Table of Contents
Q.1. Discuss in detail the theories of International Trade. (10)
Theories of International Trade
Historically, nations have been trading with each other for hundreds of years for profit or because they do not have enough resources (land, labour and capital) to satisfy all the needs of consumers.
In economics, three theories have been propounded for explaining tile reason for foreign trade. These theories are equilibrium theory.
1. The Theory of Relative Advantage
The theory of relative advantage deals with the trade of goods and commodities. It is based on the premise that a nation gains by trading with other nations in those goods in which it has an advantage over the other nations in terms of cost of production.
This advantage in terms of cost of production could be absolute or comparative. Let us illustrate this further using the classical theory to explain these concepts:
A. Factor endowments
Each country has different types and amounts of resources that will determine what they can or cannot produce. The combination of these resources (land, labour, capital and enterprise) is referred to as a country’s factor endowment.
Factor endowments are determined by:
• Geographical features such as climatic conditions and natural resources
• Historical development and political stability
• Social and demographic issues
• Economic development, size and quality of the workforce and access to capital
• Entrepreneurial skills and the freedom to pursue entrepreneurial activities.
For example, India has a large supply of natural resources such as coal, iron ore and cheap manpower. Japan has a highly skilled workforce that uses advanced technology to produce cars and electrical equipments. China has a large population and can supply cheap labour to produce competitively priced textile, clothing and footwear products. Bolivia, however is a land locked country with few natural resources and an unstable political environment.
Because of the different factor endowments, trade would be beneficial for each of these countries. Trade allows ‘countries to have access to goods and services that are not produced or cannot be produced efficiently.
B. The theory of absolute advantage
The Scottish economist Adam Smith first explained the theory of absolute advantage in 1776. He argued that a country has an absolute advantage in the production of a good when it can produce more of that good with a given amount of resources than another country. It would be in the interest of each of these countries to specialize in production of the commodity in which it has an absolute cost advantage and trade.
This way the productivity of both nations increases and thereby both nations stand to gain.
Thus while India can produce tea more cheaply than Great Britain and Britain can produce engineering goods more cheaply than India, it would be in the interest of both countries to concentrate on the production of the goods in which they have absolute cost advantage and then to trade. Of course the cost advantage in production must be greater than the cost of transportation incurred in moving the goods.
When each country specialises in the production of the goods in which they have an absolute advantage, increase in the production of all the goods could occur. It is quite realistic to think that one country has an absolute advantage over another country in the production of some goods. Finland has done this recently by specialising in the production and distribution of mobile handsets.
C. 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 of all goods, there will 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.
All these models are based on the following assumptions:
• There must be demand for these products.
• The production gains are greater than the cost of trading.
• Products must be identical i.e. product differentiation concept does not exist.
• There must be an effective market information so that the traders are aware of the cost differentials as they exist.
• The differentials must be large enough to interest the entrepreneur.
• Tariffs must not exceed the difference in cost after transportation and profits are considered.
• No other political or financial restrictions inhibit the trading process.
Q.2. There are several differences between the Domestic and International Marketing. Discuss. (10)
Domestic marketing
Domestic marketing comprises of the marketing strategies used by a company to attract customers and compel them to purchase a product or service within a local market. The marketing activities in domestic marketing are restricted to the local boundaries, and a limited number of customers are served.
Domestic marketing has several advantages. It is more convenient to carry out as it has to deal with just a single form of competition and economic issues. No communication barriers are faced as the local customers can easily comprehend the message of the company. In addition, the company can easily acquire and understand data regarding the trends of the local market and the requirements, tastes and preferences of consumers. This allows companies to take decisions and formulate marketing strategies in a more effective manner. There are also lower risks in domestic marketing and limited investments are required.
However, the scope of local markets is quite narrow and growth is limited. Hence, many companies aim to expand their operations to the international market.
International marketing
International marketing is the kind of marketing that focuses on a wider customer base, one that extends the national boundaries. Customers from all over the world are targeted in international marketing. This kind of marketing is quite complicated and requires significant financial investments.
There are different laws and regulations pertaining to business in each country, and it is important for a country seeking to gain entry into a foreign market to first become aware of these rules. The requirements and preference of customers may also be different; hence, the marketing strategies should be developed according to these different needs and requirements.
Companies need to put in more time and effort to carry out international marketing. In addition, it is also much more risky than domestic marketing. The international market is quite uncertain and companies should always be prepared to handle any changes that take place suddenly.
Difference between domestic marketing and international marketing
The main difference between domestic marketing and international marketing has been explained below:
1. Meaning
In domestic marketing, the company is involved in the production, promotion, distribution and sale of products and services within its own country. However, in international marketing, these activities extend beyond the boundaries of the company’s own country to offer goods and services to various countries across the globe.
2. Growth opportunities
Domestic marketing has a limited scope and offers little opportunities for growth, whereas the scope of international marketing is vast, offering numerous growth opportunities.
3. Area covered
Domestic marketing covers a limited area within a single country, whereas in international marketing, an extensive area is covered, spanning across several countries.
4. Government intervention
There is less intervention from the government in domestic marketing in comparison to international marketing. This is because in international marketing, the company has to consider the laws and regulations of various countries.
5. Risks involved
Lower risks are involved in domestic marketing, and fewer challenges are experienced because of the limited scope of this form of marketing. On the other hand, high risks and challenge are involved in international marketing because of issues like socio-cultural differences, exchange rates, uncertainty of entering a foreign market, and so on.
6. Technology use
In domestic marketing, there is limited use of technology. International marketing, in contrast, can take advantage of the latest technologies being used in different countries.
7. Research required
A company involved in domestic marketing does not have to carry out a lot of research because they cover a limited area. In addition, since they are catering to only the local market, they are already aware of conditions prevailing in the market. On the other hand, foreign markets need to be studied extensively because the company is not aware of the conditions prevailing in those markets.
