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Copyright© 2002 Pearson Education Australia Pty Ltd 1

International Marketing Environment

1. Economical Environment

2. Political Environment

3. Cultural Environment

4. Technological Environment

1. Economical Environment


1. Population
2. Income
3. Trading environment
4. GDP & GNP
5. Inflation – Interest rate – Exchange rate
6. Infrastructure
7. Level of urbanization
8. Member of any international organization
9. Trade barriers

Economical Environment 3

1. Economical Environment

 It is estimated that 1/5 of the world’s population

lives < $1 a day.

 High income and developed market only takes

15% of the world

 Developing countries are finding it easier to

compete in international markets, but still face
higher barriers to entry than more developed
Economical Environment 4

Consumption Patterns

Both income and population impact on consumption

patterns. Engle’s law states that as income rises
above a certain minimum, expenditure on food as a
percentage of total income decreases.

Another issue is that product saturation levels

increase as per capita national income increases.

Economical Environment 5

Trading environment

 Regulated by Governments

 Governments desire to control trade flows tends to

be motivated by:
 Financial issues
 Security issues
 Safety issues
 Health issues
 Protectionist issues

Measuring Markets: Income

Countries are often classified according to levels of

income and measured by GNP per head:
 Low-income countries <US$755 per head

 Lower-middle-income countries US$756–$2,995

per head
 Upper-middle-income countries US$2,996–$9,265
per head
 High-income countries >US$9,266 per head

Economical Environment 7

Measuring Markets: Population

The fact is: the larger the population, the more

attractive the market is in terms of potential.

Distribution of population is significant in terms of:

 Age
 Location

Economical Environment 8

Measuring Markets:
Physical Quality of life

Economic advancement is usually accompanied by a

price tag.
While wealthy countries have the luxury of being able
to trade off development for quality of life, this luxury
eludes many less developed countries.

Economical Environment 9

Measuring Markets: Infrastructure

Infrastructure in very general terms refers to:

 Facilities and services necessary for functioning of
the economy.

 Transport and communications.

 Commercial and financial services.

Infrastructure impacts on physical distribution as well

as on the ability of firms to supply international
Economical Environment 10

Measuring Markets: Debt

Debt is another key indicator of economic difference

between countries.

In many developing countries, interest on debt

consumes a major percentage of export receipts.

Economical Environment 11

Measuring Markets: Resources

Resource endowment varies from country to country

Resource is the indicator of wealth

Resource identify the product or service of exports

In some countries the wealth is almost totally

dependent on a single resource (e.g. oil)

Economical Environment 12

Foreign Exchange Issues: Dynamics

 One of the problems which faces international

business is the fluctuations that occur in exchange

 The sometimes extreme fluctuation in rates has,

and will continue to have, an effect on profits of
large global firms.

Economical Environment 13

Foreign Exchange Issues: Forecasting

There are a number of factors that influence the

forecasting of exchange rates.

 Economic factors: these factors are policy and

performance, real interest rates and the importance of the
currency in the world’s financial system.

 Political factors: are important in the value attributed to a

currency. These include, party philosophy, stability of
governments, nature of underpinning power, sources of
impending change and the nature of government.

Economical Environment 14

Financial Management:
Types of Financial Risk

There are a number of different sources of

financial risk, including:

 Commercial risk
 Political risk

 Foreign exchange risk

Economical Environment 15

Financial Management:
Coping with Recession
Kotabe and Helsen (2000) propose eight strategies:

 Pull out
 Emphasis a product’s value
 Change the product mix
 Repackage goods
 Maintain stricter inventory
 Look outside the region for expansion opportunities
 Increase advertising in region
 Increase local procurement
Economical Environment 16

World’s 100 Largest Industrial
Corporations (Annual Revenues)

Economical Environment 17

Marketing implication

 Need to monitor the economic environment on

both a global and individual country basis

 Provides knowledge:
 To target specific markets
 Nature of customers and demand
 Most important segments
 Entry strategy
 Marketing mix
 Market potential
Economical Environment 18

Market implication

 Need to know the resources of funds when doing

business overseas

 Need to monitor the financial situation in the

economy of the overseas country
 Provides an indication of the likely stability of the
exchange rate, availability of funds, and the cost of

 Mechanisms exist to assess and minimize financial


Economical Environment 19

International Marketing Environment

1. Economical Environment

2. Political Environment

3. Cultural Environment

4. Technological Environment


The Role of Government

in the Economy
An extreme form of involvement is a state-
trading company which is a common
 Participator: feature of a commercial environment in
current and former communist countries.

