated or expropriated it can be
either nationalized or domesticated.

D. Nationalization: Nationalization involves government

ownership, and it is the government that operates the business being
taken over.
E. Domestication: In the case of domestication, foreign companies
relinquish control and ownership, either completely or partially to
the nationals. The result is that private entities are allowed to operate
the confiscated or expropriated property.
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F. General instability risk
General instability risk is a risk that the continuity of the
government in power is not that much sure. And what type of
political system might follow is not sure. Ownership of the investors
might be in question in that host country.
G. Operation risk
Operation risk proceeds from the uncertainty that a host government
might constrain the investor's business operations in all areas,
including production, marketing, and finance. Transfer risk applies
to any future acts by a host government that, might constrain the
ability of a subsidiary transfer payments, capital, or profit out of the
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host country back to the parent firm

 2.2.4 Indicators of Political Risks

To assess a potential marketing environment, a

company should identify and evaluate the relevant
indicators of political difficulty. Potential source of
political complications include social unrest, the
attitudes of nationals, and the policies of the host
government.

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2.2.5 Measures to Curb Political Risks

a). Stimulation of the local economy

b). Employment of nationals
c) .Sharing ownership
d).Being civic minded
e).Political neutrality

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 LEGAL ENVIRONMENT
Every company's conduct is influenced more and more by the
legal process in the society. The legal forces on marketing can
be the following:-
 Monetary and fiscal policies- Government spending, tax
legislation etc.
 Social legislation and regulation-Anti pollution law.
 Government relationship with industries- Tariffs and import
quotas etc.

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A. Common And Code Law
 Common Law
 The basis is tradition, past practices, and legal precedents set
by the courts through interpretations of statutes, legal
legislation, and past rulings.
 Seeks “interpretation through the past decisions of higher
courts which interpret the same statutes or apply established
and customary principles of law to a similar set of facts.”
 Code law,
 is based on an all-inclusive system of written rules (codes) of
law.
 Under code law, the legal system is generally divided into
three separate codes: commercial, civil, and criminal

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B. Islamic Law
 The basis for the Shariah (Islamic Law) is interpretation of the
Koran.
 It encompasses religious duties and obligations as well as the
secular aspect of law regulating human acts.
 It includes issues such as property rights, economic decision
making, and types of economic freedom.
 Prohibiting the receipt and payment of interest is the nucleus of
the Islamic system.
 The Islamic system places emphasis on the ethical, moral, social,
and religious dimensions to enhance equality and fairness for the
good of society.
 Another principle of the Islamic legal system is the prohibition
against the investment in those activities that violate the Shari’ah.
For example, any investment in a business dealing with
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alcohol, gambling, and casinos would be prohibited.
 C. Socialist law
 Is based on the premise that "the government is always right" and

 Typically has not developed a sophisticated framework of contracts

(you do what the governments tells you to do) or intellectual

property protection (royalties are unwarranted since the
government ultimately owns everything).

D. Green Marketing Legislation

 Green marketing laws focus on product packaging and its effect on

solid waste management and environmentally friendly products.

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 INTELLECTUAL PROPERTY

Intellectual property is a general term that describes inventions or

other discoveries that have been registered with government
authorities for the sale or use by their owner. Such terms as patent,
trademark, copyright or trade secret fall in to the category of
intellectual property.
i) Trade mark: -
A trademark is a symbol, work or thing used to identify a
product made or marketed by a particular firm.

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ii) Copy right
A copy right which is the responsibility of the copyright office in the
library of congress, offers protection against unauthorized copying by
others to an author or artist for his / her literary, musical, dramatic and
artistic works.
iii) Patent
A patent protects an invention of a scientific or technical nature,
it is a statutory grant from the government (the patent office) to
an inventor in exchange for public disclosure giving the patent
holder exclusive right to the functional and design inventions
patented and excluding other firm using those inventions for a 44

certain period of time.

iv) Trade secret
The term trade secret refers to know – how (i.e. manufacturing
methods, formulas, plans and so on) that is kept secret with in a
particular business. This know – how, generally unknown in the
industry, may offer the firm a competitive advantages.
3.6 UNFAIR COMPETITION
These firms are unfairly competing with their competitors.
The government role in the free market economy is to
regulate unfair competition by preserving of the intellectual
properties. Some of the unfair competition takes the 45

following forms:
i) Infringement
Infringement occurs when there is commercial use (i.e. recopying or imitating) without
owner's consent, with the intent of confusing or deceiving the public.

ii).Counterfeiting
Counterfeiting is the practice of unauthorized and illegal copying of a product. In essence, it
involves infringement on a patent or trademark or both.
iii).Gray market
A gray market exists when a manufacture ends up with unintended channel of
distribution that performs activities similar to the planned channel – hence the term
parallel distribution.. In an international context, a gray market product is one
imported by an unauthorized party. Products notably affected by this method of
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operation include watches, cameras, automobiles, perfumes and electronic goods.
iv).Bribery
Bribery is both unethical and illegal. bribery is
“the use of intensive commerce to offer, pay, promise to pay, or
authorize giving anything of value to influence an act or decision
by a foreign government, politician or political party to assist in
obtaining, retaining, or directing business to any person. A bribe is
also known as a “pay off” “grease money” “lubricant” “little
envelop” or “bite”, and under – the – table – payment as well as by
other terms. A bribe may take the form of cash, gifts, jobs and free
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trips.
Thank 48