8. Customer characteristics
Domestic marketing deals with a single type of consumers that have similar characteristics. On the other hand, international marketing caters to different kinds of customers that have distinct characteristics, tastes and preferences.
9. Financial resources
Domestic marketing requires fewer financial resources and capital investment, whereas significant investments are needed to carry out international marketing.
10. Limitations
Not many limitations are experienced in domestic marketing. However, international marketing faces several limitations, including language barriers, cross-cultural differences, differences in customs and norms of different societies, exchange rate fluctuations, and so on.
Q.3. Write short note on: (5+5=10)
a. Export- Import Bank of India
The Export Import Bank of India was setup by an Act of Parliament in September, 1981 and commenced its operation in March, 1982. It is wholly owned by the Government of India. It was set up for the purpose of financing, facilitating and promoting foreign trade in India. Including the share capital of ` 1,300 crore received during the year from Government of India, the paid up capital as on March 31, 2015, stood at ` 5,059 crore and the Net Worth stood at ` 9,902 crore. Profit after tax of the Bank for the year 2014-15 amounted to ` 726 crore. Its Head office is in Mumbai.
EXIM Bank extends Lines of Credit (LOCs) to overseas financial institutions, regional development banks, sovereign governments and other entities overseas, to enable buyers in those countries to import developmental and infrastructure projects, equipments, goods and services from India, on deferred credit terms. EXIM Bank has laid strong emphasis on enhancing project exports, the funding options for which have been enhanced with introduction of the Buyer’s Credit-National Export Insurance Account (BC-NEIA) program. The Bank facilitates two-way technology transfer by financing import of technology into India, and investment abroad by Indian companies for setting up joint ventures, subsidiaries or undertaking overseas acquisitions. To promote hi-tech exports from India, the Bank has a lending programme to finance research and development (R&D) activities of export-oriented companies.
EXIM Bank is the principal financial institution in the country for coordinating working of institutions engaged in financing exports and imports. The bank aims at developing commercially viable relationships with a target set of externally oriented companies by offering them a comprehensive range of products and services aimed at enhancing their internationalisation efforts.
Bank’s operations include : Export Credits,. Export Capability Creation (export product development, export marketing finance, E.O.U’s etc) and Export Services (information and advisory services to Indian companies to supplement their efforts aimed at globalisation of Indian Business).
b. Indian Trade Promotion Organisation
ITPO is a premier trade promotion agency of India, which provides a broad spectrum of services to trade and industry so as to promote India’s exports. The instruments of trade promotion used by ITI’O include organizing trade fairs/exhibitions in India and abroad, buyer and seller meeting and contact promotion programmes apart from information dissemination for products and markets. ITPO also maintains a database of export worthy units which are enrolled as members of ITPO and provides with a package of services which includes live trade enquiries from ITPO’s foreign offices, product development, details of importers and arranging meetings with visiting delegations etc. Its head office is in New Delhi.
India Trade Promotion Organisation (ITPO) was incorporated by merger of Trade Development Authority (TDA), a Registered Society under Ministry of Commerce & Industry, with Trade Fair Authority of India (TFAI) with effect from 1 January 1992. TFAI was earlier incorporated, under Section 25 of the Indian Companies Act, 1956, on 30 December 1976 by amalgamating 3 organisations of the Government of India viz. India International Trade Fair Organisation, Directorate of Exhibitions & Commercial Publicity and Indian Council of Trade Fairs & Exhibitions and commenced operations with effect from 1 March 1977.
ITPO has four Regional Offices:
• Chennai
• Kolkata
• Mumbai
• Bangalore
The Regional Offices, through their respective profile of activities, ensure a concerted and well coordinated trade promotion drive throughout the country.
Q.4. Price is an important element of marketing mix. Discuss in detail. (10)
Pricing is an important element of marketing mix. Every company should choose strategic choices when pricing the products to successfully achieve business objectives. Marketing Mix Pricing is the only element that generates revenue while the other three elements represent costs.
Price can be defined as The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.
Importance of Pricing in Marketing Mix
Most of the time marketers give more importance to activities like market research, product management, promotion and distribution. These are considered important aspects of marketing mix. But pricing is also a very important element in the 4 P’s of marketing mix. This is the only element that generates revenue and supports other activities like product distribution, promotion and advertisement.
• Pricing is Flexible
Pricing is the only single variable that is flexible and can be changed within no time. On the other hand, the remaining elements of marketing mix like distribution channels, promotional campaigns and can increase the cost.
• Set the right Price
When setting the price keep in mind the strategic objective of the organization. For example, if a marketer set too high or too low in both pricing decisions it can affect the sale growth.
• Positioning
When setting a price, it conveys a message to your potential customers about your product and service and creates a perceived value of marketing mix. This perceived value can affect the consumer decision-making process. High pricing means high-quality products and services. Low pricing products and services indicate that you are a low-cost provider.
Marketing Mix Pricing Objectives
A company pricing decisions are based on objectives to be attained in the future. Following are some of the pricing objectives.
• Profit maximization
• Profit margin maximization
• Sales Growth
• Market Share
• Survival
Factors affecting Pricing Strategies
A. Internal Factors Affect Pricing Decisions
Those internal factors affect the pricing consist
• Cost
• Marketing mix strategy
• Product Life Cycle
• Image of the Firm
B. External Factors Affect Pricing Decision
• Competition
• Consumers
• Economic Conditions
• Government
Different Pricing Strategies
• Penetration Pricing
When companies use penetration pricing strategies, the focus is to gain market share. Goods and services are offered at lower prices than its competitors. Marketers want to increase consumer awareness of products and services and influence consumer to let’s give it a try. When a company sets lower prices, can damage its profitability, but in the long run they can raise the price after successful market penetration strategy.
• Premium Pricing
When a company introduces a new product with a competitive advantage, it uses premium pricing strategy. The higher prices appeal competitors to launch products into the market, the supply increases and prices fall.
