CHAPTER 1
BASES OF
INTERNATIONAL
MARKETING
At the end of this chapter, students will be
able to discuss:
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Export Behavior Theories and Motives
Internationalization Stages
Export Network Model – Relationship
Marketing.
Potential Benefits from
Export Marketing
a) The Effects of Imports
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Increased supply and variety of goods, and
lower prices, for consumers.
Lower domestic production costs through
import of raw materials and capital
equipment, and access to technological
advances through imports, licensing, and
foreign direct investment.
b) The Effect of Exports
• Economics of scale in production processes
with resulting lower costs.
• Diversification of risks.
• Etc.
c) Increasing Productivity and
Efficiency
• Increased productivity through better utilization
of resources.
• Increased productivity through technology
transfer.
• Increased productivity through learning of
better ways of organizing and doing business.
International Trade
Theories
A. The Classical Theory of
International Trade
i. Absolute Advantage
ii. Comparative Advantage
iii. Equal Advantage
I. Absolute Advantage
Country A produces one product more cheaply
and country B produces another more cheaply.
II. Comparative Advantage
Country A produces both products more cheaply,
and country B produces one of them at a much
greater cost and the other at only a little greater
cost.
III. Equal Advantage
The ratio of production costs of the two
are the same in both countries.
B. The Factor Proportion Theory
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Resources are distributed unevenly internationally.
A nation will export products that use a large
amount of the factors of production of which it has
an abundance, and are thus cheap.
It will import products that use large amounts of factors
of production which are scarce, and therefore
expensive, in the country.
C. The Product Life Cycle Theory of
International Trade
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For the innovator country, in the first stage,
production and use are domestic. Then exports are
started.
Eventually, production may be shifted overseas to
be nearer markets and/or to use lower cost labor.
The originally exporting country may become an
importer.
Export Behavior Theories
and Motives
Basic Goals
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To earn profit
Required for survival
To allow pursuit of non-profit-oriented
goals.
Exhibit 1.0 A classification of export motives
Specific Reasons
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Export motives may arise from internal
influences or external influences;
May be reactive or proactive;
May also be considered innovation oriented or
problem oriented.
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Managerial Urge - Export behavior is related to
individual decision-making characteristics.
Unique Product/Technology Competence
Risk Diversification with different markets in
different stages of economic cycle
Foreign Market Opportunities
Economies of Scale in production, advertising,
distribution, or other areas: may be able to use both
domestic and foreign resources (financing, marketing,
production, human resources, research).
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Small Domestic Market or only part of domestic
market can be easily reached; stagnant or declining
home market.
Excess Capacity or Resources - Problems may
arise because of dumping (selling a product in a
foreign market at a price lower than it is sold for in
the domestic market).
Other Goals: Development of people; ‘offshore’
plants to supply home markets.
Companies usually operate with multiple goals in
mind.
Development of Export Firm:
Internationalization Stages
1. Stage-theory Approach (Johansen and Vahlne,1977)
Four Stages of International Operations:
1.
2.
3.
4.
No permanent export
Export via agent
Export via sales subsidiaries
Production in a foreign subsidiaries
2. Levels of Exporting
1.
2.
3.
4.
Export of surplus
Export marketing
Overseas Market Development
Technology Development
Exhibit 1.1 Levels of exporting
Internationalization of manufacturing firms
often, but not always, occurs in several
stages such as:
1.
2.
3.
4.
export operation stage;
foreign sales subsidiary stage;
licensing and contracting alliances;
foreign production subsidiary or alliance
stage.
Network Model/
Relationship Marketing
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Basic assumption: The individual firm is dependent
upon resources controlled by other firms.
It is often advantageous for firms, particularly those in
international markets, to build up lasting, cooperative
relationships with other businesses: distributors,
agents, customers, competitors, consultants, and
government agencies.
Stress on mutual trust, interaction, and mutual
commitment.
Advantages:
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Expected in reducing transaction costs and in
cooperative actions to improve quality and
responsiveness and reduce costs of overall
operations.
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Dangers include loss of control and release of internal
information.
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Networks of business relationships may be classified
by geographical areas, products, technology, etc.
(national nets, production nets, product nets, etc.)
Ethical/Moral Issues
International marketers often must
deal with:
(a) different sets of ethics;
(b) different views of what constitutes socially
acceptable behavior; and
(c) different legal requirements.
Defining Ethics
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Ethics is what most people in a society view as being
moral, good and right.
What is ethical in one society may be considered
unethical in another.
Examples are given of different attitudes toward;
(a) the paying of interest on loans;
(b) women in the workforce; and
(c) bribes.
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The above, and particularly the issue of making
facilitating payments or bribes, may result in
conflicts between a person’s ethical code, the
laws of the home country, and/or the laws of the
host country.
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Environmental issues are of increasing concern,
particularly in the more economically developed
countries.
Possible Bases for
Ethical Decision Making
No universally agreed upon standard
or model, but approaches include:
(a) Principle of utilitarianism: correctness
determined by results.
(b) Principle of rights: overall benefits to society do
not justify overriding rights of some people.
(c) Principle of justice: fair treatment.
Applying Ethics in
International Marketing
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Need for concern with issues of: products or
services; promotion; and customers.
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Some specific do’s and don’ts are given with regard
to products, market penetration, advertising and
promotion, prices, and the treatment of customers,
employees, and suppliers.
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International marketer needs knowledge of ethics,
values, and customs (and laws) of host markets as
well as home market.
Social Responsibility
and the
Business Environment
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Views of the proper goals for business vary among
countries (e.g. Britain and the US; continental
Europe, Japan).
Even in U.S., more is expected from businesses
than profit maximization.
Continuing arguments for and against companies
doing more than is legally required.
Overall tendency in most countries is to expect
and/or demand a higher level of social responsibility
THE END