Chapter 1 - Introduction: Definition of International Marketing

INTERNATIONAL MARKETING
CHAPTER 1 – INTRODUCTION
International Marketing is a marketing carried on across national boundaries. It is the marketing
across the national frontiers. When a country crosses its national frontiers to market its product,
it is indulging in international marketing. It refers to the strategy process & implementation of
the marketing activities in the international arena.
It is the performance of business activities designed to plan, price, promote & direct the flow of
company`s goods & services to consumers or users in more than one nation for a profit.
International marketing is different from domestic marketing in as much as the exchange takes
place beyond the frontiers, thereby involving different marketing & consumers who might have
different needs, wants & behavioral attributes.
International marketing is a business mechanism by which goods produced in one country are
marketed in other countries by following trade practices, policies & rules of the countries by the
contracting parties.
Subash C, Jain terms international marketing as “it refers to exchanges across nation boundaries
for satisfaction of human needs & wants.”
Definition of International Marketing

International Marketing can be defined as exchange of goods and services between different
national markets involving buyers and sellers.
According to the American Marketing Association, “International Marketing is the multi‐
national process of planning and executing the conception, prices, promotion and distribution of
ideal goods and services to create exchanges that satisfy the individual and organizational
objectives.”
International marketing is the performance of business activities designed to plan, price,
promote, and direct the flow of company’s goods & services to consumers in more than one
nation for profit.
Elements of International Marketing

 Across the national boundaries
International marketing is marketing across the national boundaries irrespective of differences in
culture, languages, monetary systems, trade policies etc.
 Performance of all the marketing activities
As in domestic, international marketing also involves all such functions like product planning &
development, pricing, distribution, promotion & related activities.
 Flow of goods & services
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International marketing involves the process of flow of goods & services, either exchanged under
a barter deal or on value.
 Environmental differences
International marketing has to meet challenges in various markets due to environmental
differences in climate, physical environment, culture, affluence, location & life style of
consumers.
Objective of International Marketing

 To bring countries closer for trading purposes & to encourage large scale free trade
among the countries of the world.
 To bring integration of economies of different countries & thereby to facilitate the
process of globalization of trade.
 To establish trade relations among the nations & thereby to maintain cordial relations
among nations for maintaining world peace
 To facilitate & encourage social & culture exchanges among different countries of the
world.
 To provide better life & welfare to people from different countries of the world. In
addition, to provide assistance to countries facing natural calamities & other emergency
situations.
 To provide assistance to developing countries in their economic & industrial growth &
thereby to remove / reduce gap between the developed & developing countries.
 To ensure optimum utilization of resources at global level
 To encourage world export trade & to provide benefits of the same to all participating
countries
 To offer the benefit of comparative cost advantages to all countries participating in
international marketing
 To keep international trade free & fair / beneficial to all participation countries by
reducing / removing trade barriers.
Scope of International Marketing

 Establishing a branch in foreign market for processing, packaging or assembling the
goods according to the needs of the markets. Sometimes complete manufacturing is
carried out by branch through direct investments.
 Joint Ventures & Collaborations
International marketing includes establishing joint ventures & collaboration in foreign countries
with some foreign firms for manufacturing &/or marketing the product. Under these
arrangements, the company work in collaboration with foreign firm in order to exploit the
foreign markets.
 Licensing Arrangements
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Under this system, the company establishes licensing arrangements with the foreign whereby
foreign enterprises are granted the right to use the exporting company`s knowhow, viz. patents,
processes or trademarks according to the terms of agreements with to without financial
investments.
 Consultancy Services
The scope of international marketing also includes offering consultancy services. The exporting
company offers consultancy services by undertaking turnkey projects in foreign countries. For
this purpose, the exporting company sends its consultants & experts in foreign countries who
guide & direct the manufacturing activities on the spot.
 Technical & Managerial Know-how
The scope of international marketing also includes the technical & managerial know-how
provided by the exporting company to the importing company. The technicians & managerial
personnel of the exporting company guide & train the technicians & managers of the importing
company.
Features of International Marketing

 Large Scale Operations
International marketing is always conducted on a large scale. It is done on wholesale basis, to get
the advantages of large scale operations regarding transportations, handling & warehousing.
 Dominance of MNCs & developed countries
MNCs having worldwide contacts dominate the scene of international marketing. MNCs conduct
business more efficiently & economically. MNCs adopt global approach which is needed in
international marketing. Besides MNCs, industrially developed nations also dominate
international marketing because of their competitive & productive capacity. Developed countries
supply goods to all countries & earn huge profits.
 International Restrictions
There are various trade restrictions due to protective policies followed by different countries.
Trade barriers are adopted practically by all countries.
 Presence of Trading Blocs
Certain nations of a region have come together to form trading bloc for their mutual benefits,
economic development & to reduce or eliminate trade barriers among member nations.
International marketing is influenced by the presence of such trading blocs.
 Foreign Exchange Regulations
 Three-faced competition
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Suppliers have to face competition from three angles in international marketing. They have to
face competition from the other suppliers of the exporter`s country, from the local producers of
importing country & from the exporters of competing nations.
 International Forums
International trade is regulated by international forums like WTO & UNCTAD. International
marketers should have a deep knowledge of the forums rules & regulations
 International Marketing Research
In international markets, it is required to know how customers dealers & competitors. In
international marketing, marketing research is a must due to different social, cultural, economic
& political environment of far off markets.
 Sensitive & Flexible
International marketing is very sensitive & flexible in character. Due to political & economic
reasons, a product may suddenly become unpopular or market may come down quickly. The sale
at the international level may be affected by competitors or due to the introduction of a new
product by a competitor.
 Advanced Technology
International marketing is very dynamic & competitive. Thus, organization must be able to sell
goods of bets quality, at competitor’s price. Advanced countries dominate international
marketing because they use advanced or sophisticated technology in production & marketing of
goods. Due to their ability to sell superior quality goods at competitive prices, the advanced
countries are capable of increasing their exports & thereby capturing world market.
 Lengthy & time-consuming
It is so due to long distances, restrictions imposed by different countries, payment difficulties
because of use of different currencies & lengthy procedural formalities
 Wide scope
International marketing has a wide scope. The important areas covered in international marketing
are product planning, product development, pricing, packaging, advertising, branding, marking,
labelling, communication, procedural formalities, sales promotions, international marketing
research etc.
 Long term marketing planning
International marketing needs long term marketing planning, the need for long term planning is
because the marketing situations is different in different countries.
 Advantages to all participating countries
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It helps in having smooth & good relations between countries & thereby ensures world peace.
But the advantages are not shared in fair proportion by all participating countries.
Need for International Marketing

 International interdependence of countries & growing world population
 No uniform geographic & climatic conditions in all countries
 No uniform production cost in the countries
 Increasing needs of consumers for production & better standard of living to people
 Need of developing closer economic & cultural cooperation between different countries
 Problem of surplus production & scarce production in some countries
 Bridging the gap between developed & developing nations in terms of exchange of goods
& services transfer of technical know-how & skills
 Economic growth of developing countries & peace in the world
 Optimum use of resources
 Technological development
 Increase foreign exchange earnings by more & more exports thereby improving the BOP
Advantages of International Marketing

 Better standard of living
International marketing provides a better standard of living to people in different countries &
raises their welfare. It brings income to the people & thereby provides a higher standard of
living.
 Optimum use of resources
International marketing helps in optimum use of resources. Surplus resources or production can
be exported to other countries.
 Quick industrial development
International marketing helps in quick industrial development of developed & developing
countries. The developed countries give aid, capital, goods & technology to the developing
countries & developing countries supply raw materials &labour to the developed countries.
 Raises the real income & national well-being
In international marketing, every country specializes in the production of that commodity to
which it is best suited to produce, export its surplus produce & import those commodities which
it can get cheaper from other countries.
 Lower prices
International marketing decreases the price of goods & services, all over the world due ot
specialization.
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 Technological development
International marketing through specialization, decreases the prices of goods & services,
increases their demand, thereby consumption, which helps in further specialization &
technological developments.
 Availability of foreign exchange
A country earns forex due to exports & use it for paying essential imports. International
marketing helps in easy availability of forex for import of capital goods, modern technology &
other essential requirements.
 International co-operation & world peace
Due to trade relations, international marketing brings countries close which leads ot co-operation
among the countries.
 Build cultural relations
International marketing alters the quality of life of people. It exchanges goods & services among
the countries & develops closer social & cultural relations between various countries.
 Expansion of tertiary sector
International marketing increases exports, thereby industrial development.
 Special benefits during emergency
 Removal of deficit
International marketing helps in removal of deficit in balance of trade & payments of
participating countries through exports promotion & import substitution.
 Benefits of comparative cost differences
International marketing helps in getting the benefits of comparative cost differences, as
suggested in the theory of comparative costs. The benefits of division of labour& specialization
at the international level are also through international marketing.
Problems in International Marketing

As is said that, “lifeis not bed of roses”, international business is not all that lovely. It has its
problems. The impor‐tant problems include:
• Political Factors:
Political instability is the major factor that discourages the spread of international business. For
example, in the Iran Iraq war, Iraq‐Kuwait war, dismantling of erstwhile USSR, Civil War in
Fiji, Malaysia. and Sri Lanka, military coups in Pakistan, Afghanistan, frequent changes in
political parties in power and thereby changes in government policies in India etc., created
political risks for the growth of international business. Also, latest Indo‐Pak Summit at Agra in
July, 2001 ended in a no compromise situation, which affects international business.
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 HugeForeign Indebtedness:
The developing countries with less purchasing power are lured into a debt trap due to the
operations of MNCs in these countries. For example, Mexico, Brazil, Poland, Romania, Kenya,
Congo, and Indonesia.
• Exchange Instability:
Currencies of countries are depreciated due to imbalances in the balance of payments, political
instability and foreign indebted‐ ness. This, in turn, leads to instability in the exchange rates of
domestic currencies in terms of foreign currencies. For example, Zambia, India, Pakistan,
Philippines depreciated their currencies many times. This factor discourages the growth of
international business.
• Entry Requirements:
Domestic governments impose entry requirements to multina‐tionals. For example, an NINC
can enter Eritrea only through a jointventure with a domestic company. However, with the
establishment of world Trade Organization (WTO), many entry requirements by the host
governments are dispensed with.
• Tariffs, Quotas and Trade Barriers :

Governments of various countries impose tariffs, import and export quotas and trade barriers in
order to protect domestic business. Further, these barriers are imposed based on the political
and diplomatic relations between or among Govern‐ments. For example, China, Pakistan and
USA (before 1998) imposed tariffs, quotas and barriers on imports from India. But the erstwhile
USSR and present Russia liberalized imports from India.
• Corruption:
Corruption has become an international phenomenon. The higher rate bribes and kickbacks
discourage the foreign investors to expand their operations.
• Bureaucratic Practices of Government :

Bureaucratic attitudes and practices of Government delay sanctions, granting permission and
licenses to foreign compa‐nies. The best example is Indian Government before 1991. These
practices make the MNCs to enter other countries.
However, the benefits of international business outweigh the problems. Added to this,
globalization is the order of the day. Most of the countries eliminated the barriers and paved the
way for the growth and expansion of international business. In fact, international business,
during the third millennium (2001 and beyond) is just an extension to interregional business
within a country.
Distinguish between Domestic Marketing & International Marketing

Points Domestic Marketing International Marketing
Meaning It is concerned with It is concerned with
identifying anticipating & identifying, anticipating &
satisfying the local satisfying the needs of
consumer`s needs. consumers in foreign
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countries.
Scope It has a narrow scope & is It has a wider scope as it
restricted to the political includes the entire world as a
boundaries of a country. market.
Risk Risk is comparatively less. It Risk is comparatively higher.
is subject to commercial risk. It is subject to political &
commercial risks.
Trade barriers No trade barriers Trade barriers like tariffs,
quotas, etc.
Competition Sellers face competition Competition is severe & three
mainly from domestic faced i.e. form the other
manufacturers / traders suppliers of exporters
country, from local producers
of importer`s country & from
exporters of other countries.
Trading Blocs No influence of trading blocs. There is influence of trading
blocs.
Methods of Payments Normally by cash or cheque. Normally by Letter of Credit
or by documentary bills of
exchange.
Procedure & Formalities It involves relatively simple It involves lengthy &
procedures & formalities. complicated procedures &
formalities.
Currency Use of single currency Use of multiple currency
Scale of Operations Scale of operations is Scale of operations is much
comparatively less as goods larger as goods are sold in
are sold within the country many countries.
Exchange of Goods Free exchange of goods are There are certain restrictions
allowed within the country in exchange of goods.
Language / Culture Involves only one country & It involves many countries &
mostly one language & one thus there are different
culture. languages & culture.
Mobility of Factors of Free mobility of factors of Lower mobility of factors of
Production production production
Monetary System One monetary & economic Different monetary &
system economic system
Realization of Sales No time limit for realization In India, international
Proceeds of domestic sales proceeds proceeds must be realized
within 180 days
Transport Costs Low High
Basis of International Trade

International trade involves voluntary exchange of goods, services, assets, or money between
residents of two different countries or between different countries. The fundamental question that
arises for most of us at the thought of international trade is why should a business firms of one
country should to the another country, when the industries of that country also produce goods
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and market them. What is the basis of international business?
A number of theories have been developed to explain the basis for international trade. The
different trade theories include theory of absolute advantage, theory of comparative advantage,
and classical trade theory. These theories discuss and analyze different nuances of trade for the
trading partners and deal with the financial dynamics of the trading activity between two
countries
 Theory of comparative advantage

Adam Smith's theory of absolute advantage is a simple explanation of the benefits of
international trade. However, if one country has an absolute advantage in the production all
goods, can there be benefits from trade.
In 1817, David Ricardo, a classical economist developed the principal of comparative
advantage to explain this situation. The principal is based on the relative efficiencies of
production where each country has a comparative advantage in producing the commodity in
which it has the lower opportunity cost.
Opportunity costs are what must be given up in order to consume or produce another good. For
example, going on an overseas holiday may involve giving up the purchase of a new car. The
comparative advantage principle can be illustrated using Tables 3 and 4.
Table 3 Comparative advantages: production before specialization
Wheat (units) Cloth (units)
Australia 20 10
China 5 5
Total Output 25 15
In Table 3, Australia has an absolute advantage in the production of both wheat and cloth. By
using the theory of comparative advantage, both countries can gain from specialization and
trade.
Table 4 Opportunity costs
Opportunity cost
Country 1 unit of wheat 1 unit of cloth
Australia 0.5 (10/20) units of cloth 2 (20/10) units of wheat
China 1 (5/5) units of cloth 1 (5/5) units of wheat
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From Table 4:
• Australia has a comparative advantage in the production of wheat since it has to give up
only 0.5 units of cloth to produce an extra unit of wheat, while China must give up 1 unit
of cloth to produce an extra unit of wheat. So it is more practical for Australia to
specialize in the production of wheat.
• China has a comparative advantage in the production of cloth since it has to give up only
1 unit of wheat to produce an extra unit of cloth, while Australia must give up 2 units of
wheat to produce an extra unit of cloth. Consequently it is more practical for China to
specialize in the production of cloth.
Australia has a comparative advantage in the production of wheat and China cloth. Trade
between the two countries should be beneficial because of the different opportunity costs
for these commodities.
Table 5 Production levels after
specialization
Wheat (units) Cloth (units)
0 (‐
Australia 40 (+20) 10)
(+5
China 0 (‐5) 10 )
(‐
Total output 40 (+15) (net gain) 10 5) (net gain)
From Table 5 we can see that total output has increased when countries specialize in the
production of goods and services based on comparative advantage. As both countries are using
their resources more efficiently, trade will lead to higher standard of living than would be
otherwise possible.
International Business Environment
INTERNAL AND EXTERNAL INTERNATIONAL MKTG CONCEPT