Political Environment 21

The Role of Government
in the Economy

• Governments often attract new foreign

investment and technology by providing a
 Facilitator
range of concessions such as tax
holidays, duty-free import privileges, etc.

• Governments can also set up export

processing zones to attract international
manufacturing activity to generate exports.

Political Environment 22

The Role of Government

in the Economy

Government regulatory activities are often

 Regulator tied in with government planning activities.
There are several areas where the
government acts as a regulator including:
 Import duties
 Licensing fees
 Repatriation of profits, dividends and

Political Environment 23

Political Stability and Risk

To assess political stability in a target international

market, the firm should be aware of indicators of
political instability. These indicators include:
 The degree of social unrest that is caused by underlying
 The frequency of changes in the regime - because these
can mean changes in the attitude towards business
 The extent to which the country is divided culturally
 Religious division
 Linguistic diversity
Political Environment 24

Nature of Political Risk

The four main types of political risk:

 General instability risk

 Ownership risk

 Operating risk

 Transfer risk

Political Environment 25

The Assessment of Political Risk

Any appraisal of a firm’s exposure to political risk

in an overseas country should at least cover three

1. Product-related factors

2. External factors
3. Company factors

Political Environment 26

Managing the International Political

Firm can take a number of measures to minimize
potential political problems, these include:
 Company behavior
 Home government actions
 Contribution to the host country
 Localization of operations
 Globalization
 Political risk insurance
Political Environment 27

Company Behavior

Political neutrality
 companies should be conscious of which political
labels are acceptable and which are not

Combination investment/civic projects

 awareness of impact of a firm’s operations on
alternative government’s policies
 contributions to local infrastructure development are
likely to benefit not only the community but also the
Political Environment 28

Home Government Actions

Actions by a home country government or its

representatives towards an international country can
either enhance or retard the position of the firm in
that country
 e.g. Enhancement through:
• Giving aid
• Providing financial rescue packages
• According diplomatic recognition
Political Environment 29

Contribution to the Host Country

 Buying local products whenever possible

 Using the operation to generate exports

 Establishing training programmes for local


 Demonstrably upgrading technology levels

Political Environment 30

Localization of Operations

 Forming alliances or joint ventures with local firms

 Recruiting locals to occupy senior management


 Local borrowing or investment minimisation

Political Environment 31

International Law

International law grows out of the agreement of two

or more nations and implies a desire to lessen
differences in the way countries treat legal

Political Environment 32

Differing Legal Systems & Jurisdictions

Common law: based on tradition, past practices, legal

precedent, and interpretation via court decision

Code law: based on an all-inclusive system of written

rules of law

Islamic law: based on the Koran, and applied by

Islamic countries

Other legal codes: include tribal (or indigenous) law,

and socialist laws

Political Environment 33

Legal Jurisdiction

A common legal problem in international business

is determining which country’s laws apply in
the event of a dispute. This is decided according
to whether the country is nominated in the
jurisdictional clause in the contract, where the
contract is entered into or where the provisions
of the contract are carried out.

Political Environment 34

Law and the Marketing Mix

The law as it applies to commercial activities varies

between countries, even when countries operate
under the same legal system.

Political Environment 35

Law and the Marketing Mix


Both the physical and chemical aspects of a

product are affected by laws seeking to protect
consumers. Such laws may prescribe standards
for purity, safety and performance.

Laws also apply to packaging and may specify the

type of outer packaging material, the nature of
the container and labelling.

Political Environment 36

Law and the Marketing Mix

The free market system does not operate in many

countries. National health laws and government
price controls can have a significant impact on
the prices that may be charged in international

Prices are also affected by taxes such as sales

tax, value added tax, import tax and port tax.