• Economy Pricing
Companies use economy pricing to target price-conscious customers. Mostly it is used by retailers and food suppliers. With this strategy, businesses set the price as low as possible by keeping the promotional and marketing cost to the minimum. Due to large sales volume, the low-pricing strategy is very effective for large retail stores like Tesco. Small business cannot use this strategy because they don’t sell enough products.
• Price Skimming
This pricing strategy help business to increase their sales when introducing new products and services. During the introduction stage of product life cycle, price skimming set high prices. These prices gradually decreasing as competitors introduce the same goods in the market.
• Psychological Pricing
Marketers use psychological pricing that influences the buyers to buy products and services based on their emotions rather than logic sense. For example, if a company set the price of a book at ₹ 99 it is more attractive than at ₹ 100. Even though ₹ 1 difference is very small, but consumer perceives ₹ 99 as cheaper and attractive.
• Bundle Pricing
When businesses set bundle pricing, they sell several products combined into a single package for a lower price. Bundling strategy is a smart way to move those unsold items taking up space. It can also create value perception in customers’ mind that they are getting value for their money.
Q.5. Discuss the role of WTO (World Trade Organization) in promoting International Trade. (10)
The World Trade Organization came into being in 1995. One of the youngest of the international organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT).
So while the WTO is still young, the multilateral trading system that was originally set up udder GATT is well over 50 years old. The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and predictably.
It does this by:
• Administering trade agreements
• Acting as a forum for trade negotiations
• Settling trade disputes
• Reviewing national trade policies
• Assisting developing countries in trade policy issues, through technical assistance and training programme
• Cooperating with other international organizations.
Structure
The WTO has more than 140 members, accounting for over 97% of world trade. Around 30 others are negotiating membership. Decisions are made by the entire membership. This is typically by-consensus. A majority vote is also possible but it has never been used in the WTO, and was extremely rare under the WTO’s predecessor, GATT. The WTO’s agreements have been ratified in all members’ parliaments.
The WTO’s top level decision-making body is the Ministerial Conference which meets at least once every two years. Below this is the General Council (normally ambassadors and heads of delegation in Geneva, but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body.
At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council report to the General Council. Numerous specialized committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements.
The WTO agreements
The WTO’s rules – the agreements – are the result of negotiations between the members. The current set were the outcome of the 1986-94 Uruguay Round negotiations which included a major revision of the original General Agreement on Tariffs and Trade (GATT).
GATT is now the WTO’s principal rule-book for trade in goods. The Uruguay Round also created new rules for dealing with trade in services, relevant aspects of intellectual property, dispute settlement, and trade policy reviews. The complete set runs to some 30,000 pages consisting of about 30 agreements and separate commitments (called schedules) made by individual members in specific areas such as lower customs duty rates and services market-opening.
Through these agreements, WTO members operate a non-discriminatory trading system that spells out their rights and their obligations. Each country receives guarantees that its exports will be treated fairly and consistently in other countries’ markets. Each promises to do the same for imports into its own market. The system also gives developing countries some flexibility in implementing their commitments.
Functional Areas
• Goods
It all began with trade in goods. From 1947 to 1994, GATT was the forum for negotiating lower customs duty rates and other trade barriers; the text of the General Agreement spelt out important rules, particularly non-discrimination.
• Services
Banks, insurance firms, telecommunications companies, tour operators, hotel chains and transport companies looking to do business abroad can now enjoy the same principles of freer and fairer trade that originally only applied to trade in goods.
• Intellectual Property
The WTO’s intellectual property agreement amounts to rules for trade and investment in ideas and creativity. The rules state how copyrights, patents, trademarks, geographical names used to identify products, industrial designs, integrated circuit layout-designs and undisclosed information such as trade secrets – “intellectual property” – should be protected when trade is involved.
• Dispute Settlement
The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly. Countries bring disputes to the WTO if they think their rights under the agreements are being infringed. Judgements by specially-appointed independent experts are based on interpretations of the agreements and individual countries’ commitments.
• Policy Review
The Trade Policy Review Mechanism’s purpose is to improve transparency, to create a greater understanding of the policies that countries are adopting, and to assess their impact. Many members also see the reviews as constructive feedback on their policies.
All WTO members must undergo periodic scrutiny, each review containing reports by the country concerned and the WTO Secretariat.
• Development and Trade
Over three quarters of WTO members are developing or least-developed countries.
All WTO agreements contain special provision for them, including longer time periods to implement agreements and commitments, measures to increase their trading opportunities and support to help them build the infrastructure for WTO work, handle disputes, and implement technical standards.
The 2001 Ministerial Conference in Doha set out tasks, including negotiations, for a wide range of issues concerning developing countries. Some people call the new negotiations the Doha Development Round.
Before that, in 1997, a high-level meeting on trade initiatives and technical assistance for least-developed countries resulted in an “integrated framework” involving six intergovernmental agencies, to help least-developed countries increase their ability to trade, and some additional preferential market access agreements.
A WTO committee on trade and development, assisted by a sub-committee on least- developed countries, looks at developing countries’ special needs, Its responsibility includes implementation of the agreements, technical cooperation, and the increased participation of developing countries in the global trading system.
• Technical Assistance and Training
The WTO organizes around 100 technical cooperation missions to developing countries annually. It holds on average three trade policy courses each year in Geneva for government officials. Regional seminars are held regularly in all regions of the world with a special emphasis on African countries. Training courses are also organized in Geneva for officials from countries in transition from central planning to market economies.
Or Discuss the cultural and legal environment of International Trade. (10)
Cultural environment
Cultural dimension is one of the important dimensions of international marketing environment, other dimensions being political, economic, legal, technological, geographic etc. It influences all aspects of consumer behaviour and is pervasive in all marketing activities like product design, packaging, pricing, promotion, distribution, communication etc.