The key difference between domestic and international marketing is the multi‐dimensionality
and complexity of foreign country markets a country may operate in. Knowledge and awareness
of these complexity and implications for international marketing is must.
The important environmental analysis model SLEPT (Social, Legal, Economical, Political and
Technological)
1. Social & Cultural Influences
a. SOCIAL: Difference in social conditions, religion and culture determines
whether the customers aresimilar or dissimilar across the globe.
McDonald’s had to understand the same in India when they had to enter such
huge market with its burger. In 1995 / 6 India’s vegetarian market was 40%.
These vegetarians preferred that the burger should be made in a clean and
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separate kitchen. Also their love for spicy food was required to be considered.
Among the non‐veg. eaters, their disliking towards pork and beef among mean
eater was very well known. McDonald’s realize that they need to serve Indians
more than just burger, a burger that satisfies Indians taste.
b. CULTURE: Culture describes the kind of behaviour considered acceptable in
society.
The prescriptive characteristic of culture simplifies a consumer’s decision‐making
process by limiting product choices to those which are socially acceptable. The
same feature creates problems for those products, which are not in time with
culture.
• Coca Cola had to withdraw its 2 liters bottle from Spain market as
Spaniards were not having refrigerator having larger compartments.
Johnson’s floor wax was doomed to failure in Japan as it made the wooden floors
very slippery and Johnson failed to take into account the custom of not wearing
shoes inside the home.
• Coca Cola when introduced in china the name sounded like “KOOKE –
KOULA” meant thirsty mouth, full of candle wax. So they had to change
the name to “KEE KOU KEELE” which meant “joyful taste and
happiness.”
• In Japan, White face is associated with death of mask.
• The size of refrigerators in USA is very big compared to Indian
refrigerators, as women there believe in storing vegetables and other
eatable items, which can be consumed till longer period
of time.
Even the value and beliefs associated with color vary significantly between
different cultures. Blue considered as feminine and worm in Holland, is seen as
masculine and cold in Sweden. Green is a favorite color in Muslims, but in
Malaysia, it is associated with illness. White is associated with death and
mourning in China, Korea and in some traditions in India. Although, the same
color expresses happiness and is color of wedding dress of the bride in English
country.
Such differences suggest that same marketing mix can not be used for all markets.
2. Legal Environment:
Legal systems vary both in content and interpretations. A successful marketer will modify his
marketing strategies in accordance with such variations. Laws affect the marketing mix in terms
of products, price, distribution and promotional activities quite dramatically. For many firms
such laws are burdensome regulations.
For e.g. in Germany environmental laws mean a firm is responsible for the retrieval and disposal
of packaging waste it creates and must produce packaging which is recyclable.
In Canada, if the information does not appear in both French and English, the goods may be
confiscated. An international Marketer should learn about the advertising, packaging, and
labeling regulations in foreign markets.
India has been seen by many firms to be an attractive emerging market having many legal
difficulties, bureaucratic delays and lots of official procedures. Many MNCs have found it
difficult to break such hard structure. Foreign companies are often viewed with suspicion.
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However, some firms have been innovative in overcoming difficulties.
3. Economic Environment:
The economic situation varies from country to country. There are variations in the levels of
income and living standards, interpersonal distribution of income, economic
organization,occupational structure and so on. These factors affect market conditions.
The level of development in a country and the nature of its economy will indicate the type of
products that may be marketed in it and the marketing strategy that may be employed in it. In
high income countries there is a good market for a large variety of consumer goods. But in low‐
income countries where a large segment does not have sufficient income even for their basic
necessities, the situation is quite different.
4. Political Environment:
The political environment of international marketing includes any national or international
political factor that can affect the organization’s operations or its decision‐making. The
tendencies of governments to change regulations can seriously affect an international strategy
providing both opportunities and threat. (1992’s liberalization policy by Narsimha Rao Govt.)
An unstable political climate can expose firms to many commercial, economic and legal risks.
Political risk is defined as being: “A risk due to a sudden or gradual change in a local political
environment that is disadvantageous to foreign firms and markets.”
5. Technological Environment:
The Technological Environment is perhaps the most dramatic force now shaping our destiny. An
international marketer should very well keep in his mind the change taking place in technology
and thereby affecting the product.
New technologies create new markets and opportunities. However, every new technology
replaces an old technology. Xerography hurt carbon‐paper industry, computer hurt typewriter
industry, and examples are so on. Any international marketer, when ignored or forgot new
technologies, their business has declined. Thus, the marketer should watch the technological
environment closely. Companies that do not keep up with technological changes, soon find their
products outdated.
The United States leads the world in research and development spending. Scientists today are
researching a wide range of promising new products and services ranging from solar energy,
electric car, and cancer cures. All these researches give a marketer an opportunity to set his
products as per the current desired standard. The challenge in each case is not only technical but
also commercial that means manufacture a product that can be afforded by mass crowd.
Stages of International Marketing

 No direct foreign Marketing
 No activity in cultivating customers outside domestic market
 Distributors / Dealers / Foreign Customers coming directly to the firm
 Web Pages (Indication)
 Infrequent Foreign Marketing

 Product surplus in domestic market
 No intention of maintaining continuous market representation
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 Few companies fir this model as customers always look for long term commitment
 Regular Foreign Marketing

 Marketing goods on a continuous basis to foreign markets
 Overseas Middlemen / Own Sales force / Sales subsidiary
 Adaptation of the product to the foreign market
 International Marketing / Multinational Marketing

 Fully committed & involved in international marketing o Markets all over the world
 Production & marketing activities outside the home market
 The company formulates a unique strategy for every country with which it conducts
business E.g. Balsara – Mint / Cinamint
 Global Marketing
 At this stage, companies treat the world, including their home market as one
 Maximize returns through global standardization of its business activities
 Efficiency of scale by developing a standardized product, of dependable quality, to be
sold at a reasonable price to a global market
 The company standardizes its logo, image, store, processes
 Wherever necessary due to cultural differentiation adaptations are made
International Business Approach

International business approaches are similar to the stages of internationalization or
globalization. Douglas Wind and Pelmutter advocated four approaches of international business.
They are:
1. Echnocentric Approach
 The domestic companies normally formulate their strategies.
 Their product design and their operations towards the national markets, customers and
competitors. But, the excessive production more than the demand for the product, either
due to competition or due to changes in customer preferences push the company to export
the excessive production to foreign countries.
 The domestic company continues the exports to the foreign countries and views the
foreign markets as an extension to the domestic markets just like a new region.
 The executives at the head office of the company make the decisions relating to exports
and, the marketing personnel of the domestic company monitor the export operations
with the help of an export department.
 The company exports the same product designed for domestic markets to foreign
countries under this approach. Thus, maintenance of domestic approach towards
international business is called ethnocentric approach.
2. Polycentric Approach
 The domestic companies, which are exporting to foreign countries using the ethnocentric
approach, find at the latter stage that the foreign markets need an altogether different
approach. .
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 Then, the company establishes a foreign subsidiary company and decentralists all the
operations and delegates decision making and policy‐making authority to its executives.
 In fact, the company appoints executives and personnel including a chief executive who
reports directly to the Managing Director of the company.
 Company appoints the key personnel from the home country and the people of the host
country fill all other vacancies.
3. Regiocentric Approach
 The company after operating successfully in a foreign country, thinks of exporting to the
neighboring countries of the host country.
 At this stage, the foreign subsidiary considers the regions environment (for example,
Asian environment like laws, culture, policies etc.) for formulating policies and
strategies.
 However, it markets more or less the same product designed under polycentric approach
in other countries of the region, but with different market strategies.
4. Geocentric approach
 Under this approach, the entire world is just like a single country for the company.
 They select the employees from the entire globe and operate with a number of
subsidiaries.
 The head‐ quarter coordinates the activities of the subsidiaries.
 Each subsidiary functions like an independent and autonomous company in formulating
policies, strategies, product design, human resource policies, operations etc.
Trade Barriers
It refers to the government policies & measures which obstruct the free flow of goods & services
across national borders. Trade barriers are imposed on exports & imports.
Objectives of Trade Barriers
 To protect domestic industries or certain other sector of economy from foreign
competition
 To guard or protect the economy against dumping by rich countries with surplus
production
 To promote indigenous R&D & to promote new industries
 To conserve the forex resources of the country
 To make the BOP position more favourable
 To curb conspicuous consumption
 To counteract trade barriers imposed by other countries
 To encourage the use of domestic production in the domestic market & thereby to make
the country strong & self-sufficient
 To mobilize revenue for the government
 To discriminate against certain countries
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 To make the economy self-reliant.

Types / forms of Trade Barriers
I. Tariff Barriers
Tariff refers to the duties or taxes imposed on internationally traded products when they cross the
international borders.
Types of Tariffs:
a. On the basis of the origin & destination of goods crossing the national
boundary:
 Export duties
It is a tax imposed on a commodity originating from the duty-levying destined for some other
country.
 Import Duties
It is tax imposed on a commodity originating abroad & destined for the duty-levying country.
 Transit Duties
It is a tax imposed on a commodity crossing the national frontier originating from & destined for
other countries.
b. On the basis of quantification of the tariff:

 Specific Duties
It is a flat sum per physical unit of the commodity imported or exported. It is a fixed amount of
duty levied upon each unit of the commodity imported.
 Ad-Valorem Duties
They are levied as a fixed percentage of value of the commodity imported / exported.
 Compounded Duties
When a commodity is subject to both specific duty & ad-valorem duty, tariff is a compounded
duty.
c. On the basis of application between different countries:

 Single column Tariff / Uni-lateral Tariff:
It provides a uniform rate of duty for all like commodities without making any discrimination
between countries.
 Double Column Tariff:
It discriminates between countries because there are two rates of duty on some or all
commodities.
 Triple-Column Tariff:
It consists of 3 autonomously determined tariff schedules the general, the intermediate & the
preferential. The general & intermediate tariffs are similar to the maximum & minimum rates
under the double column tariff system. The preferential rate was generally applied in the case of
trade between the mother country & its colonies.
d. On the basis of purpose they serve

 Revenue Tariff
Sometimes the main intention of the government in imposing tariffs may be to obtain revenue.
When raising the revenue is the primary motive, the rates of duty are generally low lest imports
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be highly discouraged.
 Protective Tariff:
It is intended mainly to give protection to the domestic industries from foreign competition.
Naturally the duty rates are very high inorder to curtail imports.
 Countervailing Duties:
They may be imposed on certain imports when they have been subsidized by foreign
governments. They are generally penalty duties in addition to the regular rates.
 Anti-Dumping Duties:
They are imposed to imports when are being dumped on the domestic markets at a price either
below the production costs or substantially lower than their domestic prices. They are generally
penalty duties in addition to the regular rates.
Advantages / Benefits of Tariff Barriers

 Imports from abroad are discouraged or even eliminated to considerable extent.
 Protection is given to home industries & manufacturing activities. This facilitates
increase in the domestic production.
 Consumption of foreign goods reduces to a considerable extent & the attraction for
imported goods is brought down considerably.
 Tariffs give substantially revenue to the government.
 Tariffs remove or at least reduce the deficit in the balance of trade & balance of payments
of a country.
 Tariffs encourage research & development activities within the country. They create
favourable atmosphere for industrial development & generation of employment
opportunities.
 Tariffs may be used to influence the political & economic policies of other countries.
 Tariffs avoid competition fromforeign manufacturers & this may lead to monopolistic
tendencies among domestic industries.
II. Non-Tariff Barriers

Non-tariff barriers to trade (NTBs) or sometimes called "Non-Tariff Measures (NTMs)"
are trade barriers that restrict imports, but are unlike the usual form of atariff; And Tariff Barriers
restricts Exports. Some common examples of NTB's are anti-dumping measures
and countervailing duties, which, although called non-tariff barriers, have the effect of tariffs
once they are enacted. Example of Tariff Barrier is Export Duty.
Some of non-tariff barriers are not directly related to foreign economic regulations but
nevertheless have a significant impact on foreign-economic activity and foreign trade between
countries.
Trade between countries is referred to trade in goods, services and factors of production. Non-
tariff barriers to trade include import quotas, special licenses, unreasonable standards for the
quality of goods, bureaucratic delays at customs, export restrictions, limiting the activities of
state trading, export subsidies, countervailing duties, technical barriers to trade, sanitary and
rules of origin, etc. Sometimes in this list they include macroeconomic measures affecting trade.
A non-tariff barrier is any barrier other than a tariff that raises an obstacle to free flow of goods
in overseas markets. Non-tariff barriers, do not affect the price of the imported goods, but only
the quantity of imports.
VEDA TUTORIALS 16
Types of Non-Tariff Barriers

a. Quota System:
Under this system, a country may fix in advance, the limit of import quantity of a commodity
that would be permitted for import from various countries during a given period. The quota
system can be divided into the following categories:
 Tariff/Customs Quota: Certain specified quantity of imports is allowed at duty
free or at a reduced rate of import duty. Additional imports beyond the specified
quantity are permitted only at increased rate of duty. A tariff quota, therefore,
combines the features of a tariff and an import quota.
 Unilateral Quota: The total import quantity is fixed without prior consultations
with the exporting countries.
 Bilateral Quota: In this case, quotas are fixed after negotiations between the quota
fixing importing country and the exporting country.
 Multilateral Quota: A group of countries can come together and fix quotas for
exports as well as imports for each country.
b. Import Licensing:
It is useful for restricting the total quantity to be imported. In this system, imports are allowed
under license. Importers have to approach the license authorities for permission to import certain
commodities. Foreign exchange for imports are provided against such license issued.
c. Consular Formalities:
A number of importing countries demand that the shipping documents should include consular
invoice certified by their consulate stationed in the exporting country. The purpose of consular
formalities is to restrict imports to some extent & not to allow free imports commodities which
are not necessary or harmful to national economy or social welfare.
d. Preferential Arrangements through trading blocs:

Some nations form trading groups for preferential arrangements in respect of trade amongst
themselves. Imports from member countries are given preferences, whereas, those from other
countries are subject to various tariffs and other regulations.
e. Customs Regulations:
Customs regulations & administrative regulations are very complicated to many countries & are
used as invisible tariffs for discouraging imports.
f. State Trading:
In some countries like India, certain items are imported or exported only through canalizing
agencies like MMTC. Individual importers or exporters are not allowed to import or export
canalized items directly on their own.
g. Foreign Exchange Regulations:

The importer has to ensure that adequate foreign exchange is available for import of goods by
obtaining a clearance from exchange control authorities prior to the concluding of contract with
the supplier.
VEDA TUTORIALS 17
h. Prior Import Deposits:

The importers are asked to deposit even 100% of import value of the goods in advance with a
specific authority. Then, the importers are given permission to import goods.
Effects of Barriers on International Trade

I. Effects / Impact of Tariff:
a. Protective Effect:
An import duty is likely to increase the price of the imported goods. This increase in the price of
imports is likely to reduce imports & increase the demand for domestic goods. Import duties may
also enable the domestic industries to absorb higher production costs. Thus, as a result of the
protection accorded by the tariff, the domestic industries are able to expand the output.
b. Consumption Effect:
The increase in prices resulting from the import duty usually reduces the consumption capacity
of the people.
c. Redistribution Effect:
If the import duty causes an increase in the price of the domestically produced goods, it amounts
to redistribution of income between the consumers & producers in favour of the producers.
d. Revenue Effect:
A tariff revenue increased revenue for the government.
e. Income & Employment Effect:
Tariff may cause a switch over from spending on foreign goods to spending on domestic goods.
This higher spending within the country may cause an expansion of domestic income &
employment.
f. Competitive Effect:
The competitive effect of tariff is, in fact, an anti-competitive effect in the sense that protection
of domestic industries from foreign competition, may enable the domestic industries to obtain
monopoly power with all its associated evils.
g. Balance of Payments Effects:
Tariffs by reducing the volume of imports, may help the country to improve its BOP position.
II. Effect / Impact of Quotas:

a. Price Effect:
As quotas limit the total supply, it may cause an increase in the domestic prices.
b. Consumption Effect:
If quotas leads to an increase in prices, it may compel people to reduce their consumption of the
commodity subject to quotas or some other commodities.
c. Protective Effect:
By protecting domestic industries against foreign competition to some extent, quotas encourage
the expansion of domestic industries.
d. Redistributive Effect:
Quotas will also have redistributive effect, if the fall in supply due to the impact restrictions
enables the domestic producers to raise prices. The rise in prices will result in redistribution of
income between the producers & consumers in favour of the producers.
e. Revenue Effect:
Quotas may also have a revenue effect. As quotas are administered by means of license,
government may obtain some revenue by charging a license fee.
VEDA TUTORIALS 18
Tariff Barriers Non-Tariff Barriers

