What is International Marketing?

"International Marketing is the performance of business activities that direct the flow
of a company's goods and services to consumers or users in more than one nation for
a profit. ("Cateora and Ghauri (1999))

International marketing can be defined as "marketing carried on across national

boundaries".

International marketing has also been defined as ' the performance of business
activities that direct the flow of goods and services to consumers or users in more than
in one nation.

"international marketing is the multinational process of planning and executing the

conception, pricing, promotion and distribution of ideas, goods, and services to create
exchanges that satisfy individual and organizational objectives

Why go International?

Profit Motive
Government Policies
Monopoly Power
Domestic Market constraint
Spin off benefits
Competition

Difference between international marketing and domestic marketing?

Political Entities
Different Legal Systems
Cultural Differences
Different Monetary Systems: Each country has its own monetary system and the
exchange value of each country's currency is different from that of the other. The
exchange rates between currencies fluctuate every day. In case of domestic marketing

there is only one currency prevailing in the country.

Differences in the Marketing infrastructure
Trade Restrictions: Trade restrictions, particularly import controls are a very

important problem which an international marketer faces.

Transport Cost
Procedures and Documentations

Degree of Risk
Stability in Business Environment

Importance of global marketing

A) Importance from the consumer's point of view:

Consumption of unpronounced goods

Consumption of goods at a low price

Enjoying benefits of competition

Consumption of new products

Increase in consumption
B) Importance from the producer's point of view:

Export of surplus production

Expansion of market in foreign countries

Production of goods at a low cost

Increase in production

More profitable

Reduce business risk

Reduce cost
C) Importance from economic point of view:

Increases total production

Increases export earnings

Challenging natural calamities

knowledge and cultural progress

Increases international peace and assistantship

Extension of industry

Export of unusual goods

Optimum utilization of natural resources

Progress in technological knowledge

Image development.

International Trade

International trade is the exchange of capital, goods, and services across international
borders or territories.

Trades mainly have two components EXPORTS and IMPORTS.

Why trade theories?

The first purpose of trade theory is to explain observed trade. That is, we would like
to be able to start with information about the characteristics of trading countries, and
from those characteristics deduce what they actually trade, and be right. Thats why
we have a variety of models that postulate different kinds of characteristics as the

reasons for trade.

Secondly, to know about the effects of trade on the domestic economy.
A third purpose is to evaluate different kinds of policy.

Trade theories

a. Mercantilist Theory

Mercantilist theory proposed that a country should try to achieve a favorable balance
of trade (export more than it imports)

Mercantilism was at its height in the 17th and 18th centuries. The term Merchantilism
was coined by the Marquis de Mirabeau in 1763, and was popularised by Adam Smith
in 1776.

Neomercantilist policy also seeks a favorable balance of trade, but its purpose is to
achieve some social or political objective

A nations wealth depends on accumulated treasure

Gold and silver are the currency of trade

Theory says you should have a trade surplus.

Maximize export through subsidies.

Minimize imports through tariffs and quotas

Flaw: restrictions, impaired growth

b. Theory of Absolute Advantage

Suggests specialization through free trade because consumers will be better off if
they can buy foreign-made products that are priced more cheaply than domestic

ones
A country may produce goods more efficiently because of a natural advantage or
because of an acquired advantage
Adam Smith: Wealth of Nations (1776) argued:
o Capability of one country to produce more of a product with the same
amount of input than another country
o A country should produce only goods where it is most efficient, and trade

for those goods where it is not efficient

Trade between countries is, therefore, beneficial
Assumes there is an absolute balance among nations

c. Theory of Comparative Advantage

Also proposes specialization through free trade because it says that total global
output can increase even if one country has an absolute advantage in the
production of all products.

d.

Theories of Specialization

Both absolute and comparative advantage theories are based on specialization

e. Product Life Cycle (PLC) Theory

f. The Porter Diamond theory

Four conditions as important for competitive superiority:
1) demand conditions
2) factor conditions
3) related and supporting industries
4) firm strategy, structure, and rivalry

g. Trade Pattern Theories

How much a country will depend on trade if it follows a free trade policy
What types of products countries will export and import
With which partners countries will primarily trade

h. Theory Of Country Size

Countries with large land areas are apt to have varied climates and natural

resources.
They are generally more self-sufficient than smaller countries.

Large countries production and market centers are more likely to be located at a

greater distance from other countries, raising the transport costs of foreign trade
i. Factor-Proportions Theory
A countrys relative endowments of land, labor, and capital will determine the

relative costs of these factors

Factor costs will determine which goods the country can produce most

efficiently
j. Country-similarity Theory
Most trade today occurs among high-income countries because they share
similar market segments and because they produce and consume so much

more than emerging economies

Much of the pattern of two-way trading partners may be explained by cultural
similarity between the countries, political and economic agreements, and by
the distance between them

TRADE BARRIERS

A trade barrier is defined as any hurdle, impediment or road block that hampers the
smooth flow of goods, services and payments from one destination to another.