According to Elbert W Steward and James A Glynn “Culture consists the thought and behavioral patterns that members of a society learn through language and other forms of symbolic interaction – their customs, habits, beliefs and values, the common viewpoints that bind them together as a social entity.
Culture can be defined as a “sum total of man’s knowledge, beliefs, art, morals, laws, customs and any other capabilities and habits acquired by man as member of society.
Elements of culture
Culture includes all facets of life. In order to obtain a total picture of a culture it is necessary to investigate every possible side of it. For facilitating an accurate study of culture, the anthropologists have evolved a “cultural scheme” which embodies the various elements of culture. The main elements included within the meaning of the term `culture’ are:
1. Material Culture
• Technology
• Economics
2. Social Institutions
• Social organization
• Education
• Political structures
3. Man and the Universe
• Belief systems
4. Aesthetics
• Arts, Folklore
• Music, drama and the dance
5. Language
• Language
The cultural dimension complicates the environment in which an international marketer has to operate. One must not only identify cultural boundaries but also what are the underlying similarities and differences. This is particularly important as previously business competition used to come from the firm around the corner.
Today, it comes from anywhere in the world. Knowledge of other cultures, laws, and business practices has moved from being desirable to being essential in today’s marketplace. An international marketer must therefore undertake a cultural analysis to understand the orientation and underlying forces which make the culture so that he can use the information while planning and executing his marketing programme.
Legal Environment
For any firm involved in marketing, the role government assumes will influence its activities. The government may choose to allow and in fact provide free and fair competition, choosing to let the economic direction of the country be directed by business entities as in the case of U.S.A., or it may choose to provide the economic direction itself.
The three main concerns facing any international business entity are political stability, the government’s orientation and nationalism.
An international business entity is a guest of the host country and, therefore, the host country reserves the right of not only allowing it access but also of expropriating it. It also can influence the scale and dimensions of the operations through its policies.
Political risk is thus the vulnerability of returns of a project to the political acts of a sovereign government. This definition gives rise to several issues but the most important issue is that political risk is associated with blockage of funds and expropriation (or domestication of investment) by the foreign government, for a firm operating across its national borders. The exporting firm also faces political risks because political developments also affect the areas of import restriction, tax controls, price controls, exchange regulations, counter trade etc. which can create a major impact on the value of the exporting firm and its survival.
1. Blockage of Funds
An issue associated very closely with the subject of political risk is a temporary or permanent blocking of funds. Blockage of funds refers to the fact that although a business entity may own the funds and still hold property rights, it cannot export its earnings.
2. Domestication
Domestication refers to transfer of control of foreign investment to national ownership to. bring the firm’s activities in line with national interests. It differs from expropriation in the sense that It is a gradual encroachment of freedom of operation of a foreign operator.
3. Expropriation
The most extreme case of political vulnerability is expropriation. Expropriation refers to the government confiscation of property with or without proper reimbursement.
The legal/political aspect is very important in global marketing. Every business operates within the jurisdiction of legal system. The legal system is an inevitable component of the environment within which a business operates. The commercial law existing within any country influences not only each and every variable of marketing mix but also the environment within which a business operates. This has a direct bearing on the management of global marketing plan. ”
International law” can be defined as rules and principles that states and nations consider binding upon themselves. This raises two interesting characteristics of international law. The first is that “law” belongs to individual nations and international law only exists to the degree that individual nations are willing to relinquish their rights. The second is the lack of an adequate international judicial and administrative framework or a body of law which would form the basis of a truly comprehensive international legal system.
The international business is also subject to political decrees made by governments both in “home” and “host” countries. Home governments can apply pressure not to deal with disapproved parties. These measures may include the refusal to grant an export licence, or withdrawal of export guarantee cover. The host government may take measures like taxation, ownership controls, operating restrictions or expropriation.
Thus for example, the advertising laws in Germany are so strict that it is best advised for the international marketer to get himself good legal counsel before framing his advertising strategy in Germany. In fact all over Europe there exist different set of laws preventing promotion of products through price discounting. These laws are based on the premise that such practices differentiate buyers. This example reflects the influence on only one of the variable of marketing mix. Laws may exist for other variables of marketing mix viz. product, price, and place. Thus monitoring the legal environment is also essential. International Business came out with an article indicating areas where management should consider the laws before framing their strategy.
They include watching out for rules regarding:
• Retail price maintenance
• Product quality
• Packaging
• After sales commitment
• Price controls
• Property rights which includes immovable property and intellectual property(patents, trade marks, copy rights etc.)
• Regulations
• Cancellation of agreements.
Not only does the legal system influence the marketing management process but also the environment within which the marketer has to operate. Thus while one country may promote competition within its markets through its legal system, another country may try to protect its industry and thereby restrain competition.
In USA anti-trust legislation influences all mergers, takeovers, and business practice, which are in restraint of trade. The verdicts awarded are governed by paragraph one of Sherman Act. Thus for example, Gillette was prevented from taking over Braun A.G. of Germany, which was an electric razor manufacturer, on the grounds that it would distort competition.
Q.6. Discuss several important documents involved in export. (10)
Documentation and procedures, though complex and cumbersome, are integral part of international marketing operations. Full knowledge and accurate compliance of procedures and documentation formalities ant as essential as looking into areas of marketing mix to ensure success in international marketing.
Documentation and attendant formalities become necessary to ensure compliance of contract obligations of the concerned parties i.e., the exporter, importer and intermediaries.
In India, several documents have been prescribed to ensure compliance of Export Trade Control, Foreign Exchange Regulations, Quality Control and Pre-shipment Inspection, Central Excise etc.