Meaning It means duties & taxes It means quantitative
imposed on imported goods restrictions imposed to
restrict imports
Kinds Import duties, specific duties, Quotas, import licensing,
ad-valorem duties, consular formalities, foreign
countervailing duties, exchange restrictions etc.
protective duties etc.
Effects Affects the prices of imported Affects the quantity of
goods. imported goods
Revenue Brings huge revenue to the Do not bring revenue to the
government government.
Protection Do not provide direct Provide direct protection to
protection to home industries home industries
Formation of monopoly Is not encouraged Is encouraged
groups
Effectiveness Not very effective Very effective to restrict
imports
Flexibility Less flexible More flexible
Effects on imports Indirectly restricts imports Directly restricts imports
Assessment of costs It is easier for importers to It is difficult to assess costs.
assess the costs under tariff
systems
Time required Charging import duties takes Import licensing & other
less time formalities takes more time.
Specific Duty Ad-Valorem Duties

Meaning It is imposed on each unit of It is duty levied on total value
a commodity imported or of commodity imported or
exported exported.
Convenience It is easy to calculate & It is difficult to calculate
administer because the because it is requires proper
number of units imported or assessment of the value of
exported is multiplied by the goods imported or exported.
rate of duty
Popularity It is not very popular though It is very popular & most of
it has advantages over ad the countries charge tariffs
valorem duty based on this system only.
Suitability It is levied on such goods It is levied on such goods
whose quantification is whose quantification in terms
possible of numbers is not possible
Method of Charges Duty charges depends upon Duty charge on flat rate basis
the value of imported goods limited to the physical
which is judged on the basis features of the commodity
of model & make
VEDA TUTORIALS 19
specifications
Main Considerations Physical units of commodity The value of goods is
is considered & value is not considered & physical units
considered. of commodity is not
considered.
TRADE BLOC
Along with trade barriers, there are trade blocs among the countries of the world. These blocs
offer special concessions to members of the group but impose restrictions on the imports from
the non‐ member countries. As a result, these trade blocs are harmful to the growth of free
international trade. Efforts should be made to remove such trade blocs so as to have free trade
among the nations of the world. Unfortunately, efforts in this direction by WTO are not effective.
Trade blocs are groups of countries that have established special preferential arrangements
governing trade between members. Although in some cases the preferences‐such as lower tariff
duties or exemptions from quantitative restrictions the general purpose of such arrangements is
to encourage exports by bloc members to one another‐sometimes called intra‐trade.
Objectives of Trading Blocs

 To remove or at least to reduce trade barriers among the member‐countries of the group.
To impose common external tariff and non‐tariff barriers on non‐member countries.
 To bring integration of economies of member countries through free transfer of labour,
capital and other factor of production.
 To maintain cordial economic, political, cultural and social relations among the members
of the group.
 To provide assistance to member countries of the group in all possible ways in solving
their current economic problems.
Types of Trading Blocs

1. FREE TRADE AREA: In Free Trade Area all barriers to the trade of goods and services
amongmember countries are removed. In an ideal free trade area, no discriminatory
tariffs, quotas, subsidies o administrative impediments would be allowed to distort trade
between member countries. Each country however, is allowed to determine its own trade
policies with regard to non‐members. For e.g. there is a free trade agreement known as
NAFTA (The North American Free Trade Agreement) between three counties; USA,
Canada and Mexico.
2. Custom Union: A Custom Union represents the next stage in economic cooperation.
Membercountries here not only remove trade restrictions for members but also adopt a
uniform commercial policy (Common external tariff) against non‐members. A customs
union brings more economic integration as compared to free trade area. Custom Union
exists between France and Monaco, Italy and San Marino, to name some examples.
3. Common Market: A Common Market is a step ahead of custom union. It eliminates all
tariffsand other restrictions on internal trade, adopts a set of common external tariffs and
removes all restrictions on free flow of capital and labor among member nations. Thus, a
common market is a common marketplace for goods as well as for services. Unlike a
custom Union, a common Market allows free movement of factors necessary to
VEDA TUTORIALS 20
production. Latin America possesses three common markets: The Central American
Common Market (CACM), the Andean Common Market, and the Southern Cone
Common Market.
Economic Union: It is a step ahead to common market. It has all features of common
market and also uniformity in respect of monetary and fiscal policy of member countries.
Member countries are expected to pursue common fiscal and monetary policies.
Positive & Negative Effects (implications) of Trade Blocs in International Marketing

A. Positive Effects of Trading Blocs
 Economics Integration:
Trading blocs represent various forms of economic integration in the region. It is process that
unifies different types of independent economies into a larger entity.
 Co-operative Spirit:
Co-operative spirit & co-ordination among nations has developed through creation of trading
blocs. Trading blocs also discourage discrimination in any form & application of trade
restrictions.
 Expansion of Markets:
Formation of trading blocs broadens the scope of regional markets. Due to reduction or
elimination of trade barriers among member nations within the countries of the trading blocs.
 Growth & Development of Region:
Trading blocs helps in the growth & development of the region. Due to trading blocs, the
individual companies of member nations can enter into joint ventures & mergers to consolidate
their position.
 Uniform Policies:
Member countries within a bloc have to function under common parameters & uniform policies.
This has ensured reduction in transaction costs & time & better control on the entry & exit of
goods. Even national policies are tailored to meet the requirements of the trading blocs.
 Increase in trade:
The policies & systems of trading blocs has generated better prospects or traders in that region,
with the result that there is enhanced trade activity within a bloc. This has contributed to the
rapid increase in the export & import activities of member nations & in their trade revenues.
Trading blocs helps to increase the exports of member nations due to rapid industrialization. The
growth in the region generates more income, which leads to more purchasing power & hence
more imports.
 Product & Market Development:
Removal of trade barriers has encouraged countries to move from unilateral to multilateral
trading. It basically implies that markets have expanded. This has resulted in greater
competition& has brought a greater variety of enterprises & products.
 Benefits to consumers of member countries:
Consumers of member-nations can be greatly benefitted due to the formation of trading blocs.
Greater trade activity would obviously benefit the consumers of that region. They now have
access to a wider variety of products competitive prices. Besides, the purchasing power of the
people have lastly improved because of better employment opportunities.
 Free transfer of resources / factors:
Trading blocs may allow its member nations for an unrestricted or free transfer of resources or
factors of production like labour& capital, across the borders of member nations, as is being
done by EU.
VEDA TUTORIALS 21
 Creates cordial / better relations:

Trading blocs bring economic, political & cultural integration of member nations. This helps to
build & maintain better economic, political & social relations between members of the bloc. This
helps in avoiding disputes, peaceful relations among member nations.
B. Negative Effects / Impacts of Trading Blocs
 Common External Barriers:
The member countries of the trading blocs may impose common external barriers on non-
members. The common external barriers in the form of tariffs & non-tariff makes it difficult for
non-members to trade with members of a trading blocs. By keeping the world market out,
members may suffer way of not getting access to a wider & better spread.
 Collective Bargaining by Member Nations:
Collective bargaining of the members of a trading bloc with members on trade related issues /
matters put the non-members disadvantage.
 Affects Competition:
Formation of trading blocs affects free & fair competition at global level. Competition among
member countries is reduced. But non-members countries have to face collective competition
from members of the trading blocs.
 Affects Global / International Trade:
Trading blocs create barriers in the growth of global trade artificially.
 Problems for non-members:
The non-members nations of a trading bloc face many problems like high tariffs, import
restrictions etc.
 Loss of political sovereignty:
The political sovereignty of individual countries is lost due to trading blocs, since the national
policies of the member countries would be forced upon them externally by dominating members
of the trading blocs.
WTO & Trade Liberalization

The World Trade Organization (WTO) is an intergovernmental organization which
regulates international trade. The WTO officially commenced on 1 January 1995 under
the Marrakech Agreement, signed by 123 nations on 15 April 1994, replacing the General
Agreement on Tariffs and Trade (GATT), which commenced in 1948. The WTO deals with
regulation of trade between participating countries by providing a framework for negotiating
trade agreements and a dispute resolution process aimed at enforcing participants' adherence to
WTO agreements, which are signed by representatives of member governmentsand ratified by
their parliaments. Most of the issues that the WTO focuses on derive from previous trade
negotiations, especially from the Uruguay Round (1986–1994).
The WTO is attempting to complete negotiations on the Doha Development Round, which was
launched in 2001 with an explicit focus on developing countries. As of June 2012, the future of
the Doha Round remained uncertain: the work programme lists 21 subjects in which the original
deadline of 1 January 2005 was missed, and the round is still incomplete. The conflict between
free trade on industrial goods and services but retention of protectionism on farm subsidies to
domestic agricultural sector (requested by developed countries) and the substantiation of fair
trade on agricultural products (requested bydeveloping countries) remain the major obstacles.
This impasse has made it impossible to launch new WTO negotiations beyond the Doha
VEDA TUTORIALS 22
Development Round. As a result, there have been an increasing number of bilateral free trade
agreements between governments. As of July 2012, there were various negotiation groups in the
WTO system for the current agricultural trade negotiation which is in the
condition of stalemate.
The WTO's current Director-General is Roberto Azevêdo, who leads a staff of over 600 people
in Geneva, Switzerland. A trade facilitation agreement known as the Bali Package was reached
by all members on 7 December 2013, the first comprehensive agreement in the organization's
history
Objectives of WTO
 Trade without discrimination:
It is through the application of Most Favoured Nation (MFN) principle. According to MFN
clause, a member nation of WTO must give the same preferential treatment to other member
nations which it gives to any other member nations.
 Settlement of disputes:
Settlement of disputes between the member countries through consultation, conciliation &
through dispute settlement procedure, as a last resort.
 Raising Standard of Living:
Raising standard of living of the people of member countries & creation of full employment of
the citizens of member countries.
 Optimum utilization of the world`s productive resources:
Ensuring optimum use of world`s resources & thereby expanding world production & trade of
goods & services.
 Growth of underdeveloped countries or Less Developed Countries (LDCs)
Recognizes the need for positive efforts designed to ensure that developing countries, especially
the LDCs get a better share of growth in international trade.
Functions of WTO
 Administration & implementation of various agreements signed at the Uruguay
Conference & thereafter by WTO
 Supervising the implementation of tariff cuts averaging 37%as agreed by the member
nations
 Examination of the foreign trade policies of the member nations & to bring these policies
in line with the WTO guidelines.
 Collection of information about export-import trade, statistics related to imports &
exports & policies & measures taken by the member countries.
 Settlement of trade disputes through WTO Dispute Settlement Body
 Consultancy services to member countries
 Provision of common platform for free & fruitful communication, dialogue, exchange &
negotiations
 Technical assistance & training programmes co-operating with other international
negotiations.
GATT WTO
VEDA TUTORIALS 23
Birth 1947 1995.

Revised version of GATT
1947
Origin 3rd pillar of Bretton Woods Successor to GATT (A
Institutions Replacement)
Institution Only set of rules with no Permanent body with
institutional foundation Secretariat
Membership 23 (original) 135 (21st May 1999)
Objective World Trade Liberalization Same with well-defined rules
Coverage Trade in Goods Addl. Areas like Investment
Services, Agriculture,
Textiles
Cross Retaliation Not Allowed Allowed
Structure Provisional Agreement Permanent Commitment
Dispute Settlements Slow & ineffective Quick & Automatic
Working Ad-hoc Rule-based
Details of Important Trading Blocs

1. Association of South East Asian Nations (ASEAN)
The Association of Southeast Asian Nations or ASEAN was established on 8 August 1967 in
Bangkok by the five original Member Countries, namely, Indonesia, Malaysia, Philippines,
Singapore, and Thailand. Brunei Darussalam joined on 8 January 1984, Vietnam on 28 July
1995, Laos and Myanmar on 23 July 1997, and Cambodia on 30 April 1999.
OBJECTIVES
The ASEAN Declaration states that the aims and purposes of the Association are:
(i) To accelerate the economic growth, social progress and cultural development in the
region through joint endeavors.
(ii) To promote regional peace and stability through abiding respect for justice and the rule of
law in the relationship among countries in the region and adherence to the principles
of the United Nations Charter.
(iii) To maintain close cooperation with the existing international and regional
organizations
with similar aims.
WORKING OF ASEAN
The member countries of ASEAN have Preferential Trading Arrangements (PTA), which
reduces tariffs on products traded among member countries. In 1992, ASEAN developed a
Common Effective Preferential Tariffs (CEPT) plan to reduce tariffs systematically for
manufactured and processed products.
The members have also established a series of co‐operative efforts to encourage joint
participation in industrial, agricultural and technical development projects and to increase foreign
investments in their economies. These efforts include an ASEAN finance corporation, the
ASEAN Industrial Joint Ventures Programme (AJIV) etc. ASEAN nations have introduced some
programmes for greater diversification in their economies.
VEDA TUTORIALS 24
India and ASEAN

India is interested in maintaining close economic relations with the members of ASEAN, as
these countries are closer to India. The ASEAN countries are offering co‐operation to India in
the field of trade, investment, science and technology and training of personnel. Also, India’s
trade with ASEAN countries is satisfactory in recent years.
2. LAFTA (LATIN AMERICAN FREE TRADE ASSOCIATION)

LAFTA was established in February 1960 under the Treaty of Montevideo. The member
countries of the association are Argentina, Brazil, Columbia, Chile, Ecuador, Mexico, Paraguay,
Peru, Uruguay, Venezuela and Bolivia.
The main objective of the association is to build up a common market for South American
countries and thereby to bring about a gradual reduction in trade barriers among member
countries. LAFTA as a trade bloc wants to stimulate intra‐Latin American trade and also to
increase Latin American’s declining share in world trade. However, LAFTA could not emerge as
a powerful economic union due to non‐ cooperation among the member countries. The member
countries have been competing among themselves for promoting their exports. Political
instability among the member countries is another cause responsible for making this union weak
and ineffective. Due to lack of understanding and mutual trust, the integration among the
member countries is not effective.
In recent years, the Latin American debt crisis has eroded some of the industrial progress that the
countries had made and has forced them to rely on primary product exports to patch up their
debt. In 1989, Andean countries made a renewed effort to revive regional co‐operation with new
measures. LAFTA was replaced (renamed) by the Latin American Integration Association
(LAIA) with the signing of the Montevideo Treaty of 1980. The achievements of LAIA are also
moderate.
An 'advising bank' is a correspondent of a bank which issues a letter of credit, and, on behalf of
the issuing bank, the advising bank notifies the beneficiary of the terms of the credit, without
engagement on its part to pay or guarantee the credit.
3. EUROPEAN UNION:
As a major center of power in the global economy, the European Union (EU) is second only to
the United States. In 2002, GDP of EU was US$ 8531 bn. This constituted 26.6 % of the global
GDP as compared to 32.5 % for the US and 12.2 % for Japan. Today after a number of Eastern
European Countries joined the EU, it is a bloc of 25 counties with a population of over 450 mn.
The EU also includes Germany, UK, France, Italy and Spain, which are respectively 3rd, 4th, 5th,
7th, and 9th largest economies in the world. Thus EU presents an enormous export and
investorarket that is both mature and sophisticated.
In 2004, EU accounted for 35.1 % of global merchandise exports as compared to 11.1 % by the
US, valued at US$ 3,300 bn.
About the EU: The EU is an organization of European Countries dedicated to increasing

economicintegration and strengthening cooperation among its members. The EU has its
headquarters in Brussels, Belgium. The union consists of 25 members namely, Belgium,
Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, UK,
Spain, Austria, Finland, Sweden, Czech Republic, Hungary, Latvia, Malta, Poland, Slovakia,
Cyprus, Estonia, Lithuania and Slovenia.
VEDA TUTORIALS 25
Objectives of the EU: Its principal goal is to promote and expand cooperation among members
states ineconomics, trade, social issues, foreign policies, security, defence, and judicial matters.
Another major goal of the EU is to implement the Economic and Monetary Union, which
introduced a single currency, the Euro for the EU members.
The Single Market and Common Commercial Policy: The single market refers to the creation
of a fullyintegrated market within the EU, which allows for free movement of goods, services
and factors of production. The EU, in conjunction with Member States, has a number of policies
designed to assist the functioning of the market. Some of the policies are given below:
Competition Policy: The main competition lied in energy and transport sector. The union
designed thisstrategy to prevent price fixing, collusion (secret agreement), and abuse of
monopoly.
Free movement of goods: A custom union covering all trade in goods was established and a
commoncustoms tariff was adopted with respect to countries outside the union.
Services: Any member nation has a right to provide services in other Member States.
Free movement of persons: Any citizen of EU member state can live work in any other EU
member state Capital: There are no restrictions on the movement of capital and on payments
with the EU andbetween member states and third countries.
Trade between the European Union and India