They arise from the rules and regulations governing trade either from home country or
host country or intermediary.

Trade barriers are man-made obstacles to the free movement of goods between
different countries and impose artificial restrictions on trading activities between
countries

TRADE BARRIERS OBJECTIVES

To protect domestic industries from foreign goods

To promote new industries and research & development activities by providing a

home market for domestic industries

To maintain favorable balance of payment

To conserve foreign exchange reserves of the country by restricting imports from

foreign countries

To protect the national economy from dumping by other countries with surplus
production

To mobilize additional revenue by imposing heavy duties on imports. This also

restricts conspicuous consumption within country

To counteract trade barriers imposed by other countries

To encourage domestic production in the domestic market and thereby make the
country strong and efficient

TYPES OF TRADE BARRIERS

Trade barriers are classified as tariff barriers and non-tariff barriers. A country
may use both tariff and non-tariff barriers in order to restrict the entry of foreign goods.

a. TARIFF BARRIER

A tariff barrier is a levy collected on goods when they enter a domestic tariff area
through customs.

Tariff refers to the duties imposed on internationally traded commodities when they
cross national boundaries and may be in the form of heavy taxes or custom duties on
imports, so as to discourage their entry into the home country for marketing purposes.

Tariffs enhance the price of the imported goods, thereby restricting their sales as well
as their import. Governments impose tariffs only on imports and not on exports as
they are interested in export promotion

The aim of a tariff is thus to raise the prices of imported goods in domestic markets,
reduce their demand and thereby discourage their imports

CLASSIFICATION OF TARIFFS

(1) On the basis of origin and destination of goods crossing national

boundaries

Export duty: an export duty is levied by the country of origin on a commodity

designated for use in other countries. The majority of finished goods do not attract

export duty. Such duties are normally imposed on the primary products in order to
conserve them for domestic industries. In India, export duty is levied on oilseeds,
coffee and onions, etc.

Import duty: an import duty is a tax imposed on a commodity originating in another

country by the country for which the product is designated. The purpose of heavy
import duties is to earn revenue, to make imports costly and to provide protection to
domestic industries.

Transit duty: a transit duty is a tax imposed on a commodity when it crosses the
national frontier between the originating country and the country which it is
consigned to.

(2) On the basis of quantification of tariffs

Specific duty: a specific duty is a flat sum collected on physical unit of the
commodity imported. Here, the rate of the duty is fixed and is collected on each unit
imported. For example, rs 800 on each tv set or washing machine or rs 3000 per
metric ton on cold rolled iron coils.

Ad-valorem duty: this duty is imposed at a fixed % on the value of a commodity

imported. Here the value of the commodity on the invoice is taken as the base for
calculation of the duty e.g., 3% ad-valorem duty on the c&f value of the goods
imported.

Compound duty : a tariff is referred to a compound duty when the commodity is

subject to both specific and ad-valorem duty

(3) On the basis of the purpose they serve

Reverse tariff : it aims at collecting substantial revenue for the government, but does
not really obstruct the flow of imported goods. Here, the duty is imposed on items of
mass consumption, but the rate of duty is low.

Protective tariff: it aims at giving protection to home industries by restricting or

eliminating competition. Protective tariffs are usually high so as to reduce imports

Anti-dumping duty: dumping is the commercial practice of selling goods in foreign

markets at a price below their normal cost or even below their marginal cost so as to
capture foreign markets.

Countervailing duty: such duties are similar to anti-dumping duties but are not so
severe. They are imposed to nullify the benefits offered through cash assistance or
subsidies by the foreign country to its manufacturers. The rate of such duty will be
proportional to the extent of cash assistance or subsidy granted.

(4) On the basis of trade relations

Single column tariff : under this system, tariff rates are fixed for various commodities
and the same rates are made applicable to imports from all other countries.

Double column tariff : under this sysytem, two rates of duty are fixed on all or some
commodities. The lower rate is made applicable to a friendly country or to a country
with which the importing country has a bilateral trade agreement. The higher rate is
applicable to all other countries.

Triple column tariff : here three different rates of duties are fixed. They are general
tariff, international tariff and prefential tariff. The first two categories have minimum
variance but the preferential tariff is substantially lower than the general tariff and is
applicable to friendly countries where there is a bilateral relationship.

Benefits of tariff to the home country

Imports from abroad are discouraged or even eliminated to a considerable extent.

Protection is given to the home industries and manufacturing sector. This facilitates an
increase in domestic production.

Consumption of foreign goods is reduced to a minimum and the attraction for

imported goods is brought down.

Tariff brings in substantial revenue to the government. In addition it also creates

employment opportunities within the country by promoting domestic industries.

Tariffs aim to reduce the deficit in the balance of trade and balance of payment of a
country.