These documents can be broadly classified into the following categories:
A. Documentation as per requirements of the contract
• Commercial Invoice
• Packing List
• Insurance Certificate/Policy
• Bill of Exchange
• Shipment Advice
• Certificate of Origin
• Inspection Certificate
• Transportation Documents :
1. Bill of Lading
2. Airway Bill
3. Combined Transport Document
B. Documentation as per requirement of Government of India
• Export Licence, if necessary,
• AR4/AR5 Form
• Pre-shipment Inspection Certificate
• Export Declaration Form GR/PP/VPP/COD/SOFTEX Form
• Shipping Bill
C. Documents as per requirement of the importing Country
• Customs Invoice
• GSP Certificate of Origin
D. Documents required for claiming export assistance
• Application form
• Shipping Bill duly authenticated by customs
• Commercial invoice attested by bank
• Bank certificate
• Statement of Exports certified by the negotiating bank
• Registration cum membership form of concerned export promotion council.
Another way of looking at the documents is to classify them as principal and auxiliary documents.
A. Principal Documents
These are:
1. Commercial Invoice
2. Packing List
3. Marine Insurance Policy/Certificate
4. Bill of Exchange
5. Letter of Credit
6. Bill of Lading
7. Airway Bill
8. Combined Transport Document
9. GR/PPNPP/COD/SOFTEX Forms
10. Export Inspection Certificate
11. AR4/AR5 Forms
12. Shipping Bill
13. Certificate of Origin
14. Shipment Advice
15. Consular Invoice
B. Auxiliary Documents
These documents may be required for the preparation or procurement of some of the principal documents or for arranging some of the preliminaries in effecting shipment of goods, such as giving shipping instructions to freight forwarders, arranging pre-shipment inspections, marine insurance cover, shipping space, procurement of bills of lading etc. Documents normally required are:
1. Shipping Instructions Form
2. Application for Export Inspection Agency
3. Shipping Order
4. Mate Receipt and
5. Dock Challan.
Q.7. Discuss the key factors influencing International Market Selection. (10)
Every company while selecting a particular country as a market, attempts at achieving the best fit between the market requirements and the company’s abilities in meeting these requirements. As a result, the factors that come into consideration, while planning the international market selection, are country market factors and company factors.
These factors are-
1. Country Market Factors
The country market factors may again be subdivided under three heads viz:
a. Product Factors
The product characteristics and the transaction characteristics play a vital role in market selection and segmentation process. The degree of product specialisation, the value, the level of standardisation and the position in IPLC (International Product Life Cycle) all influence the market selection process.
The degree of product specialisation will by itself eliminate several country markets. Thus IBM wishing to market super computers would find small market because of the product specialisation and value factors. On the other hand, Nestle may choose virtually any country as its market.
Similarly, the degree of standardisation may also influence the market selection process. Here standardisation refers to standardisation of both pre transaction and post transaction measures like after sales service. Thus, a company maybe forced to eliminate certain country markets either because the product does not meet with the country specific market requirements or because it does not have an established after sales service.
The position of the product on the PLC (Product Life Cycle Curve) of any given market and on the IPLC also influences the market selection and segmentation process. Most companies infact enter international markets not by choice but by the fact that they find their domestic markets drying up. The desire to survive and grow forces them to go into international markets. Even then, they must establish the position of the product on the PLC. Thus, product position on PLC influences the market selection process.
b. Market Factors
The cultural, political and economic analysis helps in determining the nature of market for undertaking the market selection and segmentation process. Questions regarding the size, stability, growth potential, uncertainty and competition get answered. These questions help in deciding which markets to eliminate and which markets to concentrate upon. Consideration to such factors is necessary for aligning the market requirement with company abilities through a marketing strategy. Very often a company may have to choose between size and growth potential. The emphasis it lays on a particular variable through its strategy may entirely be an outcome of the company’s abilities and goals.
c. Marketing Factors
The company being an economic entity is influenced by economic gains while selecting and segmenting a particular market. It considers the costs and the nature of the costs against profitability of the market or the sales while assessing the choice of the market. The cost is the outgrowth of product characteristics and market characteristics. How much a company spends on each of its four P’s of the marketing mix depends upon these factors and the entry strategy adopted. The profitability is judged on the basis of sales made. Two most frequently viewed responses while undertaking cost benefit analysis are the concave sales response function and the S-shaped sales function. In the concave sales response function the highest returns are noticed at the lower levels of marketing expenditure because of the shape of the sales function. This is essentially an outgrowth of the fact that the market is ripe for accepting the product. Here segmentation issues become predominant if maximum gains are to be cropped (reaped).
2. Company Factors
As, the process of market selection involves a match between market factors and company factors, it becomes necessary to understand the company factors. The company factors may be divided under three heads-the management’s risk consciousness, the company goals, and the company’s resources. The management’s risk consciousness determines how the company will perceive various risks while undertaking country market analysis. In fact, subjects like assessment of political risk depend directly on how the company perceives the risk The company goals can also influence the market selection and segmentation process, for, they provide the foothold for direction. The company’s resources both financial and managerial influence the market selection process. In fact the financial strength of a company may force it to choose a mode of entry in spite of its not wanting to do so. Similarly, the management’s export market experience may determine the choice of market even when the macro analysis may be against the choice.
The fit between the company factors and the country market factors broadly answer the question as to which country will be selected. But, although they represent the factors, every company must determine a process for market selection.
Or Discuss different techniques of interviewing as part of market research. (10)
A variety of techniques are used for gathering first-hand information in the field.
Different techniques are useful for different kinds of investigations-some of them are quite complicated, costly and time-consuming, such as psychological and projective techniques or techniques of product testing: However, there are four basic techniques which are most commonly used in international market surveys. These are :
1. Personal Interview
The face-to-face personal interview is the most effective and reliable method of collecting information at the consumer as well as industrial levels of market research. For personal interview, the interviewee or the respondent is selected using one of the any sampling methods.