India was one of the first Asian nations to accord recognition to the European Community in
1962. The EU is India’s largest partner and biggest source community in 1962. The EU is
India’s largest trading partner and biggest source of FDI. It is a major contributor of
developmental aid and an important source of technology. Over the years, EU – India trade has
grown from 4.4 bn to 28.4 bn US$.
Top items of trade between India and EU

India’s exports to EU % India’s Imports from EU %
Textile and clothing 35 Gemstones and jewellery 31
Leather and leather products 25 Power generating equipment 28
Gemstones and jewellery 12 Chemical products 15
Agriculture products 10 Office machinery 10
Chemical products 9 Transport equipment 6
 India is EU’s 17th largest supplier and 20th largest destination for exports.
 India’s strength lies in its traditional exports like textiles, agriculture and marine
products, gems and jewellery, leather and electronics products.
 Tariff and non‐tariffs have been reduced, but compared to International standards they
are still high.
 Under the Bilateral trade between India and EU, it accounts for 26% of India’s exports
and 25% of its imports.
 Under the same trade there is an agreement on sugarcane. The EU has undertaken to buy
and import a specific quantity of sugarcane, raw or white, from India at guaranteed price,
the prices are fixed annually.
MULTINATIONAL CORPORATIONS (MNCs)
VEDA TUTORIALS 26
A Multinational Corporation is a business unit which operates simultaneously in different part of

world either by manufacturing or marketing or both by keeping its headquarter elsewhere as a
strategic nerve centre.
Although MNC took birth in the early 1860s, it was after the Second World War that the
Multinationals have grown rapidly.
Generally, an MNC meets five criteria.
1. It operates in many countries at different levels of economic development.
2. Its local subsidiaries are managed by nationals.
3. It maintains complete industrial organizations including R & D and manufacturing
facilities, in several countries.
4. It has direct investment base in different countries.
5. It derives from 20 % to 50 % or more of its net profits from foreign operations.
Jacques Maisonrouge, president of IBM world trade corporations defines an MNC as a

company thatmeets five criteria:
1) It operates in many countries at different levels of economic developments.
2) Nationals manage its local subsidiaries.
It maintains complete industrial organizations, including R and d and manufacturing facilities in
several countries.
4) It has a multinational central management.
5) It has multinational stock ownership.
James C. Baker also defines MNC’s as a company:

1) Which has direct investment base in several countries.
2) Which generally derives from 20% to 50% or more its net profits from foreign
operations.
3) Whose management makes policy decisions based on the alternatives available anywhere
in the world.
A significant share of the world’s industrial investment, production, employment and trade are
accounted for by these more than 65000 MNC’s with over 8,00,000 affiliates.
Characteristics of MNC`s
 Large Size:
MNC`s are very huge in size. The worth of their assets, sales, profits in multi-crores which is
sometimes more than the GDP of many nations.
 Worldwide activities:
The head office of the parent company is located in one of the country but the activities are
spread all over the world. The parent company holds 51% to 100% of the subsidiary.
 Multinational Management:
Activities of MNC`s are managed at international level. The managing committees of these
corporations have experts from various countries of the world.
 Multinational ownership:
VEDA TUTORIALS 27
Share in capital of these corporations are held by the citizens of many countries. Buying &
selling of these shares take place at international level.
 Huge financial resources:
Resources of MNC`s are huge. Their stock of capital in millions & billions. So they have large
capital base.
 Varied activities:
The scope of MNC`s are not confined to one activity.
 Oligopoly form of market:
Oligopoly form of market is one in which the number of seller are limited, M+NC`s generally
involve themselves in the production of those goods which have small number of producers.
 Advanced technology:
MNC`s use new & updated production techniques. They spend a lot of money on R&D.
 Brand reputation:
MNC`s enjoy marketing superiority due to well reputed brands, international image & control
over the prices of the product.
 Transfer of resources:
The resources, techniques, managerial & technical know-how, raw materials etc. are transferred
from the parent corporation to its subsidiary companies in other countries.
Merits of MNC`s
Multinationals offer advantages to host countries as well as to the countries of their origin as
explained below: ‐
Advantages of the MNC’s to the host countries: ‐

1. Raise the rate of investment:
MNC’s raise the rate of investment in the host countries andthereby bring rapid industrial growth
accompanied by massive employment opportunities in different sectors of the economy.
2. Facilitate transfer of technology:
Multinationals act as agents for the transfer of technology todeveloping countries and thereby
help such countries to modernize there industries. They remove technological gaps in developing
countries by providing techno‐managerial skills.
3. Accelerate industrial growth:
Multinationals accelerate industrial growth in host countriesthrough collaborations, joint
ventures and establishment of subsidiaries and branches. They facilitate economic growth
through financial, marketing and technological services. MNC’s are rightly called “messengers
of progress”.
4. Promote export and reduce imports:
MNC’s help the host countries to reduce the imports andpromote the exports by raising domestic
production. Marketing facilities at global level are provided by MNC’s due to their global
business contacts.
5. Provide services to professionals:
MNC’s provide the services of the skilled professionalmanagers for managing the activities of
VEDA TUTORIALS 28
the enterprises in which they are involved/interested. This raises overall managerial efficiency or
enterprises connected with multinationals. MNC’s bring managerial revolution in host countries.
6. Facilitate efficient utilization of resources:
Multinationals facilitate efficient utilization ofresources available in host countries. This leads to
economic development.
7. Provide benefits of R and D activities:
Multinationals has enormous resources at their disposal.Some are utilized for R and D activities.
The benefits of R and D activities are passed on to the enterprises operating in the host countries.
8. Support enterprises in host countries:
MNC’s support to enterprises in the host countries inorder to support their own operations
indirectly. This is how MNC’s support enterprises in the host countries to grow. Even consumers
get new goods and services due to the operations of MNC’s.
9. Break domestic monopolies:
MNC’s raise competition in the host countries and thereby breakdomestic monopolies.
Advantages of MNC`s to Countries of their Origin
1) Facilitate inflow of foreign exchange:
MNC’s collect funds from the enterprises of other countries in the form of fees, royalty, and
service charges. This money is taken to the country of their origin. MNC’s make their home
countries rich by facilitating inflow of foreign exchange from other countries.
2) Promote global co‐operation:
MNC’s provide co‐operation to poor or developing countries to develop their industries. The
countries of their origin participate in such international co‐ operation, which is beneficial to all
countries‐ rich and poor.
3) Ensure optimum utilization of resources:
MNC’s ensure optimum utilization of natural and other resources available in their home
countries. This is possible due to their worldwide business contacts.
4) Promote bilateral trade relations:
MNC’s facilitate bilateral trade relations between their home countries and the other countries
with which they have business relations.
Demerits of MNC`s
1) Provide outdated technologies:
MNC’s design the technologies, which can be used in differentcountries. They don’t supply
technology to poor countries for industrial development but for profit maximization. The
technologies designed for profit maximization and not purely for meeting the needs of
developing countries. The technologies supplied may be costly and may be outdated and obsolete
or may not be suitable for the needs of developing countries.
2) Harm the national interests:
The activities of MNC’s in the host countries may be harmful tothe national interests as MNC’s
are solely guided by the profit maximization. They ignore the interests of host countries. MNC’s
even make profits at the cost of developing countries.
3) Charge heavy fees:
MNC’s charge heavy fees and service charges from the enterprises in thehost countries. They
repatriate profits of their subsidiaries to their home countries. This leads the outflow of countries.
4) Develop monopolies:
MNC’s restrict competition and acquire monopoly power in certain areasin the host countries.
VEDA TUTORIALS 29
5) Use resources recklessly:

MNC’s use the resources in the host countries in a very recklessmanner, which leads to fast
reduction of non‐renewable natural resources.
6) Dominate domestic policies:
MNC’s use their money power for political purposes. They takeundue interest in political matters
in the host countries. MNC’s are being openly termed as an extension of the imperialistic forces.
7) Adverse effects on life style/culture in the host countries:
MNC’s create demand for goodsand services in developing countries through advertising and
sales promotion techniques. As a result, people purchase costly/ luxury goods which are not
really useful nor within their capacity to purchase. MNC’s create adverse effects on the cultural
background of many developing countries.
8) Interfere in economic and political systems:
They put indirectly pressures for the formulationof policies that are favorable to them. They even
topple the government in the host countries if its policies are against the MNC’s and their
operations.
9) Avoid tax liabilities:
Transfer pricing enables multinational corporations to avoid taxes bymanipulating prices in the
case of intra company transactions.
10) Lead to brain drain in developing countries:
Multinationals are now entering in countries likeIndia in a bigger way. They hire qualified
technocrats and managerial experts. These people work for a few years in India, acquire
experience and relocated as experts in Singapore, Korea or the United States for managing the
activities of MNC’s. This leads to brain drain in developing countries.
CLASSIFICATIONS OF MNCS
Pyramid Model Umbrella Model Inter/ Conglomerate

MNC MNC MNC
a. Pyramid Model MNC:

These organizations have strong Headquarters and weak subsidiaries. HeadQuarter is rude,
arrogant and gives no powers to its subsidiaries. The decision making capacity is also not
centralized. For E.g. Siemens, Johnson & Johnson, IBM, McDonalds, Marks & Spencer etc. This
model of MNC is very power conscious.
b. Umbrella Model MNC:
This model is very good among others. There is a relationship of mutual helpbetween the Head
quarter and the subsidiary. Ideas and money flow freely.
Making money and using power is not the primary motto of the organizations. Head quarters
give full freedom to the subsidiaries. Both HQ and subsidiaries are very strong. E.g. P & G, Price
water house, KPMG etc.
Problems: These organizations are very image conscious. If anything damages their image,
strong actions are taken for that.
c. Inter conglomerate Model MNC:
 For such organizations, money is main aim.
VEDA TUTORIALS 30
 Investment and Rate of Investments are very high.

 No loyalty towards any subsidiary countries. E.g. HLL, Unilever etc.
 Companies enter any segment and adapt the approach of Multi segments, Multi markets,
Multi products and Multi countries.
 Such companies try to acquire monopoly and take over its competitors there by reducing
competition. E.g. Brooke Bond and Lipton are taken over by HLL.
How MNCs expand their business:
i. International Licensing:
MNC permits the domestic company to use its trademark, brand name ortechnical know‐how for
manufacturing and marketing purpose. The license is given against payment of fee which acts as
source of income to the MNCs. E.g. Brand 555 is the licensed user of British American Tobacco
company. In India it is manufactured by ITC (the licensee). It has the market of 600 cr. And
company pays 5% of the total sales to BAT (licensor) as license fees. The BAT does not provide
any raw material but just the brand name is given. This company took 45 years to establish. The
licensor generally keeps supervisor in the plant of licensee.
ii. International Franchising:
The licensor not only provides the brand name but also the raw material.E.g. McDonalds. (Syrup
– pharmaceutical companies, printed circuit boards to electronic items, essence – cold drink
companies (Pepsi gives its essence to Punjab Agro).
iii. Turnkey projects:
MNCs undertake to complete the whole project and handover the same whenready to the host
country. Such project may be supplied on tender basis. Such projects provide new opportunity to
expand the business activities.
iv. Joint Ventures:
“Like marriage, binding between home country representative and host countryrepresentative, to
set up a project either in home country or host or 3rd country with a commitment of joint risk
taking and joint profit sharing.”
E.g. ModiLuft – Modi and Lufthansa
Successful JVs: Indo Gulf fertilizer – Birla group, Taj group of hotels with Russian government.
v. Collaborations:
It deals with any one part of management function, either finance or technology collaboration. (it
is not possible to have collaboration in consumer products and FMCG. It happens generally with
medicines, technological products.)
E.g. Bajaj – Kawasaki, Hero Honda ,Kinetic
Honda Collaborations are time bound and not
permanent.
FOREIGN DIRECT INVESTMENT (FDI)

A foreign direct investment (FDI) is a controlling ownership in a business enterprise in one
country by an entity based in another country.
Foreign direct investment is distinguished from portfolio foreign investment, a passive
investment in the securities of another country such as public stocks and bonds, by the element
of "control". According to the Financial Times, "Standard definitions of control use the
internationally agreed 10 percent threshold of voting shares, but this is a grey area as often a
VEDA TUTORIALS 31
smaller block of shares will give control in widely held companies. Moreover, control of
technology, management, even crucial inputs can confer de facto control."
The origin of the investment does not impact the definition as an FDI, i.e., the investment may be
made either "inorganically" by buying a company in the target country or "organically" by
expanding operations of an existing business in that country.
Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities,
reinvesting profits earned from overseas operations and intra company loans". In a narrow sense,
foreign direct investment refers just too building new facilities.
The numerical FDI figures based on varied definitions are not easily comparable. As a part of the
national accounts of a country, and in regard to the GDP equation
Y=C+I+G+(X-M)
[Consumption + gross Investment + Government spending + (exports - imports)], where, I is

domestic investment plus foreign investment, FDI is defined as the net inflows of investment
(inflow minus outflow) to acquire a lasting management interest (10 percent or more of voting
stock) in an enterprise operating in an economy other than that of the investor. FDI is the sum
of equity capital, other long-term capital, and short-term capital as shown the balance of
payments. FDI usually involves participation in management, joint-venture, transfer of
technology and expertise.
Stock of FDI is the net (i.e., inward FDI minus outward FDI) cumulative FDI for any given
period. Direct investment excludes investment through purchase of shares. FDI is one example
of international factor movements A foreign direct investment (FDI) is a controlling ownership
in a business enterprise in one country by an entity based in another country. Foreign direct
investment is distinguished from portfolio foreign investment, a passive investment in the
securities of another country such as public stocks and bonds, by the element of "control".
According to the Financial Times, "Standard definitions of control use the internationally agreed
10 percent threshold of voting shares, but this is a grey area as often a smaller block of shares
will give control in widely held companies. Moreover, control of technology, management, even
crucial inputs can confer de facto control." yes that is fact.
Factors influencing the FDI

a. Supply Factor:
Firms invest capital in foreign countries due to lower costs of business in foreign countries.
These includes the following:
 Production costs: companies invest in foreign countries in order to get the benefits of
lower production costs like low labour costs, land prices, commercial real estate’s rents,
tax rates etc.
 Logistics: if the transportation cost form the domestic country to foreign market is high &
/ or the time of transportation of the products to foreign markets is long, then the firms
undertake FDI
 Availability of natural resources: companies locate their production facilities close to the
source of critical inputs.
VEDA TUTORIALS 32
 Availability of quality human resources at low cost: high quality human resources
contribute to high value addition to the product of service. High quality human resources
at low cost attracts FDI
 Access to key technology: in order to have access to existing key technology rather than
developing technologies firms go for FDI
b. Demand Factors:
FDI is selected by companies in order to increase the total demand for their products. These
factors include the following:
 Customer Access: certain business firms particularly fast food service oriented & retail
outlets should locate their operations close to customers.
 Marketing Advantages: companies can enjoy a number of marketing advantaged by
locating their operations in host country like lower marketing costs, accessibility to
hands-on experience regarding customer & market handling, improving customer
services etc.
 Exploitation of competitive advantage: companies which enjoy competitive advantages
through trade mark, brand name, technology etc. go for FDI in order to exploit its
competitive advantages in various foreign markets.
 Customer Mobility: companies which have one or few customer select the FDI strategy
along with their customers.
c. Political Factors:
Companies enter foreign markets through FDI in order to overcome the trade barriers imposed
by the host country &/or to avail the incentives offered by the host governments.
 Avoidance of trade Barriers: Companies establish production facilities in foreign markets
to avoid trade barriers like high export tariffs, quotas etc.
 Economic development incentives: government at local level, state level & national level
offer incentives to attract domestic & foreign investments like low tax rate, employee
training programmes, development of infrastructural facilities etc.
Reasons for FDI