Non-tariff barriers
(1) QUOTA SYSTEM

Under this system, the quantity of a commodity permitted to be imported from various
countries during a given period is fixed in advance. Such quotas are usually administered
by requiring importers to have licences to import a particular commodity. Imports are not
allowed over and above a specific limit. The types of quotas are :

Tariff quota : it combines the features oof the tariff as well as the quantity here, the
imports of a commodity upto a specified volume are allowed duty free or at a special
low rate of duty. Imports in excess of this limit are subject to a higher rate of duty

Unilateral quota : in a unilateral quota system, a country fixes its own ceiling on the
import of a particular item.

Bilateral quota : in a bilateral quota, the quantity to be imported is decided in advance,

but it is the result of negotiations between the country importing the goods and the
country exporting them.

Mixing quota : under the mixing quota, the producers are obliged to utilize a certain
% of domestic raw materials in manufacturing the finished products.

(2) IMPORT LICENSING

In this system, imports are allowed under license. Importers have to approach the
licensing authorities for permission to import certain commodities. Foreign exchange
for imports is provided against license.

Such import licenses are the practice in many countries. This method is used to
control the quantity of imports
(3) CONSULAR FORMALITIES.

Some importing countries impose strict rules regarding the consular

documents necessary to import goods. Such documents include
import certificates, certificates of origin and certified consular
invoices.

Penalties are imposed for non-compliance of such documentation

formalities.

The purpose of consular formalities is to restrict imports to some

extent and prevent free imports of commodities that are not
necessary.

(4) PREFERENTIAL TREATMENT THROUGH TRADING BLOCS

Some countries form regional groups and offer special concessions and preference to
member countries. As a result trade is developed among the member countries and
allows advantages to all member countries.

On the other hand, it can cause considerable loss to nonmember countries, as a trading
bloc acts as a trade barrier.

(5) CUSTOMS REGULATIONS

Customs regulations and administrative regulations are very complicated in many

countries. There are a number of commodities acts, pertaining to the movement of
drugs, minerals, bullion, etc.

Restrictions under such acts are useful to curtail imports. Tax administration also acts
as barrier to free marketing amongst countries.

(6) STATE TRADING

State trading refers to import-export activities conducted by the government or a

government agency. State trading is useful to restrict imports as the final decision is
taken by the government.

Such state trading acts as a barrier, restricting the freedom of private parties.

(7) FOREIGN EXCHANGE REGULATIONS

Countries impose various restrictions on the use of foreign exchange earned through
imports.

Such restrictions have the following objectives: (a) to restrict the demand for foreign
exchange and to use the foreign exchange reserves in the best possible manner. (b) to
check the flow of capital. (c)to maintain the value of exchange rates.

Under such

regulations, the foreign exchange earned should be surrendered to the government.

The government provides foreign exchange to the businessmen as per priorties that
are fixed periodically

(8) HEALTH & SAFETY MEASURES

Many countries have specific rules regarding health & safety regulations, which are
applicable to imports.

Such health & safety measures are mainly applicable to raw materials and food items.
Imports are not allowed if the regulations are not followed properly.

Indias foreign trade since independence

On the eve of Independence in 1947, foreign trade of India was typical of a colonial
and agricultural economy. Trade relations were mainly confined to Britain and other

Commonwealth countries. Exports consisted chiefly of raw materials and plantation

crops while imports composed of light consumer goods and other manufactures.
Over the last 60 years, Indias foreign trade has undergone a complete change in terms
of composition and direction. The exports cover a wide range of traditional and nontraditional items while imports consist mainly of capital goods, petroleum products,
raw materials, and chemicals to meet the ever-increasing needs of a developing and
diversifying economy. For about 40 years (1950-90, foreign trade of India suffered

from strict bureaucratic and discretionary controls.

Similarly, foreign exchange transactions were tightly controlled by the Government
and the Reserve Bank of India. From 1947 till mid-1990s, India, with some
exceptions, always faced deficit in its balance of payments, i.e. Imports always
exceeded exports. This was characteristic of a developing country struggling for

reconstruction and modernization of its economy.

Imports galloped because of increasing requirements of capital goods, defence
equipment, petroleum products, and raw materials. Exports remained relatively
sluggish owing to lack of exportable surplus, competition in the international market,
inflation at home, and increasing protectionist policies of the developed countries.
Beginning mid-1991, the Government of India introduced a series of reforms to

liberalise and globalise the Indian economy.

Reforms in the external sector of India were intended to integrate the Indian economy
with the world economy. Indias approach to openness has been cautious, contingent
on achieving certain preconditions to ensure an orderly process of liberalization and
ensuring macroeconomic stability. This approach has been vindicated in recent years
with the growing incidence of financial crises elsewhere in the world. All the same,
the policy regime in India in regard to liberalization of the foreign sector has

witnessed very significant change.

In recognition of the growing importance of the foreign trade in driving the economy,
this book describes and examines changes in the pattern of Indias foreign trade since
Independence in 1947, with focus on post-1991 developments. It addresses issues
related to trade policy, export strategy, tariff policy, current account dynamics,
exchange rate management, foreign exchange reserves, capital account liberalization,
external debt and aid, foreign investments (both direct and portfolio), and WTO.