The interview may be conducted either in a structured, semi-structured or unstructured manner. The structured interview is conducted strictly in accordance with the structured questionnaire mostly using close-ended questions. The questions are asked in the same language and the same sequence and appropriate answers are marked/ticked as pre-coded on the questionnaire or recorded verbatim in case of open-ended questions. Unstructured interview allows for a more free exchange between the interviewer and the respondent, without sticking to a set list of questions as in the case of structured interview. The semi-structured interview is a combination of the two types mentioned above.
2. Telephone Interview
The telephone interview serves limited but very useful purpose. It is limited to only those who could be contacted over the telephone and is more suitable for asking a few short and simple questions. It is quick and less time consuming. It is often used to identify the right kind of respondents for subsequent personal interviews or to contact busy executives for quick interviews.
3. Mail Survey
The mail or postal survey can be conducted in a foreign market from the researcher’s home country. The mailing list of respondents (like importers) can be prepared and questionnaires sent by mail for filling in and returning by the respondents. Although the method is least expensive, it is most unreliable and the response is usually very low.
4. Online Survey
There are number of similarities between online and mail surveys, arising out of common methodology of self administered questionnaires. However, they differ in the means through which they are carried out. Online survey can either be conducted through e-mail or they can be posted on the web and the URL provided to respondents. A study conducted by Ray et-al in 2001 shows the following discipline wise demographic of use of online surveys : Marketing (70%), information system (27%) management (2%) and economics (1%).
Advantages of online survey
• Short Response Time
• Low financial resource implications
• Researcher’s control of the sample
• Saves time & resources associated with the data entry process as data are directly loaded in the data analysis software.
Q.8. Advertising plays an important role in Marketing. Discuss the International Advertising Strategy. (10)
When organisations advertise across international boundaries a number of important factors have to be taken into consideration. Whilst the process is ostensibly straightforward, that is someone (seller) says something (message) to someone (buyer) through a medium, the process is compounded by certain factors.
These mitigating factors can be called “noise” and have an effect on the decision to “extend”, “adapt” or “create” new messages.
Language differences may mean that straight translation is not enough when it comes to message design. Advertising may also play different roles within developed, between developed and underdeveloped and within underdeveloped countries. In developing countries “education” and “information” may be paramount objectives. In developed countries, the objectives may be more persuasive.
Advertising is a crucial element in the integrated foreign marketing plan, but its role in specific marketing programme varies from time to tithe, market to market and company to company depending on the overall marketing strategies adopted.
Advertising is one element of the promotion mix and promotion is but one element of the marketing mix. Hence advertising strategy cannot be anything but an integral part of the promotion strategy which again is an essential component of the integrated foreign marketing strategy. International advertising strategy has therefore to be formulated within the framework of the marketing strategy and its role has to be clearly defined in helping achieve marketing objectives. Like any other marketing strategy, advertising should be used only if it can economically and effectively contribute to the attainment of marketing goals in a given situation. Because of environmental differences, a certain type of advertising which works in one country may not work at all in another country or another market segment in the same country. International product advertising has therefore to be target market specific.
Even if a standardised advertising theme or message is developed for multi-country use, it often becomes necessary to adapt or modify the central theme or message to suit the local conditions of a country or a region.
Cultural differences may account for the greatest challenge. As consumer differences between countries are diminishing, changes may be needed only in translation.
However, this is only one point of view, as there is no doubt that cultural differences do exist across the world. For example, it would be quite unacceptable to have bikini-clad ladies advertising sun care products in some Muslim countries.
Three major difficulties occur in attempting to communicate internationally: the message may not get through to the intended recipient, due to a lack of media knowledge; the message may get through but not be understood, due to lack of audience understanding and; the message may get through, be understood but not provoke action. This may be due to lack of cultural understanding.
Media use and availability, coupled with the type of message which may or may not be used, is tied to government control. Government may ban types of advertising, as is the case of liquor on Doordarshan, the Indian national channel. Intending advertisers should refer to the appropriate codes of advertising practice available in each country.
Q.9. Write Short Note on: (5+5=10)
a. International Law
All exports operate within an institutional environment, which is made up of a set of political, social and legal ground rules. These ground rules form the laws of all production, exchange and distribution and give rise to certain expectations and assurances about the actions of others, and give order and stability to the means of doing business. The most important rules in any system are those defining, allocating and enforcing property rights, and rules and conventions defining allowable and non-allowable forms of cooperation and competition (standards, rules of contract, fair trading etc).
The domestic marketer is aware of the jurisdiction of the legal system and the bearing it has on his activities. But when he crosses national frontiers to market or produce his product in a host country; the problem of legal system arises on two counts. They are:
a. Every country has its own legal system
b. The legal systems of the world are not harmonised and are in fact based on contradicting political philosophies
The legal system that exists in different countries of the world are antecedents of one of the two legal philosophies. They are common law and code law philosophies.
Common law finds its roots in Britain and is practised today in U.S.A., Britain and Canada. The basis of common law is tradition, past practices and past ruling of higher courts that look upon similar problems within the accepted set of laws. On the other hand, code law is based on Roman law and is an all-inclusive system of written rules that encompass all eventualities. This basis for legal system can be witnessed in many countries of the world.
It must be pointed out here that while these represent the basis of various legal systems, the legal systems in different countries of the world are by no means identical. This difference between code law and common .law has been pointed out to you to make you aware of the fact that the bearing of these two distinct philosophies on judgements awarded in case of commercial disputes can be radically different. To illustrate let us take the interpretation in case of non-fulfilment of required conditions of a contract under `Act of God’. What constitutes an `Act of God’ in code law, is not necessarily incorporated under common law. Thus while strike may be looked up under `Act of God’, in code law it will definitely not be accepted as a reason for non-fulfilment of the contract under common law. The development of international law took place in late sixteenth century in an effort to deal with international political issues like granting recognition to new countries and for maintaining world peace.
The developments in international commercial law, however, started taking place only in the 19th century with law of sea coming in as late as 1958. These developments took place on a state-by-state basis as international trade grew in volume and value. This fact accounts for different legal systems existing in different countries of the world and based on conflicting legal policies.