Political Environment 37

Law and the Marketing Mix

 Laws in most countries cover:
 Shipping
 Regulation of airline services
 Rights of carriage by air and sea
 Liabilities for loss and damage to cargo

 Many countries have regulations regarding the

conditions under which a international firm might
terminate the local agency agreement.
Political Environment 38

Law and the Marketing Mix

Some of the frequent areas of regulation relating to
promotion include:
 Trade descriptions
 Prohibitions on advertising certain products
 Prohibitions on using certain words and expressions
 Limitation on extent of promotional expenditure
 Content and style of advertisement
 Other promotional elements

Political Environment 39

In conclusion, specific Marketing Laws

 All countries have laws regulating marketing

 Promotion
 Product development
 Labeling
 Pricing
 Channels of distribution.

 There often are vast differences in enforcement

and interpretation among countries having laws
covering the same activities.
 Censorship of advertising is a constant concern.
Political Environment 40

International Marketing Environment

1. Economical Environment

2. Political Environment

3. Cultural Environment

4. Technological Environment



“Culture prescribes the forms of behaviors that are

acceptable to people in a specific community.”

“Culture is the human aspect of a person’s

environment; it consists of beliefs, morals, customs,
and habits learned from others”

 Culture is learned

 Culture is subjective

Cultural Environment 42

Impact of Culture on International
Buy understanding the culture, marketer can

 Conditions needs and wants of potential buyers

 Impacts on the way messages are received and


 Pervades all elements of the marketing mix

Cultural Environment 43

Cultural Universals

 desire to look beautiful, keep track of time
 desire to co-operate, to be a member of a group,
differentiate according to status
 such as courtship, religious observance,

Cultural Environment 44

Elements of Culture

 Rituals
 Marriage
 Funerals

 Symbols
 Language
• Linguistic distance
 Aesthetics as symbols
• Insensitivity to aesthetic values can offend, create a
negative impression, and, in general, render marketing
efforts ineffective or even damaging

Cultural Environment 45

Elements of Culture

 Beliefs
 To make light of superstitions in other cultures can be
an expensive mistake
 Thought processes
 Difference in perception
• Focus vs. big-picture

Cultural Environment 46

Global Comparisons

Hofstede undertook a global survey of IBM and

came up with four underlying dimensions of
 Power distance
 Uncertainty avoidance
 Individualism/collectivism
 Masculine/feminine

Further research caused a fifth dimension to be

 Long-term/short-term orientation

Cultural Environment 47

Global Cultural Comparisons

Hofstede Studies
1. Power distance: degree to which less powerful persons in a
culture accept the existence of inequality and the unequal
distribution of power as a normal situation

2. Uncertainty avoidance: extent to which people in a culture feel

threatened by uncertain or unknown situations

3. Individualism/Collectivism: extent to which people in a culture

look after their own interests and those of their immediate family,
and where ties are loose

4. Masculine/Feminine: reflected in the different social roles for

men and women

5. Long-term
Cultural vs. short-term orientations: extent to which
Environment 48
cultures exhibit a pragmatic, future-oriented perspective as


’s classification

Japan North W. Europe

(Canada, USA,
Great Britain) Northern Continent Greece

Individualism low high high high low

high low low high high
Masculinity high high low high high
high low low high high
Context high low high low low
Note: “Context” added.
Source: Adapted from Hofstede, 1980 49

Key Cultural Differences

 Time
 Space
 Language
 Education
 Familiarity
 Consumption patterns
 Business customs
 Social organization

Cultural Environment 50

Patterns of Consumption
(annual per capita)

Cultural Environment 51

We All Love Flowers – Why?

 Geography
 History
 Technology and economics
 Social institutions
 Cultural values
 Aesthetics as symbols

Cultural Environment 52

Hofstede’s Indexes
Language, and Linguistic Distance

Cultural Environment 53

Cultural Communication

 Verbal communication

 Non-verbal communication

 Cultural adaptation and communication

Cultural Environment 54

Non-verbal Communication

Care should be taken to spot non-verbal signals,

as these can supplement the verbal signals to yield
a more accurate picture of reality. The most
important signals according to Morris are:

 Body stress signals

 Lower body signals
 Body posture signals
 Random gestures
 Facial gestures

Cultural Environment 55

Cultural Adaptation & Communication

Adaptation is an important concept in international

marketing. To understand adaptation a list of ten
basic criteria was developed by Cateora. They
 Open tolerance Flexibility
 Humility Justice/Fairness
 Adjustability to varying tempos
 Curiosity Knowledge of the country
 Liking of others Ability to command respect
 Ability to integrate into the environment

Cultural Environment 56

Degree of Adaptation

 Essential to effective adaptation is awareness of

one’s own culture and the recognition that
differences in others can cause anxiety, frustration,
and misunderstanding of the host’s intentions.