 To increase sales & profits:
Companies invest capital directly in various foreign countries in order to increase sales & profits
because foreign markets offer more attractive business opportunities than domestic markets.
 To enter fast growing markets:
The fast growing markets provide better opportunities to MNC for their business growth.
 To protect foreign markets:
Some MNC`s invest in foreign countries to protect foreign markets.
 To protect domestic markets:
Some MNC`s invest & operate in foreign markets in order to avoid the competition with the
weak domestic firms. They leave the domestic markets to the less competitive domestic firms.
 To consolidate trade blocs:
MNC`s prefer to do business with other member countries of the trade bloc because MNC`s get
preferential treatment in doing business.
 To acquire technological & managerial knowhow:
Sometime, the technological & managerial knowhow in various foreign countries might be
superior to those of domestic country. In cases, MNC`s invest in foreign countries in order to
acquire the superior technological & managerial knowhow.
VEDA TUTORIALS 33
 To reduce costs:
MNC`s invest in foreign countries in order to reduce production costs & various other operations
due to availability of various inputs of raw materials, human resources etc. at lower price in
foreign countries. Domestic companies invest in foreign markets due to lower transportations
costs & energy costs.
Benefits & Costs of FDI

Benefits for Host Countries:
 Access to superior technology
 Increased competition
 Increase in domestic investment
 Access to export markets
 Export promotion strategies
 Generating employment
 Bridging host countries foreign exchange gaps
Costs for the Host Country:

 There is an import of substantial inputs from the investor`s country.
 Companies will hire expatriate managers for management position
 Investing country has controlling technologies, for which it charges a huge technology
fee.
 FDI can even wipe out local firms. Infant industries & other home industries may suffer,
if they cannot compete.
Benefits for Home Country:

 Inward flow of earnings on a long term basis.
 High salaries for employees
 Exposure to foreign markets.
Costs for Home Country:

 Initial capital outflow is very large
 Exports may decrease
 Imports may increase, if FDI is intended to serve the home country
 Employment will be lost to the home country population
 Profits are repatriated abroad. They may not stay in the country re-investment.
 Major tax havens will enjoy the money at the cost of the home country.
VEDA TUTORIALS 34
CHAPTER 2 – PRODUCT PACKAGING &

DISTRIBUTION
Packaging
Packaging is a logistical management function which is performed at factory or the warehouse &
it begins immediately post production.
It is done for –
 Product Protection
 Easy Handling & Movement
 Customer Service
Objective of Packaging
 It leads at attracting customer attention & is convenient for customer to handle the
product.
 Packaging should be light weight to reduce transportation cost especially for long
distance & thus reduces cost of storage
 Facilitates easy handling
 To identify the product
 To give new look to the product
 To assemble & arrange the product in the desired form
 To facilitate the functions of wholesalers & retailers
 To check adulteration
Functions of Packaging
 Physical Packaging: It involves protection from damage, physical efforts, contamination
& protection from environmental conditions. It is generally not economical to provide
absolute protection to the products from all possibility of damage from environmental
conditions. Higher the value of product, more protection it deserves & so on & more
expensive is the packaging. During logistical process packaged products can be damaged
in transportation, handling & storage.
 Environmental Protection: package perishability is a critical factor in design. Keeping the
contents clean, fresh & safe for expected shelf life is a primary function.
 Cube Minimization: The truck is cubed out, that means the truck is full space wise, but
not fully utilized weight wise. Cube minimization is reducing the space occupied by the
product to cut freight charge. Square shaped bottles & oral shaped containers.
 Weight Minimization: The truck is full weight wise but not fully utilized space wise.
Weight minimization is reducing the weight of the consignment to fully utilize the
capacity of the truck
 Facilitating Handling & Using: Fruit juices in tetra packs handling & consumption by
users.
VEDA TUTORIALS 35
 Facilitating Storage & Use: Ink cartridges for printers, floppies, CDs, reusable corrugated
boxes bottles & refill packs.
 Grouping Goods into Convenient Unit for Distribution: Small objects are typically
grouped together in one package for reasons of efficiency.
 Reducing Pilfering Opportunities: Package constructions are more resistant to pilferage &
some have pilfer indicating seals.
 Communications: Packages & labels communicate how to use, transport, recycle or
dispose of packages or products. Content identification – what does this contain? Product,
manufacturer, universal code etc. with high visibility – bar codes & scanners.
Essentials of Good Packaging
 Packaging enhances customer service levels.
 Lighter packaging saves transportation costs & insurance costs.
 Careful package planning helps better utilization of warehousing space
 Reduces damages & losses of the products
 Reduces requirement of special handling
 Environment friendly packs saves disposal costs & improves company image
 Reusability of packs saves costs.
Factors for Package Design in International Marketing
a. Physical Characteristics –
The physical characteristics of the product like physical state, weight stability, fragility, rigidity,
surface finish etc. affect the packaging decisions.
b. Physio-chemical characteristics –
Certain physio-chemical characteristics like the effect of moisture oxygen, light, flame, bacteria,
fungi, chemical action etc. on the product are very important factors to be considered while
making packaging decisions.
c. Language –
For the product package to perform the promotional function, the label must be printed in local
language. The purpose of the package label is achieved when a consumer can read what is
written.
d. Colour –
Consumer preferences for color differs from one country to another. In Islamic countries, green
is supposed to be favouredcolour, Greeks like both white & blue, but there are considered to be
colours of mourning & sorrow in the Far East.
e. Size –
VEDA TUTORIALS 36
Package size should be determined only on finding out the buying characteristics of the
consumers. If the buyers shop regularly at close intervals the size of the package will have to be
smaller. If the target consumer so not have freezers the preferred unit size is likely to be smaller.
f. Economy –
While packing is very important in marketing, it is costly also. There are number of cases where
the packaging cost is more than the content cost. The increasing packaging cost is a matter of
serious concern. Thus, every effort should be made to reduce the packaging costs as much as
possible without impairing the packaging requirements.
g. Containers –
The developed markets especially generally prefer disposable containers. The regulatory
agencies sometimes insist that containers should be made of material which will not have
undesirable environmental effects due to environmental pollution.
h. Length of the Distribution Channel –
A long distribution channel means a longer time between production & find consumptions.
Higher is this time difference, greater is the necessity of providing better & strong packaging.
i. Convenience –
From consumer`s viewpoint, packaging should have the convenience quality. Thus besides,
functional needs a good package should have certain characteristics like easy to open & close,
easy to dispense, easy to dispose off, easy to recycle, easy to identify easy to handle, convenient
to pack, etc.
j. Climate –
A country with humid climate will require different packaging especially for perishable items,
then what is required in a country with a cold climate.
Special Factors in Package Designs

a. Regulations in the foreign countries –
Packaging & labelling may be subject to government regulations in the foreign countries. Some
countries have specified packaging standards for certain commodities. The trend towards
requiring labelling in a country`s native language is growing.
b. Buyers Specifications –
In some cases, buyers like the importers may give the packaging specifications. Which
incorporating specifications, it should also be ensured that packaging satisfies other statutory
requirements.
c. Socio-cultural factors –
While designing the packaging for a product, socio-cultural factors relating to the importing
country like customs, traditions beliefs etc. should also be considered.
d. Retailing Characteristics –
The nature of retail outlet is very important factor in packaging design. In some of the foreign
VEDA TUTORIALS 37
markets, as a result of the spread of super markets & discount houses, a large number of products
are sold on a self-service basis. Therefore, the package has to perform many of the sales tasks &
hence, it must attract attention, describe the product features give the consumer confidence &
make a favourable overall impressions.
e. Environmental factors-
The impact of climatic factors in the place where the product originates, while the product is in
transit & while it is in the market etc. should be considered. The package should be capable of
withstanding the stresses & hazards of handling & transporting, stacking, storing etc. under
diverse conditions.
f. Disposability –
One of the qualities required of a good package is that it should be easily disposed of or recycled.
Essentials of Good Packaging

a. Colour –
Colors have aesthetical value. People in different countries & places attach different meanings to
colour.
b. Language –
The matter printed on the packages must be in English & prominent local language.
c. Size –
If the purchases are made frequently the size of the package must be smaller & vice versa. The
size should be such that it does not create problem to the dealers to stack or store the products on
their shelves.
d. Climate –
A country with humid climate will require different packaging especially for perishable items,
then what is required in a country with a cold climate.
e. Nature of the Product –
The sophisticated product like computers may require a special type of packaging. Fragile items
require special cushioning material.
f. Length of Distribution Channel –
The longer the chain of distribution, the stronger packaging is required. The time gap between
the date of the production & final consumption also determines the type of packaging.
g. Nature of Container –
Some buyers prefer disposal containers while others prefer reusable containers especially in less
developed countries.
h. Trends in Packaging –
New packaging system & material which have become fashionable should be used. Packaging
should reflect improvement in packaging technology, consumer`s life styles & preferences.
i. Mode of Transport –
Packaging requirements depend upon the mode of transport goods by air transport require light
packaging, while ship transport needs packaging in standard size as per the containers size.
j. Cost of Package –
Packaging should not be very expensive. The cost to be incurred on packaging should justify
benefits.
k. Accepted Norms –
Standard norms must be studies before designing a package for overseas markets.
l. Regulations in the Importing Country –
There are certain regulations imposed by importing country. Such regulations must be observed
VEDA TUTORIALS 38
in designing packages.
Labelling
Labelling is the process of fixing labels on the export product. A label is that part of the product
that carries information about the product & the seller. It provides written information about the
product such as features of the product, its composition, price, date of manufacture & expiry,
name of the producer etc. Its main purpose is to inform the consumer essential details in respect
of the product as regards its quantity, quality, how to use & maintain it.
Types of Labels
 Brand Label –
It is a simple label which carries only the brand name.
 Descriptive Label –
It gives details of the product such as features, uses, contents, warnings, directions for use etc.
 Grade Label –
It identifies the quality of the product with a letter, number or word.
Forms of Labels
Labels on the product may assume any of the following forms –
a. Strip of the cloth
b. Card label
c. Adhesive sticker
d. User`s manual
Contents of Label
Every label should contain the following information’s –
 Information to satisfy the legal requirements of a particular country
 Instructions for taking care of the product
 Dimensions of the product
 Instructions for the use of the product
 Country of origin
 Name & address of the manufacturer
 Lot number of the consignment
 Date of manufacture & expiry
Features of a Good Quality Label

 It includes all the relevant information
 It is printed in the language of the importer`s country
 It is appropriate to the product
 It has to be take into account the colour& shape preferences of the prospective buyers.
Purpose of Export Marking

 The exporters should properly mark the export boxes in order to ensure their proper
identification, correct handling & delivery.
 Making on the export boxes is very important part of the logistics for transportation of
VEDA TUTORIALS 39
the goods to the buyers.

 Making on the export boxes not only ensures their safe transportation & delivery but it
also helps in proper handling of cargo by the people.
 Main purpose of marking on export boxes is identification of cargo. Marking facilitates
identification of packages by the buyer to the time of delivery at the destination port.
 It avoids mix of goods with similar consignments at the time of loading & unloading by
the illiterate porters at different ports in route to destinations.
 There are some legal provisions of the customs authorities regarding marking &
importing countries which are to be fulfilled in order to avoid heavy penalties.
 The content of the package may be known without removing the outer packaging case &
unpacking the goods. Thus, marking on packages meant for shipment aids the exporters,
importers, shipping companies & the customs authorities.
Global Distribution Channels

• Distribution‐activities that make products available to customers when and where they
need them.
• A channel of distribution or marketing channel is a group of individuals and
organizations that directs the flow of products from producers and customers.
• Marketing Intermediaries link producers to other intermediaries or to the ultimate users of
the product. Operate between the producer and the final buyer.
Types of utility distribution offers:

1. TIME...when the customers want to purchase the product.
2. PLACE...where the customers want to purchase the product.
3. POSSESSION...facilitates customer ownership of the product.
4. FORM...sometimes, if changes have been made to the product in the distribution channel,
i.e. Pepsi/Coke, concentrate to bottlers.
• Each channel member has different responsibilities within the overall structure of the
distribution of the system; mutual profit/success is obtained through cooperation.
• Distribution (or "Place") is the fourth traditional element of the marketing mix. The other
three are Product, Price and Promotion.
The Nature of Distribution Channels

• Most businesses use third parties or intermediaries to bring their products to market. They
try to forge a "distribution channel" which can be defined as
• "all the organizations through which a product must pass between its point of production
and consumption"
• Why does a business give the job of selling its products to intermediaries? After all, using
intermediaries’ means giving up some control over how products are sold and who they
are sold to.
• The answer lies in efficiency of distribution costs. Intermediaries are specialists in
selling. They have the contacts, experience and scale of operation which means that
greater sales can be achieved than if the producing business tried run a sales operation
itself.
VEDA TUTORIALS 40
Functions of a Distribution Channel

The main function of a distribution channel is to provide a link between production and
consumption.
Organizations that form any particular distribution channel perform many key functions:
 Information Gathering and distributing market research and intelligence‐important for

marketing planning
 Promotion Developing and spreading communications about offers
 Contact Finding and communicating with prospective buyers
 Matching Adjusting the offer to fit a buyer's needs, including grading,assembling and
packaging
 Negotiation Reaching agreement on price and other terms of the offer
 Physical Distribution – transporting & storing goods
 Financing – acquiring & using funds to cover the costs of the distribution channel.
 Risk Taking – assuming some commercial risks by operating the channel
All of the above functions need to be undertaken in any market. The question is ‐ who performs
them and how many levels there need to be in the distribution channel in order to make it cost
effective.
Numbers of Distribution Channel Levels

Each layer of marketing intermediaries that performs some work in bringing the product to its
final buyer is a "channel level". The figure below shows some examples of channel levels for
consumer marketing channels:
In the figure above, Channel 1 is called a "direct‐marketing" channel, since it has no

intermediary levels. In this case the manufacturer sells directly to customers. An example of a
direct marketing channel would be a factory outlet store. Many holiday companies also market
direct to consumers, bypassing a traditional retail intermediary ‐ the travel agent.
VEDA TUTORIALS 41
The remaining channels are "indirect‐marketing channels".
Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. The
consumer electrical goods market in the UK is typical of this arrangement whereby producers
such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet,
Dixons and Currys which then sell the goods to the final consumers.
Channel 3 contains two intermediary levels ‐ a wholesaler and a retailer. A wholesaler typically
buys and stores large quantities of several producers goods and then breaks into the bulk
deliveries to supply retailers with smaller quantities. For small retailers with limited order
quantities, the use of wholesalers makes economic sense. This arrangement tends to work best
where the retail channel is fragmented ‐ i.e. not dominated by a small number of large, powerful
retailers who have an incentive to cut out the wholesaler. A good example of this channel
arrangement in the UK is the distribution of drugs.
Distribution Channels Available for Exporting

I. Direct Channels
a. Foreign Distributor – it is foreign company having exclusive rights to distribute the
company`s product in a foreign country.
b. Foreign Retailers – it is a retailing company firm in a foreign country engaged by the
distributors of the foreign country concerned to deal in & sell the products.
c. State-controlled Trading Company –it is a government company authorized to deal in
& sell the product services of foreign companies.
d. End User – sometimes a manufacturer is able to sell directly to foreign end user with no
intermediaries involved in the process. It is used for expensive industrial products.
II. Indirect Channels

a. Export Broker – it is a domestic company engaged in arranging for export of goods of
domestic companies by charging a fee.
b. Manufacturer`s Export Agent / Sales Representative – it is a firm exclusively engaged
to take up all export activities of a domestic manufacturer. This agent works for a
commission.
c. Export Management Company – the company manages the entire export activities of a
domestic company on contract.
d. Purchasing / Buying Agent – it is an agency firm of a foreign buyer/ importer. Foreign
buying / importing country appoints agents to arrange for buying products from other
countries.
e. Export Merchant – it is a firm engaged in buying the products in domestic country in
order to export to foreign countries on its own.
f. Export Distributors – it is granted exclusive right to represent the manufacturer in
selling the product in foreign countries. He operates either in his own name or
manufacturer1s name.
g. Trading Company – trading companies act as a link between exporting companies &
importing companies.
Factors Influencing Selection of Distribution Channels
VEDA TUTORIALS 42
 Product Characteristics
 Market & Customer Characteristics
 Middlemen Characteristics
 Company Characteristics & Objectives
 Competitors Characteristics
 Environmental Characteristics
VEDA TUTORIALS 43
CHAPTER 3 – PRICING POLICY IN INTERNATIONAL