International law deals with upholding order. Originally it recognized only nations as entities, but today it also incorporates role played by individuals. International laws may be defined as a set of rules and regulations which the nations consider binding upon themselves. This definition brings out two important characteristics of international law.
They are absence of existence of a comprehensive legal system. There is no truly comprehensive body of law because as stated earlier, international commercial law is of recent birth. This has had a direct impact on the existing administering authorities.
As of today there are only a few international bodies for administering justice. They include the International Court of Justice founded in 1946 and the World Court at the Hague. Besides this, is the fact that no nation can be forced into these rules as stated in the line `consider binding upon them’ which brings us to the fact that all nations recognise the sovereignty of the legal systems and therefore international judgements are based on the premise of `good of humanity’ and not on basis of any particular country’s legal system.
Issues in International Legal Environment
Most issues in the legal/political environment centre around the following:-
1. “Institutional environment” – made up of political, social and legal ground rules within which the global marketer must operate.
2. Property rights – patents, trademarks.
3. Taxation – what taxation schemes will be faced abroad?
4. Recourse – possibility and length of action with the possibility of image damaging necessitating arbitration.
5. Movement of equity and expropriation threats – often necessitating protocols or the signing of trade frame working agreements.
Efforts to regulate the international legal system include individual country efforts, like the USA International Trade Commission and the GATT system. The WTO is a set of norms and procedures which member governments have accepted to create order and predictability in international trade relations.
b. Balance of Payment
The advent of generalized floating exchange rates has made it necessary for all countries to manage this. It has become necessary for all countries to maintain an account of all its financial transactions. This account is known as the Balance of Payment. It is similar to the double entry system of accounting and accounts for all inflows and outflows occurring from a country. Like all double entry accounts, even the balance of payment must balance i.e., inflows = outflows. The fact that balance of payment account balances does not mean that a nation is in a good or poor financial condition. It is in fact a record of conditions affecting the country and not a determinant of conditions affecting the country
Thus, the Balance of Payment (BOP) is the measure of all economic transactions between one nation and others. The balance of payments is made up of the current account, showing trade in goods and services; and the capital account, which shows financial transactions. The balance of payments account helps marketers select the location of supply for foreign markets and the selection of markets. The capital account may show the nations which have control restrictions and hence be difficult to deal with. In this regard, African nations are generally disadvantaged.
B0P also acts as a reflector of the standard of living of the people of that country (standard of living is measured by the demand and the capacity to produce). Of particular interest to any businessman operating in the international market is the country’s current account. The current account reflects the financial transactions accruing on account of trade in goods and services.
Or Discuss in detail the growth of India’s growth in foreign trade as of date. (10)
Foreign Trade is the important factor in economic development in any nation. Foreign trade in India comprises of all imports and exports to and from India. The Ministry of Commerce and Industry at the level of Central Government has responsibility to manage such operations. The domestic production reveals on exports and imports of the country. The production consecutively depends on endowment of factor availability. This leads to relative advantage of the financial system. Currently, International trade is a crucial part of development strategy and it can be an effective mechanism of financial growth, job opportunities and poverty reduction in an economy. According to Traditional Pattern of development, resources are transferred form the agricultural to the manufacturing sector and then into services.
Foreign trade in India began in the period of the latter half of the 19th century. During the Second World War, India accomplished huge export surplus and accumulated substantial amount of real balances. There was a huge pressure of restricted demand in India during the Second World War. The import requirements were outsized and export surpluses were lesser at the end of the war. Before independence, India’s foreign trade was associated with a colonial and agricultural economy. Exports consisted primarily of raw materials and plantation crops, while imports composed of light consumer merchandise and other manufactures. The structure of India’s foreign trade reflected the organized utilization of the country by the foreign leaders.
Since last six decades, India’s foreign trade has changed in terms of composition of commodities. The exports included array of conventional and non-traditional products while imports mostly consist of capital goods, petroleum products, raw materials, intermediates and chemicals to meet the ever increasing industrial demands. The export trade during 1950-1960 was noticeable by two main trends. First, among commodities which were directly based on agricultural production such as tea, cotton textiles, jute manufactures, hides and skins, spices and tobacco exports did not increase on the whole, and secondly, there was a significant boost in the exports of raw manufactures such as iron ore. In the period of 1950 to 1951, main products dominated the Indian export sector. These included cashew kernels, black pepper, tea, coal, mica, manganese ore, raw and tanned hides and skins, vegetable oils, raw cotton, and raw wool. These products comprised of 34 per cent of the total exports. In the period of 1950s there were balance of payments crunch. The export proceeds were not enough to fulfil the emerging import demand. The turn down in agriculture production and growing pace of development activity added pressure. The external factors such as the closure of Suez Canal created tension on the domestic financial system. The critical problem at that moment was that of foreign exchange scarcity.
The Second Five Year Plan with its emphasis on the development of industry, mining and transport had a large foreign exchange factor. This tension on the balance of payments required the stiffening of import strategy at a later stage.
In the age of globalisation, India is new entrant to expand international trend. In 1991, the government initiated some changes in its strategy on trade, foreign Investment, Tariffs and Taxes under the name of “New Economic Reforms”. Indian government mainly concentrated on reforms on Liberalization, openness and export sponsorship activity. It is witnessed that foreign Trade of India has considerably revolutionized export in the Post reforms period. Trade Volume increased and the composition of exports has undergone several noteworthy changes. In Post – reform Period, the major provider to export’s growth has been the manufacturing sector.