 The key to adaptation is to maintain your domestic

culture but to develop an understanding of and
willingness to accommodate the differences that

Cultural Environment 57

An orientation toward time:
P-Time versus M-

 Monochronic time:
 Tend to concentrate on one thing at a time
 Divide time into small units and are concerned with
 Most low-context cultures operate on M-Time.

 Polychronic time:
 Dominant in high-context cultures
 Characterized by the simultaneous occurrence of many
 Allows for relationships to build and context to be absorbed
as parts of high-context cultures.
Cultural Environment 58

Social aspects of the

conduct of International Marketing

 Social sensitivity

 Good corporate citizenship

 Ethical considerations

Cultural Environment 59

Cultural & International Negotiation

 Background to negotiation
 The environment of international negotiation
 Culture and the conduct of negotiations
 Preparing for international negotiation
 Stages in international negotiation
 The atmosphere of international negotiations
 Styles of negotiation

Cultural Environment 60

Culture & the conduct of
There are a number of culturally influenced factors
that need to be kept in mind when negotiating with
people from other countries:

 Different approaches to thinking

 Self-esteem and “face”
 Value systems
 Appropriate degree of formality
 Harmony and emotion

Cultural Environment 61

Preparing for International

The key components when preparing for
international negotiations are:
 Strategy

 Composition of the negotiating team

 Researching the context of negotiations

Cultural Environment 62

The Atmosphere of
International Negotiations

 Degree of mutual orientation

 Feelings towards the other party

 Openness versus secrecy

 Willingness to make cultural adjustments

Cultural Environment 63

In Summary…

 Businesspersons working in another country must

be sensitive to the business environment and must
be willing to adapt when necessary.
 Business behavior is derived in large part from the
basic cultural environment in which the business
operates and, as such, is subject to the extreme
diversity encountered among various cultures and

Cultural Environment 64

International Marketing Environment

1. Economical Environment

2. Political Environment

3. Cultural Environment

4. Technological Environment


The Global Network

Organizations are embracing three key areas of

networked enterprise:

 E-learning

 Internet commerce

 Customer support

Technological Environment 66

The Challenges & P ossibilities for
International or Global Marketing

 Currently 80% of websites are in English but only 20%

of the world’s population speak English.

 The level of knowledge and usage patterns are gaining

momentum despite the spectacular failures of
2000 and 2001. This early failure could be attributed
to the very limited research on the extent of business
activity from the web.

 Electronic commerce is growing at a rapid rate in

global industries.
Technological Environment 67

The New Information Infrastructure:

Constraints and Limitations
 Inefficient website search directories and processes
inhibiting ease of access;
 Slow access time and downloading of images;
 Large amounts of out-of-date information;
 Perceived lack of security;
 Uncertainty in many countries with regard to policies for
 Major corporate rivalry in the development of technology
standards within the new infrastructure;
 Resistance to implementation on cultural grounds.
Technological Environment 68

Implications for International


Business customers and consumers have much

quicker and more widespread access to business
intelligence, company products and services, price,
new innovative concepts and potentially higher
levels of service.

Firms can use information and communication

technologies to access and service markets which
previously were considered too remote or too
expensive to address.

Technological Environment 69

International Diffusion of Innovation

The propensity of customers to adopt new

products varies considerably in international
markets and, according to Sheth and Sethi is a
matter of:

 Differences in cultural lifestyle

 Strategic opinion leadership
 Economic environment
 Communication

Technological Environment 70


The information and technology revolution in the

new century is transforming the international
business environment.

Access to information and to the purchase of

services and certain products via the Internet or
intranet systems provides the opportunity for firms
to instantly reach and be reached by international
customers and prospects connected to these

Technological Environment 71