MARKETS
INTERNATIONAL PRICING
Three basic factors determine the boundaries of the pricing decision ‐ the price floor, or
minimum price, bounded by product cost, the price ceiling or maximum price, bounded by
competition and the market and the optimum price, a function of demand and the cost of
supplying the product. In addition, in price setting cognisance must be, taken of government tax
policies, resale prices, dumping problems, transportation costs, middlemen and so on. Whilst
many agricultural products are at the mercy of the market (price takers) others are not. These
include high value added products like ostrich, crocodile products and hardwoods, where
demand outstrips supply at present.
Pricing Considerations
The price considerations listed below will help an exporter determine the best price for the
product overseas.
• At what price should the firm sell its product in the foreign market?
• What type of market positioning (customer perception) does the company want to convey
from its pricing structure?
• Does the export price reflect the product’s quality?
• Is the price competitive?
• Should the firm pursue market penetration or market‐ skimming pricing objectives
abroad?
• What type of discount (trade, cash, quantity) and allowance (advertising, trade‐off)
should the firm offer its foreign customers?
• Should prices differ by market segment?
Pricing?
• What pricing options are available if the firm’s costs increase or decrease? Is the demand
in the foreign market elastic or inelastic?
• Are the prices going to be viewed by the foreign government as reasonable or
exploitative?
• Do the foreign country’s antidumping laws pose a problem?
As in the domestic market, the price at which a product or service is sold directly determines a
firm’s revenues. It is essential that a firm’s market research include an evaluation of all of the
variables that may affect the price range for the product or service. If a firm’s price is too high,
the product or service will not sell. If the price is too low, export activities may not be
sufficiently profitable or may actually create a net loss.
The traditional components of determining proper pricing are costs, market demand, and
competition. Each of these must be compared with the firm’s objective in entering the foreign
market. An analysis of each component from an export perspective may result in export prices
that are different from domestic prices.
It is also very important that the exporter take into account additional costs that are typically
VEDA TUTORIALS 44
borne by the importer. They include tariffs, customs fees, currency fluctuation transaction costs
and value‐ added taxes (VATs). These additional costs can add substantially to the final price
paid by the importer, sometimes resulting in a total of more than double the U.S. domestic
price.
Factors Determining Price

There are three factors determining the prices –
a. Foreign Market Objectives / Competition

An important aspect of a company’s pricing analysis is deter‐ mining market objectives. For
example, is the company attempting to penetrate a new market, looking for long‐term market
growth, or looking for an outlet for surplus production or outmoded products? Many firms view
the foreign market as a secondary market and consequently have lower expectations regarding
market share and sales volume. This naturally affects pricing decisions.
Marketing and pricing objectives may be general or tailored to particular foreign markets. For
example, marketing objectivesfor sales to a developing nation where per capita income may be
one tenth of that in the United States are necessarily different from the objectives for Europe
or Japan.
b. Costs
The computation of the actual cost of producing a product and bringing it to market is the core
element in determining if exporting is financially viable. Many new exporters calculate their
export price by the cost‐plus method. In the cost‐plus method of calculation, the exporter starts
with the domestic manufacturing cost and adds administration, research and development,
overhead, freight forwarding, distributor margins, customs charges, and profit.
The effect of this pricing approach may be that the export price escalates into an uncompetitive
range. Marginal cost pricing is a more competitive method of pricing a product for market entry.
This method considers the direct, out‐of‐pocket expenses of producing and selling products for
export as a floor beneath which prices cannot be set without incurring a loss. For example,
additional costs may occur due to product modifica‐tion for the export market that
accommodates different sizes, electrical systems, or labels. On the other hand, costs may
decrease if the export products are stripped‐down versions or made without increasing the fixed
costs of domestic produc‐tion.
Other costs should be assessed for domestic and export products according to how much benefit
each product receives from such expenditures. Additional costs often associated with export
sales include:
• Market research and credit checks;

• Business travel;
• International postage, cable, and telephone rates;
• Translation costs;
• Commissions, training charges, and other costs involving foreign representatives;
• Consultants and freight forwarders; and
• Product modification and special packaging.
After the actual cost of the export product has been calculated, the exporter should formulate an
VEDA TUTORIALS 45
approximate consumer price for the foreign market.
c. Market Demand
For most consumer goods, per capita income is a good gauge of a market’s ability to pay. Some
products may create such a strong demand such as popular goods like Levis, that even low per
capita income will not affect their selling price. Simplifying the product to reduce its selling
price may be an answer for the exporter to most lower per capita income markets. The firm must
also keep in mind that currency fluctuations may alter the affordability of its goods. Thus,
pricing should try to accom‐modate wild changes in the U.S. and/or foreign currency. The firm
should anticipate the type of potential customers. If the firm’s primary customers in a developing
country are expatriates or belong to the upper class, a higher price might be feasible even if the
average per capita income is low.
Competition In the domestic market, few companies are free to set prices without carefully
evaluating their competitors’ pricing policies. This situation is true in exporting, and is further
complicated by the need to evaluate the competition’s prices in each potential export market.
If there are many competitors within the foreign market, the exporter may have little choice but
to match the market price or even underprice the product or service in order to establish a market
share. On the other hand, if the product or service is new to a particular foreign market, it may
actually be possible to set a higher price than in the domestic market.
Export Pricing
Objectives of Export Pricing
a. Survival –
An exporter faces competition not only form his fellow exporters but also from other countries
exporters. In such competition markets, one of the marketing tools which can make exporters
survive in the competition pricing. Making price competitive, thereby earning less profit in order
to survive could be one of the pricing objectives. Keeping prices competitive & maintaining low
prices is a short-term objective, as every exporter aims as increasing the profits at the later stage.
b. Maximum Sales Growth –
Depending upon the competition & sensitivity of market to price, the final pricing decision needs
to be taken. There are two alternatives available for this purpose:
 Setting lower price to overseas buyers leads to higher sales volume, thereby earning more
profits. For this purpose, the market should be highly price sensitive. Such low prices
discourages competition thereby further increasing sales.
 Setting higher prices to indicate superior quality of the product. Such indication leads
consumers to rate products higher compared to that of competitors. Due to this
perception, sales volume of the product increases.
c. Maximum Current Profits –
An exporter may determine his objective of securing maximum profits. A price which would
generate. Such a profit is to be established. For this purpose, it is necessary to have complete
information of cost & demand. A price which can generate maximum cash flows or a higher rate
of returns is determined. But this objective is more of a short-term nature & bases its
performance on profits which may turnout to be dangerous in export markets.
d. To Establish Leadership –
To establish not only superior quality image but also emphasize on leadership or number one
position in the export markets. By charging a higher price & making a noticeable difference in
VEDA TUTORIALS 46
the price as compared to that of competitors this objective can be fulfilled.
Importance of Export Pricing

 Customers are extremely sensitive about quality & price. If price is not set properly,
success of the firm comes in danger.
 Volume of sales & market demand depends on pricing policy
 Competitive capacity in foreign market depends on pricing fixed
 It decides the success & failure of export efforts
 It builds goodwill in the market
 It is one of the important components in marketing mix
 It helps in capturing foreign markets
 It enables to achieve objectives of the firm
 It develops brand image & product differentiation
 It increases / affects profitability of the firm
 Helps in market penetration by keeping them low initially & gradually raising them
 Becomes a promotional tool
 Not only helps in increasing profits & raising revenue but also in increasing market share
of the product
 Helps by having good profitability to undertake diversification, R&D etc.
Export Costing Methods

a. Cost-based Pricing / Cost-plus Pricing –
In this methods, the price includes a certain percentage of profit margin on the sum total of the
full cost production, marketing costs & on allocation of overheads. That is,
Price = [Fixed Cost + Variable Cost + Overheads + Marketing Costs] + Specified
Percentage of Total Costs
Advantages –
 It covers all the costs
 It is simple method & easy to understand
 It is designed to provide the target rate of margin
 Generally, it is rational & widely accepted method.
Disadvantages –
 It ignores the price elasticity of demand
 It imparts inbuilt inflexibility to pricing decisions
 Sometimes opportunity to charge a high price is foregone
 It would not be helpful for some of the objectives or task like market penetration, fighting
competition etc.
 Cost calculations are based on pre-determined level of activity.
 If the costs of the firm are higher than its competitors, this method would render the firm
incompetitive in relation to price.
b. Market Oriented Pricing Method –

It allows the prices to be changed as per the changes in market conditions. The product may be
priced high, when demand conditions are very good & price may be lowered, when the market is
sluggish, it helps in increasing sales.
VEDA TUTORIALS 47
Advantages –
 It is very flexible policy
 Price is based on market conditions
Disadvantages –
 It is difficult to estimate what the traffic will bear
 There is a possibility of ignoring the elasticity of demand factor
c. Following competitors –
Many firms follow the dominant competitors particularly the price leader is setting the price. The
price leader is the firm which initiates the price trends.
The important alternatives while following the competitors are –
 Setting the price of the same level as that of the competitor
 Setting the price below that of the competitor.
d. Pricing higher than that of the competitors –

The choice of the alternatives has to be based on such factors as the comparative quality of the
product, the image & reputation of the firm, the uniqueness or similarity of the product etc.
Advantages –
 It is a very simple method
 It follows the main market trend
 It has relevance to the competitive standing of the firm
Disadvantages –
 Pricing objectives of the firm could be different from that of the competitors
 Cost factors of the followers may not be similar to that of the competitors
 Sometimes the competitors may initiate price change for wrong reasons
 If the competitor`s price decisions are unrealistic, the follower will also be going wrong
on the price.
e. Negotiated Prices –
Deciding the price by negotiation between the seller & the buyers is common. This is popular in
government & institutional purchases.
Advantages –
 It has great flexibility
 It has the opportunity to put across & understand the points of both the buyer & the seller.
Disadvantages –
 If the bargaining power of the seller is weak, he may not be able to get a good price.
f. Customer Determined Price –

In number of cases, the foreign buyer specifies the price at which he is prepared to buy the
product. Whether a price quotation given by the buyer will be acceptable to seller or not, will
depend on the factors like the structure, conditions of business, objectives etc.
g. Break-even Price (BEP)

Number of units that must be sold in order to produce a profit of zero (but willrecover all
associated costs). In other words, the break‐even point is the point at which your product stops
VEDA TUTORIALS 48
costing
• you money to produce and sell, and starts to generate a profit for your company.
The graphic method of analysis (below) helps you in understanding the concept of the break‐
even point. However, the break‐even point is found faster and more accurately with the
following formula:
Q = FC / (UP ‐ VC) where:
Q = Break‐even Point, i.e., Units of production (Q),
FC = Fixed Costs,
VC = Variable Costs per Unit
UP = Unit Price
Therefore,
Break‐Even Point Q = Fixed Cost / (Unit Price ‐ Variable Unit Cost)
h. Marginal Cost Pricing –

It is common in evaluating the profitability of new orders In case of firms with excess (idle)
capacity. In this method the relevant cost considered for pricing is the variable cost, fixed cost is
excluded from the calculation of the cost of the product. An order which may appear to be
unprofitable may appear to be profitable, if marginal cost approach is adopted.
The key to marginal costing is to view home sales & export sales as two separate components &
to consider export sales as extra sales. If exporter recovers his fixed costs from his home sales,
he can consider extra cost of the additional production to be only the variable cost involved. This
means the break-even price can be for lower than if the price were calculated on the basis of both
fixed & variable costs.
Advantages –
 It may help the firm in market penetration
 It will make the firm price competitive
 It may help the firm to increase its total sales turnover
 It is a realistic approach to evaluate an export order, when there is idle capacity
Disadvantages –
 It is normally advisable only when idle capacity with no opportunity cost exists
 Once the products are sold at a low price, it will be difficult to increase it substantially
VEDA TUTORIALS 49
later
 It has limitations in applying to export-oriented units
i. Transfer Pricing –
Transfer pricing is more appropriate to those organisations with decentralized profit centres.
Transfer pricing is used to motivate profit center managers, provide divisional flexibility and
also further corporate profit goals. Across national boundaries the system gets complicated by
taxes, joint ventures, attitudes of governments and so on. There are four basic approaches to
transfer pricing.
• Transfer at cost: few practice this, which recognizes foreign affiliates contribute to
profitability by operating domestic scale economies. Prices may be unrealistic so this
method is seldom used. Otherwise it is basically used for increasing corporate
profitability.
• Transfer at direct cost plus overheads and margin. Similar to that in transfer at cost.
Profits are show at every stage.
• Transfer at a price derived from end market prices: very useful strategy in which
market based transfer prices and foreign sourcing are used as devices to enter markets too
small for supporting local manufacturers. This gives a valuable foothold. Prices are
required to be competitive in the international market.
• Transfer at an "arm's length": this is the price that would have been reached by
unrelatedparties in a similar transaction. The problem is identifying a point "arm's length"
price for all products other than commodities. Pricing at "arm's length" for differentiated
products results not in a specific price but prices, which fall in a pre-determinable range.
j. Dumping –
It is the sale of an imported good or product at a price lower than normally charged indomestic
market or country of origin than the country of sale. It is usually done by organizations to capture
the market share. There are anti-dumping legislations used by the government to protect local
industries since it affects development of local economy, as it cannot be predicted. To be
convicted, both price discrimination and injury must be proved.
Elements of Costs
I. Export Price Based on Marginal Costs –
a. Direct Costs –
Variable costs
o Direct material
o Direct Labour
o Variable Production Overheads
o Variable Administrative Overheads
b. Other Costs Directly Related to Exports –
Selling costs – advertising support to importers abroad
Special packing, labelling etc.
Commission to Overseas Agent
Export Credit Insurance
Bank Charges
Inland Freight
VEDA TUTORIALS 50
Forwarding Charges
Inland Insurance
Port Charges
Export Duties, if any,
Warehousing at Port, if required
Documentation & Incidentals
Interest on funds involved / cost of deferred credit
Cost of after-sales service including free parts supply
Consular fees
Pre-shipment inspection & loss on rejects
 Total Direct Costs -
Less: Duty Drawback & benefits from sale of import licenses, if any,
Direct Cost = F.O.B. price at marginal cost
Freight (Volume or weight whichever is higher)
Insurance (C.I.F. price based on marginal costs)
II. Export Price Based on Full Costs –

 Direct costs
 Fixed Costs / Common Costs
Production Overheads
Administrative Overheads
Publicity & Advertising (general)
F.O.B. Price (based on full costs)
 Freight (Volume or weight whichever is higher)
 Insurance C.I.F. Price (Based on full cost)
Factors Influencing Pricing Policy

 Costs –
The fixed & variable cost of production & transportation & marketing costs influence the pricing
policy. Although, in the short-run in certain situations the export price may be lower than the full
costs, in the long-run a firm which exports a substantial share of its production is normally
expected to cover full costs.
 Competition –
A monopolistic normally has high degree of freedom in pricing. That is why patented products
could be sold at high prices. The more severe the competition, the lower the pricing freedom.
 Product Differentiation –
If the company`s product is highly differentiated, or, if the product has some strong unique
features the company will have more freedom to manipulate the price.
 Exchange rate –
The exchange rate of the currency may also influence pricing. For example, if the rupee is
depreciating, the Indian exporters would be constrained to quote high dollar prices because an
appreciation of the rupee means a fall in the rupee realization for every dollar earned by
exporters.
 Image –
The price may also depend upon the image of the company & the country. It may be easier for a
well- reputed firm to change a higher price than others. Pricing freedom also depends on the
VEDA TUTORIALS 51
image abroad of the country.