Though India has steadily opened up its wealth, its tariffs are high as compared with other countries, and its conjecture norms are still restricted. Foreign trade in India in legal term is the Foreign Trade (Development and Regulation) Act, 1992. The Act provide with the development and regulation of foreign trade by assisting imports into, and supplementing exports from India. To fulfil the requirements of the Act, the government may make necessities for assisting and controlling foreign trade, may forbid, confine and regulate exports and imports, in all or particular cases as well as subject them to exclusion. Government is endorsed to devise and declare an export and import policy and also amend the same from time to time, by notification in the Official Gazette, and is also authoritative to appoint a ‘Director General of Foreign Trade’ for the purpose of the Act, including formulation and accomplishment of the export-import policy.
Nonetheless, presently, the government has made policy on trade and investment policy that has established an obvious change from protecting ‘producers’ to benefiting ‘consumers’. It is reflected in its foreign trade strategy of India for 2004/09 which indicated that “for India to become a major player in world trade we have also to make possible those imports which are required to stimulate our economy”. With numerous economic alterations, globalisation of the Indian economy has been the foremost factor to formulate the trade policies. The announcement of a new Foreign Trade Policy of India for a five year period of 2004-09, substituting until now taxonomy of EXIM Policy by Foreign Trade Policy is major step in the development of foreign trade policy. This policy made the overall development of India’s foreign trade and offers guidelines for the development of this sector.
The objective of the Foreign Trade Policy is to twofold India percentage share of global merchandise trade and to act as an effectual instrument of economic growth by giving a thrust to employment generation, especially in semi-urban and rural areas. The growth performance of exports has been a result of watchful effort of the Government to lessen transaction costs and assist trade. The guidelines of the Foreign Trade Policy (2004-09) for a five year period clearly articulate objectives, strategies and policy initiatives that has been involved in putting exports on a higher growth line.
There are numerous challenges and issues in foreign trade. These include burden of export promotion schemes, danger of circular trading, and risk of importing outdated machinery. Sometimes policy fails to take a holistic view of trade issues. Other issue is relative importance of the home market, the nature or the degree of State intervention and recessionary conditions in the global market. India’s exports have suffered due to structural constraints operating both on the demand and supply side. On the demand side exports have continued to undergone the problems of adverse world trading environment, protectionist sentiments in the developed countries in the guise of technical standards, environmental and social concerns and tariff differentials in imports by the developed countries. At the supply end, the factors that have constrained exports from India include infrastructure constraints, high transaction costs, inflexibilities in labour laws, quality problems, constraints in attracting FDI in the export sector, etc.
It is summarized that foreign trade has significant function in the fiscal development of any nation. India has made strong foreign trade policies and reformed these from time to time with the process of globalisation and liberalization. Since 1991, India’s foreign trade considerably transformed. India’s major exports include manufacturing and engineering goods. India has good trading relations with all developed countries in the world. More than fifty percent of India’s total export trade is with Asia and ASEAN region and about sixty percent of India’s total imports is with the same countries.
India’s wealth previously was agricultural economy. India’s major requirement use to be food grains and other goods in import with fast industrialization, the composition of India’s imports goods changed and needed chemicals, fertilizers and machinery which were required to meet the developmental requirements of country. In the composition of export; country sells agricultural products such as tea, spices, and other raw materials. However, with the industrialization of the financial system, compositions of exports changed. Currently, India exports products such as machinery chemicals and marine products. This may enhance the fiscal condition of India.
Q.10. Enumerate the elements that make up culture. Why is an understanding of different cultures important to an International Marketing Manger? (10)
Elements of culture
Culture includes all facets of life. In order to obtain a total picture of a culture it is necessary to investigate every possible side of it. For facilitating an accurate study of culture, the anthropologists have evolved a “cultural scheme” which embodies the various elements of culture. The main elements included within the meaning of the term `culture’ are:
1. Material Culture
• Technology
• Economics
2. Social Institutions
• Social organization
• Education
• Political structures
3. Man and the Universe
• Belief systems
4. Aesthetics
• Arts, Folklore
• Music, drama and the dance
5. Language
• Language
Benefits of understanding different cultures
In today’s ever-changing world, people world over are fast realizing the importance of learning, understanding, and appreciating diverse cultures. It plays a major role in developing communities that excel in problem-solving and enhancing varying conditions.
The benefits of understanding different cultures are
1. Helps in Understanding the Market
The world comprises of people with diverse cultures. Where possible, being exposed to different cultures helps you embrace and appreciate people that are different from you. Further, the more your children interact with other children from different cultures, the more they respect and value them.
2. Minimize Stereotypes
When we learn about people and their different cultures, we’ll be less likely to classify them depending on stereotypes. Remember, everybody is different and what one person does shouldn’t be used to define an entire community.
3. Helpa Prevent and Overcome Ethinic and Racial Divisions
Ethnic and racial divisions can hurt society. For instance, it could lead to a lack of opportunities, misunderstandings, and in the worst cases, violence. Communities marred by ethnic and racial rivalry often suffer from both human and financial resources. These vices distract communities from finding concrete solutions to their budding issues.
4. Enhances Effective Communication
Language is a critical part of human communication. However, it’s not the only contributing factor to effective communication. Culture enhances communication in varying ways. For instance, culture can influence speaking tendencies such as; figurative language, speed, and presentation. Culture also contributes to the way people depict their gestures and body language.
5. Create opportunity to make new market
Having different cultures leads to different requirements hence understanding the cultura helps the organisation to create a new market.
Learning and understanding different cultures are critical in day to day life. Here are the reasons why you should be conversant with diverse cultures.
Learning about other cultures is interesting. Being exposed to culture learning opportunities stimulates the manager’s mind, and helps them to think in diverse ways. It’s an ideal way of challenging the thought development and enhancing how they refine information.
Lots of problems can arise from misunderstandings, especially because we live in a multicultural world. By learning and understanding different cultures we can understand why people do things the way they do. When we identify with other people, we sympathize with their situation. This facilitates understanding and prevents misunderstandings.
Many times, interacting with people from different cultures helps you view life from a different perspective. When you learn about different cultures, you establish new ways of thinking and approaching and solving problems.