 Government Factors –
Export pricing is sometimes influenced by government policies & regulations. The government
influence on export pricing may take any one or more of the following forms –
a. Regulations of Margins –
Sometimes the government may dictate the margins or mark ups by the producers or distributors.
The marketers, thus, lose, by & large, the freedom in pricing.
b. Price floors & ceiling –
There are number of cases in different countries involving price floor & ceilings. When there are
such regulations, the prices shall not fall below the floor price or shall not exceed the price
ceiling, as the case may be.
c. Subsidies –
With a view to make exports price competitive, government sometimes grant subsidies. A
subsidy enables the seller to reduce his price to extent of the subsidy without incurring any loss.
d. Tax Concessions & Exemptions –
In countries like India, the export sector enjoys certain tax benefits which help to quote a lower
price for exports.
e. Other incentives –
A number of other incentives & assistances like cheap credit, supply of raw materials etc. at
regulated prices, marketing assistances etc. may also influence export prices.
f. Government Competition –
Government may compete directly in the market to control prices.
g. Taxes –
Taxes like custom duties, also influence export pricing. Government often impose countervailing
import duties to combat dumping, export subsidy etc.
h. International Agreements –
International prices of certain commodities are sought to be controlled by means of international
commodity agreements like quotas agreements, buffer stock agreements & bilateral/multilateral
contracts.
Export Pricing Strategies

 Skimming Price strategy –
Skimming price strategy is strategy in which the manufacturer charges a veryhigh price in the
initial stage of the PLC from the consumers. The exporter has also to incur very high
promotional expenses since the product the newly introduced in the market. In this strategy, the
exporter keeps his profit margin very high. This type of strategy is used in case of fashionable
and novelty items, perishable items and consumer durables which are introduced for the first
time in the market. This type of strategy is particularly useful if the exporter enters in the
international market for a short term and his main motive is profit maximization. It is not
possible for any exporter to follow this export pricing strategy for a long time. It is used to match
the demand and supply of early adopters and reinforce customer’s perception of high value
products.
Types of Skimming Price Strategy –
a. Rapid Skimming Price – where high prices are charged & the product is promoted
with heavy promotional expenditure
b. Slow Skimming Price –where high prices are charged & there is limited promotional
VEDA TUTORIALS 52
effort to promote the product.

•
• Penetration Price strategy –
In this type of pricing strategy, the exporter charges a lower price in theinitial stages since the
main objective of the exporter is to capture a large market share and create brand loyalty among
the consumers. In the later stages, the exporter raises the prices of the product and recovers the
losses suffered in the initial period. This pricing strategy can be followed in case of products
where the exporter is assured of large market and continuous sale. It is used by organizations
who have non differentiated products or have large marketing systems in place.
Types of Penetration Price Strategy –
a. Rapid Penetration Price Strategy – where low prices are charged & the product is
promoted with heavy promotional expenditure
b. Slow Penetration Price Strategy – where low price is charged & there is limited
promotional expenditure to promote the product.
•
• Flexible Pricing Strategy –
In this strategy, different prices are charged for the same product to different consumers.
• Trail Pricing –
This strategy is followed at the launch of a new product, under this strategy, low prices are fixed
for a limited period, in order to get consumer acceptance. This strategy is alternate to giving
away samples.
 Differential Pricing Strategy –
This strategy refers to charging different prices for different markets depending upon the various
factors prevailing in these markets. The exporters may charge different prices for domestic
market & for overseas market due to various factors like documentations, tariffs, competition,
buying behavior, etc.
• Transfer Pricing Strategy –
It refers to pricing of goods transferred by one subsidiary to another within the corporation. Due
to this, profits of the subsidiary are transferred to another or to parent company.
• Standard Export Pricing Strategy –
In this the exporter may charge the same price for all export markets.
• Follow the Leader Pricing Strategy –
This policy refers to fixing the price very close to the price charged by the leader.
• Probe the Reaction Pricing Strategy –
This refers to charging higher price in the exporters market to the probe reactions of the
consumers. The price is adjusted based on the consumer reactions.
• Differential Trade Margins Pricing Strategy –
In this the exporters gives different types of discounts or trade margins,
• Escalation Pricing Strategy –
Export prices are generally much higher than the prices prevailing in the domestic market for the
dame • product.
Break-even Price (BEP)

A firm's break‐even point occurs when at a point where total revenue equals total costs.
Break‐even analysis depends on the following variables:
VEDA TUTORIALS 53
 Selling Price per Unit: The amount of money charged to the customer for each unit of a
product or service.
 Total Fixed Costs: The sum of all costs required to produce the first unit of a product.
This amount does not vary as production increases or decreases, until new capital
expenditures are needed.
 Variable Unit Cost: Costs that vary directly with the production of one additional unit.
 Total Variable Cost The product of expected unit sales and variable unit cost, i.e.,
expected unit sales times the variable unit cost.
 Forecasted Net Profit: Total revenue minus total cost. Enter Zero (0) if you wish to find
out the number of units that must be sold in order to produce a profit of zero (but will
recover all associated costs). Each of these variables is interdependent on the break‐even
point analysis. If any of the variables changes, the results may change.
 Total Cost: The sum of the fixed cost and total variable cost for any given level of
production, i.e., fixed cost plus total variable cost.
 Total Revenue: The product of forecasted unit sales and unit price, i.e., forecasted unit
sales time’s unit price.
Number of units that must be sold in order to produce a profit of zero (but willrecover all
associated costs). In other words, the break‐even point is the point at which your product stops
costing
• you money to produce and sell, and starts to generate a profit for your company.
The graphic method of analysis (below) helps you in understanding the concept of the break‐
even point. However, the break‐even point is found faster and more accurately with the
following formula:
Q = FC / (UP ‐ VC) where:
Q = Break‐even Point, i.e., Units of production (Q),
FC = Fixed Costs,
VC = Variable Costs per Unit
UP = Unit Price
Therefore,
VEDA TUTORIALS 54
Break‐Even Point Q = Fixed Cost / (Unit Price ‐ Variable Unit Cost)
 Break-even price is the price for a given level of output at which there is neither any loss
nor profit. In other words, if the total costs of productions & selling a particular quantity
of the product are divided by the quantity, we get the break-even price.
 It helps us to understand the minimum sales required to avoid any loss & also profit or
loss or loss of various sales level.
 The difference between the BEP & expected capacity utilization is the margin of safety.
 Lower the BEP higher is the chance of the project making profits & lower is the risk of
incurring loss.
 If the BEP is very high, the risk will also be very high.
Calculation of BEP
a. In terms of physical units –
The number of units required to be sold to achieve the BEP can be calculated using the following
formula –
BEP = FC / (SP - VC) = FC / C
Where,
FC = Fixed Costs
VC = Variable Costs
SP = Selling Price
C = Contribution per unit.
b. In terms of Sales Volume –

BEP in terms of sales volume can be calculated using the following formula –
BEP = SP * [FC / (SP – VC)]
c. BEP for Pre-determined Profit

If the firm wants to fix the SP in such a way as to get a certain fixed amount of total profit for a
given volume, for estimating price which will yield this level of profit, what it has to be is to add
this profit figure to the fixed cost & then calculate the BEP.
BEP = (FC + P + VC / Q)
Value Added Tax (VAT)

VAT is a tax on consumption, it is a multi-point tax. It is levied & collected at the time of
production, at each stage of exchange. Every seller has to charge VAT at a certain rate, at the
time of sale transaction & also account for it to the government. Whenever, transactions take
place, the seller deducts VAT which he had paid at the time of purchase. Therefore, a seller pays
the tax only to the extent of the added value. VAT is applicable to all goods & services. VAT
helps the exporter to improve its competitive ability. Under VAT goods are exported tax free
because the exporter gets full rebate on VAT paid.
Advantages –
 VAT Applies to all goods & services equally
 VAT affects the price structure to the minimum extent as its rates are low.
 There is a lesser scope for evasion since a check can be affected at the point of sale which
is invariably the point of purchase of another dealer.
VEDA TUTORIALS 55
 VAN can encourage exports. The tax is identifiable & an exporter can get full rebate on
VAT paid. Goods are exported tax free under VAT.
 VAT levy provides a lot of relevant information on business inputs & outputs. It imposes
an accounting discipline on trade & gives reliable statistical information.
Modified Value Added Tax (MODVAT)

The MODVAT scheme primarily aims at avoiding the “cascading effect” of duty-on-duty & at
ensuring that duty is paid only on the value added at each stage of production, instead of on the
gross value including the duty paid in the earlier stages.
Purpose – it was introduced in order to avoid a double taxation on the inputs & the finished
goods.
Preconditions to be fulfilled –
 Final product must be dutiable
 Both final & capital goods must be specified for eligibility under the Table of Rule 57Q
 Capital goods should be duty paid with an evidence of payment.
Salient Features –
 No prior permission is required, but 57G declaration is must
 No need of filling form D-3 for an intimation of receipt of input
 It is available for both basic excise duty & special excise duty
 Removal of inputs for home consumption or export under Rule 57F(3)
 Adjustment of the credit is allowed.
MODVAT has been replaced by CENVAT (Central Value Added Taxes)
VEDA TUTORIALS 56
CHAPTER 4 – OVERSEAS MARKET SELECTION

Methods of Market Entry
A. Exporting
Exporting is the most traditional and well established form of operating in foreign markets.
Exporting can be defined as the marketing of goods produced in one country into another.
The advantages of exporting are:

• manufacturing is home based thus, it is less risky than overseas based
• gives an opportunity to "learn" overseas markets before investing in bricks and mortar
• reduces the potential risks of operating overseas.
The disadvantage is mainly that one can be at the "mercy" of overseas agents and so the lack of
control has to be weighed against the advantages. For example, in the exporting of African
horticultural products, the agents and Dutch flower auctions are in a position to dictate to
producers.
Besides exporting, other market entry strategies include licensing, joint ventures, contract
manufacture, ownership and participation in export processing zones or free trade zones.
The two methods of entry in to foreign markets are Direct & Indirect.
I. Direct Exporting
In direct exporting, manufacturer takes upon himself the task of managing the export sales. Thus
there is more involvement of the manufacturer in the export business.
In this the manufacturer`s own staff works with more dedication since their own prosperity
depends upon the success of the export effort. The employees are more knowledgeable about the
company specific sales methods. They can be compensated as per the long-term overall interests
of the whole enterprise.
Forms of Direct Exporting

a. Built-in Export Department –
This is the least expensive methods & the simplest. There is an export manager helped by a few
clerks. The export managers is mainly responsible for getting orders. After the orders is received,
the remaining work involved in fulfilling it, is handled by other regular departments.
b. Self-contained Export Departments –
It has its own staff. It can function independently & there is no friction with other departments of
the company.
c. Separate Export Company –
If the business grown satisfactorily the firm may decide to have a separate company to handle
export business. This will make it possible to have a unified control over export business. It is
also possible to calculate the costs & profits of the export operations more precisely. The export
company can a so avail itself easily of the concessional export financing facilities. They can
purchase products from outside & can handle more complete line of products.
d. Joint Marketing Groups –
A group of companies manufacturing similar or closely related products may pool their resources
& cultivate foreign markets jointly. They may co-operate first by participating together in
overseas trade fair & shoring the expenses or by publishing jointly a catalogue of products
VEDA TUTORIALS 57
&distributing it abroad. Or they may share an agent in one or in several areas. This co-operation
can be completely informal &adhoc. Later, a joint enterprise formally organized can be set up.
The group can assist in solving production problems, in quality control & in product adaptation.
It can mount an intensive advertising & sales promotion campaign in chosen market abroad. It
can employ first class agents.
Merits of Direct Exporting

 The manufacturer is in a position to get better knowledge of the buyer requirements &
can adapt his product accordingly.
 He has complete control over the prices charged for his product.
 He can take care of the after-sales service requirements in a much better way
 Intensive cultivation of the market is made possible
 The chain of distribution is shortened leading to lower price for ultimate consumers
 If his product is successful in foreign market, he builds up name, reputation & goodwill
 By exporting directly, manufacturer gets greater expertise in international marketing
 Information on marketing opportunities & trends is made available, competitors
observed, product acceptance, evaluated & other invaluable intelligence collected.
Demerits of Direct Exporting

 As manufacturer has to invest in manufacturing activities & marketing activities he
requires more investments.
 Direct or manufacturer exporter is exposed to more risks. He has to bear all
manufacturing & marketing risks.
 Direct exporter has to look after manufacturing & marketing activities. Thus, direct
exporter, finds it difficult to concentrate on either of the areas, leading to lack of
specialization in those activities.
 At times, direct exporting is expensive, as manufacturer has to bear the production
overheads & marketing or distribution overheads. The direct exporters may not be in a
position to enjoy the economies of distribution.
 Small manufacturers may find it difficult to undertake direct exporting due to limited
exporting.
 In direct exporting, manufacturer has to directly contact the overseas buyers & negotiate
all aspects of the deal. This task is difficult, especially when the exporter does not have
sufficient background information about the buyers.
 In direct exporting, manufacturer has to master aspects such as technical aspects of
documents, foreign shipping, financing, language etc. In case of direct exporting, all such
technical details are looked after by the middlemen.
II. Indirect Exporting

Indirect way of exporting is almost equivalent to domestic sales. The company will sell its
product in its own country to another party which will take the responsibility of actual
transportation. This can be done in three ways –
a. Selling to a Merchant Exporter or Export House in India –
Merchant exporter is free to decide what he will buy, where he will buy & at what price.
Merchant exporters are usually well financed & maintain their branches at port towns & in
VEDA TUTORIALS 58
important centres abroad. They usually have a system of gathering market information & keep
close watch on market trends. The nature of their business makes it possible for them to assess
marketability of products & prospects of their success. They often specialize in certain
commodities or in certain areas. This method of exportation is useful, when the company is small
& therefore, not in position to start export department to look after export sales.
b. Selling to Visiting / Resident Buyers –
Many big foreign companies have their resident buying representatives in India & other
countries who are entrusted with the job of procurement. Some other companies regularly send
buying terms for the same purpose. The amount of business that is conducted by such buying
operations is substantial. The manufacturer is to burdened with the problem of actual
exportation. Buyers often co-operate with producers in developing countries to adapt products.
c. Selling through Overseas Import Houses –
The existence of large import houses in some countries allows an alternative form of entering
such markets. Selling through trading houses automatically ensures that the goods will reach the
important distributors & through them down the distribution system. Due to complicated
distribution system, smaller companies & bigger companies have started export marketing
through trading houses.
Merits of Indirect Exporting

 The merchant exporter takes care of all the botheration involved & assumes all sales &
credit risks
 Export merchants usually pay manufacturers against purchase of their goods, hence their
capital is not tied up.
 Firm does not have to spend money on market research or on setting up branches abroad.
 As they are frequently approached by buyers from abroad, demand is concentrated upon
them. Thus, merchant exporter may provide sales opportunities in otherwise out of the
way markets
 Manufacturer is free to concentrate on production.
Demerits of Indirect Exporting

 There is not publicity about brand name & the seller does not enjoy any goodwill.
 This method is inappropriate in case of products which are either highly specialized or
custom built.
 Merchant exporter`s profit or commission paid to export brokers increases the cost to
ultimate user & reduces the return to manufacturers.
 Export merchant may not be available for all markets
 Export merchants may concentrate on products which offer them the greatest profit.
Small manufacturer’s products may be ignored.
Direct Exporting Indirect Exporting

Meaning Exporting firm exports goods Exporting firm exports its
through its agents or by products through
opening branches in the target intermediaries.
markets.
Risks More risks as the exporter has Less risks as manufacturer
VEDA TUTORIALS 59
to bear production & has to bear only the

marketing risks production risks
Investments Requires more investment for Less investment is required
manufacturing & distribution by the manufacturer only for
manufacturing
Reputations Generate goodwill in foreign May not generate goodwill in
markets foreign markets. Reputation
is earned by intermediaries.
Incentives Can claim different incentives May not be able to claim
offered by the government export incentives unless
export documents are in his
name.
Control Exporter has direct control Manufacturer has no direct
over packaging, pricing, control over packaging,
promotion etc. pricing, promotion etc.
Overheads Exporter has to bear Manufacturer has to bear only
production & distribution production overheads
overheads
First Hand Information Manufacturer exporter gets Manufacturer exporter may
firsthand information, on the not get firsthand information
importers requirements. since he has to depend on
intermediaries.
Specialization It lacks specialization since t Manufacturer can specialize
requires concentration on only on manufacturing.
both production &
distribution
Suitable It is more suitable & feasible It is more suitable & feasible
for large-scale exporters for small-scale exporters
Prices Exports can fetch high prices Exports can fetch low prices
if sold directly by due to intermediaries
manufacturers margins.
B. Licensing
Licensing is defined as "the method of foreign operation whereby a firm in one country agreesto
permit a company in another country to use the manufacturing, processing, trademark, know‐
how or some other skill provided by the licensor".
It is quite similar to the "franchise" operation. Coca Cola is an excellent example of licensing. In
Zimbabwe, United Bottlers have the license to make Coke.
Licensing involves little expense and involvement. The only cost is signing the agreement and
policing its implementation.
Advantages –
 Good way to start in foreign operations and open the door to low risk manufacturing
relationships
 Linkage of parent and receiving partner interests means both get most out of marketing
effort not tied up in foreign operation and
VEDA TUTORIALS 60
 Options to buy into partner exist or provision to take royalties in stock.

 Licensing mode carriers’ low financial risk of the licensor.
 Licensor can investigate the foreign market without much efforts on his part
 Licensee gets the benefits with less investment on R&D
 Licensee escapes himself from the risk of product failure.
Disadvantages –
 Limited form of participation ‐ to length of agreement, specific product, process or
trademark
 Potential returns from marketing and manufacturing may be lost
 Partner develops know‐how and so license is short
 Licensees become competitors ‐ overcome by having cross technology transfer deals and
 Requires considerable fact finding, planning, investigation and interpretation.
 Both parties have the responsibility to maintain the product quality & promoting the
product.
 Costly & tedious litigation may crop up & may hurt both the parties & the market
 There is scope for misunderstanding between parties despite the effectiveness of the
agreement
 The problem of leakage in the trade secrets of the licensor
 Licensee may sell the product outside the agreed territory & after the expiry of the
contract.
 Those who decide to license ought to keep the options open for extending market
participation. This can be done through joint ventures with the licensee.
C. Franchising
It is a form in which a parent company (the franchiser) grants another independent entity (the
franchisee) the right to do business in a prescribed manner. The right can take form of selling the
franchisor`s products “using its name, production, marketing techniques or general business
approach.”
Advantages –
 Franchisor can enter global market with low investment & low risks
 Franchisor can get the information regarding the markets, culture, customs &
environment of the host country
 Franchisor learns more lessons from the experiences of the franchisees which he could
not experience from the home country`s market.
 Franchisee can also start a business with low risk as he selects an established & proven
product & operating system
 Franchisee gets the benefits of R&D with low cost
 Franchisee escapes from the risk of product failure.
Disadvantages –
 International franchising may be more complicated than domestic franchising
 It is difficult to control the international franchisee
 Franchising agents reduce the market opportunities for both the franchisor & franchisee
 Both the parties have the responsibilities to main product quality & product promotion
 There is a problem of leakage of trade secrets
VEDA TUTORIALS 61
 There is a scope for misunderstanding between parties.
D. Joint ventures
Joint ventures can be defined as "an enterprise in which two or more investors share ownership
and control over property rights and operation".
Joint ventures are a more extensive form of participation than either exporting or licensing. In
Zimbabwe, Olivine industries has a joint venture agreement with HJ Heinz in food processing.
Advantages –
 Sharing of risk and ability to combine the local in‐depth knowledge with a foreign partner
with know‐how in technology or process
 Joint financial strength
 May be only means of entry and
 May be the source of supply for a third country.
 They spread the risk between or among partners
 They provide synergy due to combined efforts of varied parties
Disadvantages –
 Partners do not have full control of management.
 May be impossible to recover capital if need be.
 Disagreement on third party markets to serve and partners may have different views on
expected benefits.
 If the partners carefully map out in advance what they expect to achieve and how, then
many problems can be overcome.
E. Mergers & Acquisitions (M&A)

It provides instant access to markets & distribution network. As distribution is one of the most
difficult areas in international marketing this is often a very important consideration for M&A.
Advantages –
 Companies immediately get the ownership & control over the acquired form`s assets,
brand name & goodwill.
 The company can formulate international strategy & generate more revenues
 If the industry already reached the stage of optimum capacity level or over capacity level
in the host country, then their strategy helps the economy of the host country.
Disadvantages –
 This strategy adds no capacity to the industry
 Acquiring a firm in foreign country is a complex task
 Sometime, host country imposed restrictions on acquisition of local companies by foreign
companies
 Labour problems of the host country`s company are also transferred to the acquired
company.
F. Greenfield Strategy
It refers to starting with a plain green site & building on it i.e. starting the operations of a
company from scratch in a foreign markets. The company conduct survey, selects the location,
VEDA TUTORIALS 62
buys & / or leases land, creates the new facilities, erects the machinery, remits or transfers the
human resources & starts the operations & marketing activities.
Advantages –
 Company selects the best location from all viewpoints
 The company can avail the incentives, rebates & concessions offered by the host
government including local governments.
 The company can have latest models of building, machinery & equipment technology
 The company can also have its own policies & styles of HRM
Disadvantages –
 This strategy result, in a longer gestation period as the successful implementation takes
time & patience
 Some companies may not get the land in the location of its choice
 The company has to follow the rules 7 regulations imposed by the host country`s
Government in case of construction of the factory`s buildings
 Host country`s Government may impose conditions that the company should recruit local
people & train them, if necessary, to meet the company`s requirements.
G. Foreign Direct Investment (FDI)

Advantages –
 Growth in economy due to new infrastructure & developing banking sector
 Creation of new jobs opportunities
 Concept of contract farming will take place causing benefits to farmers
 Consumers will get good quality of products at low prices
 FDI will assure operations in production cycle & distribution leading to cheaper
production facilities
 FDI will allow transfer of skills & technology from abroad leading to increased
efficiencies
 FDI will render necessary capital for establishing organized retail chain stores leading to
long-term cash liquidity
 FDI will create better SCM in Indian market
 Providing better value to the end consumers
 Investments & improvements in the supply chain & warehousing
 Franchising options to the local entrepreneurs
 Improvement in the IT in retail
Disadvantages –
 Entry of FDI will create a major impact on organized & unorganized domestic players
 FDI will drain out country`s share of revenue to foreign countries
 Unorganized sector will also have to lower the prices of products & services leading to a
negative effect on their productivity.
 Limited employment generation
VEDA TUTORIALS 63
 Fears that domestic organized sector might not be competitive enough to tackle
international players might not only result in loss of market share for them in closure of
their units.
 Supermarkets will establish their monopoly in the Indian market
 Increase in real estate prices
Selecting Potential Markets

Factors affecting selection of markets (determinants of market selection)
 Firm Related Factors
o Export Objectives – A firm where export objective is to sell out a marginal
surplus will select a foreign market suited to serve this purpose. Another firm with
the same product, which wants to export a very quantity, forming a very
significant share of its total output, may have different considerations than the
first firm in market selection. In case of second firm, as total quantity involved is
large & as it forms a significant share of its total output market diversification
would be important to minimize the risk, if we think of a third firm which also
wants to export the same product, but which wants to export several other
products also, market(s) which it selects may perhaps be different from what the
first two firms have chosen; it would give more importance to total exports of all
the products than those of any single product.
o Planned Business Strategy – it may also influence market selection. A company
has plans for large expansion of foreign business may chose a market, to start
with, which can serve as a hub of international business.
o International Orientation - it may also influence market selection.
o Company Resources –it comprises of financial, human, technological &
managerial factor is very important determinant.
o Dynamism & philosophy of top management & internal power relations may also
influence the market selection decisions.
 Market Related Factors
o General Factors
 Economic Factors –it includes factors like economic stability, GDP
growth trends, income distribution, PCI, sectoral distribution of GDP &
trends, nature of & trends in foreign trade & BOP, etc.
 Economic Policy –it includes industrial policy, foreign investment policy,
commercial policy, fiscal policy, monetary policy & other economic
policies.
 Business Regulations –it includes industrial licensing, restrictions on
growth, takeovers, mergers etc. restrictions on foreign remittances,
repatriations etc. tax laws, import restrictions & local content stipulations,
etc.
 Currency Stability –stability of national currency is another important
consideration in market selection.
 Political Factors –character of political system, government system etc.
political stability are import determinants of market selections.
VEDA TUTORIALS 64
 Ethnic Factors –
 Infrastructure –
 Bureaucracy & Procedures –
 Market Hub –
o Specific Factors
 Trends in domestic production & consumption & estimates for the future of
the product(s) concerned.
 Trends in imports & exports & estimates for the future
 Nature of competition
 Government policy / regulations
 Infrastructure relevant to the industry
 Supply conditions of raw materials & other inputs
 Trade practices & customs
 Cultural factors & consumer characteristics
Constraints in Entering in some Global Territories / Global Markets

 Embargo on export –there may be embargo imposed by the Government of India on
export to some countries.
 Prohibited or restricted for exports – there are restrictions & prohibitions on exports of
some commodities to some countries.
 Incompatibility of Technical Standards – it may eliminate some markets.
 High Product Adaption – in some cases, the cost of product adaption may be so high that
an exporter may not be able to afford it
 Embargo on Import –in some cases, importing countries impose embargoes or quotas on
imports of certain specific products.
 Tariff Barriers –there may be formidable tariff barriers which may make the product very
costly to consumers in the countries concerned.
 Non-tariff Barriers –there may be many non-tariff barriers which may make the export of
some commodities to some countries almost impossible.
 Strong Competition –where the competition is severe it may not be easy to enter the
market or it may not be profitable to sell the product is such markets without much costs.
 Too much promotional expenditure –in case of technical sophisticated products, too
much money may have to be spent on preparing sales literature & catalogues in many
languages.
 Foreign exchange shortage –acute shortage of foreign exchange in importing countries
may lead to uncertainity of payment. In fact, evaluation of the ability of the importing
country to pay for the product should be important consideration in the selection of
markets.
Globalization of Indian Business

Globalization, liberalization and privatization were the three cornerstones of India’s New
Economic Policy of 1991. The year 1991 marks the beginning of a new era in the Indian
economy. The new objective to be pursued by the policy makers, strategists and executives was
to make India the largest free market economy of the 21st century. In pursuit of this objective, the
Indian economy was to be integrated with the world economy through a programme of structural
VEDA TUTORIALS 65
adjustment and stabilization. While the stabilization programme included inflation control, fiscal
adjustment and BOP adjustment, the structural reforms included trade and capital flows reforms,
industrial deregulation, disinvestment and public enterprise reforms and financial sector reforms.
The programme of economic reforms has not been entirely successful and as a result, the
globalization process of the Indian economy has not gathered momentum. Indian business
continues to face a number of difficulties and obstacles in their effort to globalize their business.
These obstacles are as follows:
• Government policy and procedures:

Government policy and procedures in India are extremely complex and confusing. Swift and
efficient action is a pre‐requisite for globalization‐ which sadly missing. The procedures and
practice continue to be bureaucratic and hence a speed breaker in the globalization effort.
• High cost of inputs and infrasructural facilities:
The cost of raw materials, intermediate goods, power, finance, infrastructural facilities etc. in
India is high which reduces the global competitiveness of Indian business. The quality and
adequacy of infrastructural facilities in India is far from satisfactory. Further the technology
employed by Indian industries and the style of operation is generally out dated.
• Resistance to change:
The pre‐reform era (1951‐ 1991) breeded lethargy, created rigid structures, systems, practices
and procedures and generally instilled a laid back attitude. These factors are a hindrance to the
processes of modernization, rationalization and efficiency improvement. Technological change is
generally perceived to be employment reducing and hence resisted to the extent possible. For
instance, information technology was introduced in India in the early eighties. However,
computerization process of nationalized banks began only in the mid nineties. Excess labour is
particularly employed in the public sectors in areas such as banking, insurance, and the railways
and Indian industry in general. As a result, labour productivity is low and cheap labour in many a
cases turns out to be dear.
• Small size and poor image:
Grant Indian firms are known to be global pygmies. A look at the fortune 500 list would reveal
all to you. On a global scale, Indian firms are found to be small in size with low availability of
resources. Indian firms there for cannot compete successfully in the international market. Indian
products suffer from a poor image in the international market for both reasons valid and
otherwise. Indian firms continue to miss consumer focus both domestically and internationally.
The value‐money equilibrium is missing in Indian products. Further, Indian firms are do not have
the where‐ withal to keep up to the delivery schedule, accepts large orders and match up to
international specifications.
• Growing competition and poor r & d spend:
Indian firms are not only up and against competition from developed countries but also emerging
Asian powerhouses such as South Korea and China. Continuous improvement in quality and
usefulness and competitive costs with competitive pricing can only keep you afloat and in order
to remain afloat, one has to spend quite a lot on R & D. both public and private sector outlays on
research in India is deliberately low when compared to the developed countries.
ADVANTAGES OF GLOBALISATION:
• For successful globalization, countries need to chalk out strategies and policies to open
up the doors for the inflows of foreign direct investment (FDI). The FDI by the MNCs
brings with it flow of foreign exchange/ foreign capital, inflow of technology, real capital
VEDA TUTORIALS 66
goods, managerial and technical skills and know‐ how.

Globalization can easily promote exports of the country by exploiting its export potentials
in a right way. Globalization can be the engine of growth by facilitating export‐ led
growth strategy of developing country. ASEAN countries such as Indonesia, Malaysia
and Thailand have demonstrated their success of export‐ led growth strategy supported by
the FDI under globalization approach.
• Globalization can provide sophisticated job opportunities to the qualified people and
check ‘brain drain’ in a country. Globalization would provide varieties of products to
consumers at a cheaper rate when they are domestically produced rather than imported.
This would help in improving the economic welfare of the consumer class.
• Under globalization, the rising inflow of capital would bring foreign exchange into the
country. Consequently, the exchange reserve and balance of payments position of the
country can improve. This also helps in stabilizing the external value of the country’s
currency.
• Under global finance, companies can meet their financial requirements easily. Global
banking sector would facilitate e banking and e‐business. This would integrate countries
economy globally and its prosperity would be enhanced.
DISADVANTAGES OF GLOBALIZATION
• Globalization is never accepted as unmixed blending. Critics have pessimistic views
about its ill‐ consequences.
• When a country is opened up and its market economy and financial sectors are well
liberalized, its domestic economy may suffer owing to foreign economic invasion.
• A developing economy hen lacks sufficient maturity; globalization may have adverse
effect on its growth.
• Globalization may kill domestic industries when they fail to improve and compete with
foreign well‐ managed, well‐established firms.
• Globalization may result into economic imperialism.
• Unguarded openness may become a playground for speculators. Currency speculation
and speculators attacks, as happened in case of Indonesia, Malaysia, Philippines,
Thailand, etc. recently, may lead to economic crisis. It may lead to unemployment,
poverty and growing economic inequalities.
VEDA TUTORIALS 67

Chapter 1 - Introduction: Definition of International Marketing

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INTERNATIONAL MARKETING

Definition of International Marketing

Elements of International Marketing

Objective of International Marketing

Scope of International Marketing

Features of International Marketing

Need for International Marketing

Advantages of International Marketing

Problems in International Marketing

• Tariffs, Quotas and Trade Barriers :

• Bureaucratic Practices of Government :

Distinguish between Domestic Marketing & International Marketing

Basis of International Trade

and market them. What is the basis of international business?

 Theory of comparative advantage

Wheat (units) Cloth (units)

Country 1 unit of wheat 1 unit of cloth

Australia 0.5 (10/20) units of cloth 2 (20/10) units of wheat

China 1 (5/5) units of cloth 1 (5/5) units of wheat

International Business Environment

INTERNAL AND EXTERNAL INTERNATIONAL MKTG CONCEPT

However, some firms have been innovative in overcoming difficulties.

Stages of International Marketing

 Infrequent Foreign Marketing

 Regular Foreign Marketing

 International Marketing / Multinational Marketing

International Business Approach

 To make the economy self-reliant.

b. On the basis of quantification of the tariff:

c. On the basis of application between different countries:

d. On the basis of purpose they serve

Advantages / Benefits of Tariff Barriers

II. Non-Tariff Barriers

Types of Non-Tariff Barriers

d. Preferential Arrangements through trading blocs:

g. Foreign Exchange Regulations:

h. Prior Import Deposits:

Effects of Barriers on International Trade

II. Effect / Impact of Quotas:

Tariff Barriers Non-Tariff Barriers

Specific Duty Ad-Valorem Duties

Objectives of Trading Blocs

Types of Trading Blocs

Positive & Negative Effects (implications) of Trade Blocs in International Marketing

 Creates cordial / better relations:

WTO & Trade Liberalization

Birth 1947 1995.

Details of Important Trading Blocs

India and ASEAN

2. LAFTA (LATIN AMERICAN FREE TRADE ASSOCIATION)

About the EU: The EU is an organization of European Countries dedicated to increasing

Trade between the European Union and India

Top items of trade between India and EU

MULTINATIONAL CORPORATIONS (MNCs)

A Multinational Corporation is a business unit which operates simultaneously in different part of

Jacques Maisonrouge, president of IBM world trade corporations defines an MNC as a

James C. Baker also defines MNC’s as a company:

Advantages of the MNC’s to the host countries: ‐

5) Use resources recklessly: