Factors Influencing International Sales

8/21/2019 Factors Influencing International Sales

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PROJECT REPORT ON

FACTORS INFLUNCING SALES IN INTERNATIONAL

MARKET

BY

NAYANA PREMCHAND PULIYAMKOTTU

MMM-V

BATCH: 2012 -2015

ROLL NO: 43

UNDER THE GUIDANCE OF

PROF POONAM CHAUHAN

K. J. OMAIYA INTITTE OF MANGEMENT TUDIE ! REEARCH

VIDYANAGAR" VIDYA VIHAR #E$" MUMBAI- 400 0%%


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Executive Summary

Exports of a country play an important role in the economy. A healthy balance, a

sustainable development with trade and foreign exchange reserves to maintain the

country's export growth should be a constant and high rate. Exports as a whole affectthe industrial environment. To compete internationally, the industry standard for

quality products, competitive price, good packaging, etc, which is important for

overall industry.

ndia's !"# growth rate in exports is strong factor contributing to !"# increases

constantly day by day ndia in terms of population after $hina the second largest

country in the world. ndia's economy has performed well in recent years after the

country began to open in %&&%. ndia's exports enter the T( since %&&) has

doubled.

Exports in ndia decreased to *)+-./ 01" 2illion in April of *%- from *&)3/.-

01" 2illion in 2arch of *%-. Exports in ndia averaged &+.-/ 01" 2illion

from %&)3 until *%-, reaching an all time high of )-%.-- 01" 2illion in 2arch

of *% and a record low of )&.% 01" 2illion in 4une of %&)/.

O&'()*+,( */( P'()*:

%. To understand nternational market and nternational 1ales

*. 5actors influencing nternational sales.

. 6urdles in nternational sales.

-. 1olution to overcome the huddles.
http://www.eximtutor.com/start-to-export-htm/http://www.eximtutor.com/start-to-export-htm/


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ntroduction

/* + +*(*+ 67(*+8 9 (

nternational marketing is the performance of business activities designed to plan,

price, promote, and direct the flow of a company7s goods and services to consumers

or users in more than one nation for a pro8t. The only difference between the

de8nitions of domestic marketing and international marketing is that in the latter

case, marketing activities take place in more than one country.

And like wise an international sales is the sale carried on in between two nations.

There is a huge difference between nternational marketing and "omestic. The

uniqueness of foreign marketing comes from the range of unfamiliar problems and

the variety of strategies necessary to cope with different levels of uncertainty

encountered in foreign markets. $ompetition, legal restraints, government controls,

weather, 8ckle consumers, and any number of other uncontrollable elements can, and

frequently do, affect the pro8table out9 come of good, sound marketing plans.

!enerally speaking, the marketer cannot control or in:uence these uncontrollable

elements but instead must ad;ust or adapt to them in a manner consistent with a

successful outcome. hat makes marketing interesting is the challenge of molding

the controllable elements of marketing decisions


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instead of one. 0ncertainty is created by the uncontrollable elements of all business

environments, but each foreign country in which a company operates adds its own

unique set of uncontrollable factors.

n this study we will try to understand those factors deeply and will also look intosome of the cases which will make us understand its consequences.


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5A$T(>1 ?50E?$?! ?TE>?T(?A@ 1A@E1

A pilot has to check the atmosphere prior to take9off and landing his aircraft. A sailor

has to understand the depth of waters before sailing peacefully. A farmer has to plant

seeds depending on the nature of the soil and monsoon. (n the same line, aninternational business entry or operation depends upon multiple environmental

factors. They may change the direction, strategy and every moment of international

business operations.

An international marketer is required to understand, evaluate and work out various

parameters before venturing into any country. These #arameters are called

environmental factors and they determine the direction and purpose of the

international business operation. 2any decisions depend upon environmental factors

right from selection of the country, location of the plant, liaison with the government,

and entry of investment from local bodies, products

launch, channel management, promotion and opening of outlets. The first challenge

for an organiation is to navigate from its home country to the host country.

Thereafter it has to develop a proper system so that the venture is successful in the

host country learn all about the regulatory bodies both in the host country and home

countryB understand the customer7s changing tastes and attitude towards foreign

goods and finally obtain revenue and make the business effective with right people. A

ma;ority of the multinational corporations and large business houses appoint a team

of experts who are specialists in economies, political science, sociology, industry

psychology and policy matters, to advice the management on its strategic decisions.These experts are called risk analysts. #rior to entry or investing millions of dollars,

the experts gather all the relevant information about the country and interpret those

facts to facilitate the company. Cy such risk analysis, companies can safeguard

themselves from future dangers.The ma;or risks areB

%. #olitical

*. Economic


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. Exchange

-. 1ocio culture

). 5inancial

+. @egal

3. Technological

/. $ompetitive

&. nfrastructural and

%. @abour.

An organiation can overcome the effects of all the risks by taking into account the

different environmental factors. 1ince the home environment is known, one can

understand and overcome the pitfalls in the event that any action goes wrong.

The international business related environments vary from continent, country to

country and even from region to region. A detailed and comprehensive

analysis of such fast changing environment is essential for formulating business

strategies. Even well known companies with financial power, advance technology

and an efficient management team have failed in other countries. Examples are the

Enron pro;ect which did not take off in ndiaB American style of managing a sales

force which never worked for #rocter and !amble in 4apanB the multilayer marketing

technique of Amway, which did not work in

1outh Dorea and Dentucky 5ried $hicken


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are quite conducive to a company at the time of entry and later on they may pose

ma;or challenges Argentina

attracted huge investments before *. After **, they became detrimental to

innumerable organiations. 6ence environmental factorscould be stimulant or detrim

ental.f it is stimulant, the business will flourish. Cut if it is detrimental, then the

company has to be cautious.


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ECONOMIC ENVIRONMENT:

The economic environment can be classified into three categories a= Economy

in the home country b= Economy in the host country c= Economy at a global level.

A$ H6( );*< E)6ed is still widely used in >ussia, in banners, posters, and hoardings although

communism is in no way relevant to modern >ussia.

*. @anguage $ross culture and cross border operations call for necessary

language skills, e.g. 1outh Doreans have learnt ndian languages to operate in ndia.

(ne can see this in 6yundai or @! factories in ndia. $ompanies also have to change

their brand names and slogans in different countries. n 4apan, !eneral 2otor7s

slogan Jbody by fisherK means Jcorpse by fisherK, and #epsi $ola slogan Jcome

aliveK means come out of the grave. #rior to promoting the brand, one has to take into

account the socio9cultural background of a specific nation and different

interpretations of a name in the local language.

. Ialues and beliefs t is also important for companies to understand the

significance

of different designs and colors in different countries. 5or example, blue is perceived a

s

feminine in 6olland andmasculine in widen. !reen is favorite color in the 2uslimwo


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rld, but is associated with illness in 2alaysia although it is a 2uslim country. hite

indicated death in china and Dorea but it is the color of bridal dresses in Europe.

>ed is associated with danger in many countries but it is a favorite in >ussia. Another

example is Lswastika7, which is considered sacred in ndia, but has completely

different connotations in the west.

-. "emography A number of demographic factors such as age, sex ratio, family sie

and occupation influence the business of many companies. "ifferent companies

concentrate on different segments. 5or example, Carbie generates huge revenues

through the children7s segment of affluent countries.

). @iteracy rate $ountries with a high literacy rate experience a better standard of

living. 6ere the need is for standardies goods, supported by technical services. 5or a

country with an educated population, the amount of training required for the staff will

be far less than in the case of the country which has a low literacy rate. This is

an important factor, as it influences the cost incurred. An argument holds in the case

of educating the consumer about the products manufactured.+.5emale ork force the

most spectacular change that has taken place in the current era is the empowerment of

women throughout the world.

n$hina, ndonesia, >ussia and Thailand, women are ma;or contributors to the !"#.

ith economic independency, women no longer have to depend on men to make

decisions about what to buyB they can make their own decisions about whether

to purchase any

consumer product or durable. "ulex, a wellknown brand of paint in Europe was promoted throughcampaigns directed at women, because it was felt that women

have an aesthetic taste for colors in the household paint segment. The performance of

the i9pod of Apple hit the roof in

terms of revenue generation due to female customers. The female work force is very

strong in various sectors in many countries. Examples are ndian women in T

enabled services and handicrafts, $hinese women in the soft toys and ceramics and


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ndonesian women in garments and paper work, who have brought great success to

their countries.

3. "ouble ncome 5amilies As the household income increases, the demand for the

number of products increases proportionately. This is especially true for packagedfood items, electronic gadgets, household appliances, health equipment, 4apanese

entertainment electronics and 5rench perfumes dominate in the whole of Europe and

?orthAmerica. #ia Express, 2c"onald and Dentucky 5ried $hicken invariably

rule the households of double income families throughout the world

/. mpulse buying Cenefit oriented buying is taking place everywhere. #re9 planned

shopping and scheduled purchases are gradually going away. Throughout the world,

people need instant items. They see, ask and buy.

t is a ma;or challenge to international businessmen to provide benefits to lure

impulse buying


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POLITICAL ENVIRONMENT.

The political environment in international business operates indifferent dimensions

%. The home country political environmentB

*. The host country political environment, and. The global political environment.

%. 6ome $ountry #olitical Environmentn an ideal world, one would not normally expect domestic policies to affect the

firm7s international activities. 1ome countries like the 01A encourage their

organiation to establish activities abroad, especially in their core competency fields.

4apan encouraged their electronics and auto companies to spread their activities

outside 4apan. "omestic firms that continue to invest and manufacture abroad while

ignoring their home country are often accused of creating domestic unemployment

problems and may be sub;ect to political pressure, from the government. ndian

government encourages business houses to go and perform outside in steel,

healthcare, mining, textile and automobile.*. 6ost $ountry #olitical Environment

f the actual benefits of foreign firms are shared in terms of employment, taxes andsocial security with the locals, political atmosphere tends to be hospitable. f it is felt

that the foreign firms contribute nothing to the well being of the nation, it may

produce a hostile reaction from the business community and labor organiation,

which in turn puts pressure on the government. n extreme cases, this may lead to

either political turmoil or the appropriation of the assets of the foreign firm .2c

"onald had to face a change in the ruling party, in srael. hen the ?ational

>eligious #arty #= came into the power it demanded that 2c"onald should

change its practices or be shutdown.. !lobal #olitical Environment

This may be describes as the combined politics of the home country, the host country

and the other countries in the world. 2ultilateral agreements between international

organiations, such as !AAT, the 0?( and the $ommonwealth, may constitute an

impediment to free trade as well as to the nature and scope of the operation ofinternational firms. Embargos, $artels, free trade pacts and customs7 unions allow


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a few nations to en;oy competitive

advantages, whilst others lose their business prospects. 6owever, there may also be

advantages, e.g., the common wealth generalies 1ystems of #references


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CULTURAL ENVIRONMENT

The cultural environment for international business refers to these of factors which

shape the material and psychological development of a nation and represents the

primary influence on individual lifestyle, attitude, pre9deposition and behavior asconsumers in the market. The most important task of international

business is to identify relevant similarities and differences among countries, and

means and methods to matchthe organiation7s culture with that of the country of its

operation. 5or example, when Toshiba gained % percent ownership of >ank9

Toshiba in the #lymouth all the managers in charge learnt the Critish 1tyle

of working. orking it is the operation of a business or dealing with customersone cannot overlook cultural elements. The performance of a company

in the international arena partly depends on how well the strategic elements fit into

the culture of the host country. $ulture may be described as the totality

of the complex and learned behavior of members of a given society. Elements of

culture include beliefs, art, morale, code of conduct and customs. $ulture has the

following three characteristics

-I* + ((9:acquired by people over time through their membership in a group that

transmits culture from generation to generation.

- I* + +*((*(9:i.e. one aspect of the culture is connected with another part, e.g.

religion and marriage, or business and social status.

9I* + /(9:i.e. tenets of a culture extend to other members of the group

$ulture is perhaps one of the most important determinants of human behavior. 5ood

habits, social class, the family system, community units and other cultural and sub9

cultural elements influence the process of decision making in day to day dealings and

the buying habits of customers. Thus, there is a need for cross9cultural

understanding because of the significant differences in attitude, belief,

motivation, perception and life styles between


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nations. 5or example, branded products will move fast in Europe and America, but

Africans perceive branded products as being very expensive.

T/( I;()( C;*;( I*(*+ B;+(

%. The 0tility value of a product may differ considerably fromcountry to country

because of differences in beliefs, values and lifestyles. 5ast foods, such as Dentucky

5ried $hicken, 2c"onalds, hamburgers and pias are more popular in modern

societies than in traditional societies. 1imilarly, branding and packaging are very

susceptible to cultural bias.

*. #roducts are launched in markets on the basis of either perceived or real utility

value. #roducts from certain parts of the world such as estern Europe, 4apan

and 0nited states command premium prices in developing countries because it is felt

that they are of better quality than locally manufactures products. They have a higher

value.

. $ulture is perhaps the most powerful influence in determining the acceptability of

advertising copy, design and other elements in various countries. Advertisements

released in 5rance may not be acceptable in the 0nited Dingdom. 2any

advertisements acceptable to the other parts of the world will not be accepted in the

1audi Arabia. @iquor advertisements are prohibited in many countries

-. 6olidays in different countries vary on religious grounds. 5riday is a holiday in

the whole of gulf region. n $hina, the offices and factories are closed for a week for

the ?ew Mear celebrations. 5or companies having firms in different countries,

it is therefore impossible to impose the rule of common business practices

everywhere, as productivity would be very low during festive days. Any strict

implementation of company policy will have direct repercussions, which may even

lead to closure of the business in different countries.


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). @ocal norms and practices may affect certain distribution strategies. Eating in

public .#laces during >amadan days is prohibited in 2uslim countries. Therefore,

eateries are notopened during the day at this time. n 1pain, mail order shopping

is very popular, whereas in the 01 and Europe chain stores are preferred, and door9

to9door delivery is common in many 1candinavian countries. 1hopping malls are

coming up in urban ndia faster than in any other country in the world. 1till

small traditional shops near hometown are perceived as trustworthy suppliers when

the customers need groceries.

CAE: IKEA

n order to further understand the impact of culture on real life basis, we will consider

studying the case study of DEA in $hina which would provide the cultural view

from a marketing perspective. 2arketing which forms a key aspect of the company7s

strategy to enter a new region needs to be customied according to the culture of the

region. DEA 1hanghai focused on the local culture and behaviour whilst creating its

marketing strategy for the local customers.

DEA 1hanghai7s marketing mix of - #7s will further elaborate on this customiation

to meet local culture.

P9;)*

an "uffy, DEA7s $E( of Asia9#acific region, said JDEA7s localiation in $hina is

to appeal to $hinese customers7 taste. 5or example, the range of products offered in

the $hinese market should match the customers7 preference. The showrooms should

be designed and arranged in accordance with a $hinese styleK.

The company adapted such a product strategy that was insync with the oriental design

which achieved success


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of the products DEA sells in $hina is for $hina only, in contrast to %G in DEA7s

European marketK


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expensive products, later on the company decided to source locally and thus cutting

down the prices which were easily affordable by the customers


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The company does not market its products specifically to each type of customer but

rather @et the customers to make their own choices through its catalogues. As seen

from the literature review that independence and liberty in decision making is well

appreciated by employees of a firm, it may well apply to the $hinese customers as

well who would like to make their own decision rather than be told what to buy.

0sing local faces for better assimilation in an advertisement is useful to get

customers7 attention


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1ome of the limitations of this approach would be the critique of 6ofstede model by

other researchers wherein they state that he quantifying of cultural issues may

possibly hamper validity of research. This also remains the same case for various

companies entering different regions with an entirely different culture thus creating

culture clash possibilities. The employees of the parent firm may be working with

newly hired employees in a foreign region either in person or remotely however

culture would play a key role if the new development has to take place smoothly

TECHNOLOGY ENVIRONMENT

Technology and its applications are key factors in determining theinternational

competitiveness of a firm in conducting international business. 2ultimedia using

#entium - is common in advanced countries whereas it will take at least another five

years to introduce such products in Africa. @eadership in technology is achieved and

maintained through a consistent program of intensive researchand development, which can be very expensive.

(nly those companies that are able to maintain their technological activities will

remain competitive A $ompany may invest millions of dollars in >O", despite the

fact that the pro;ected revenue in the home country would be very low.

6owever other countries will generate huge revenues over a period of time. The

6offkins, Cio >ad, !enen technology and #fier are examples of institutions andfirms, who are investing huge sums of money in >O", because they are sure of their

returns on their investments over a period of time. n the late*th century, Asian

tigers, 4apan, 1outh Dorea, 6ong Dong, 1ingapore and

Taiwan achieved a miraculous success due to their investment and implementation of

the technology policies in specific sectors.

5ew countries, such as 4apan for electronic equipment, !ermany for medicalequipment, and the 01A for pharmaceuticals have remained leaders in their fields for


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decades. (ther countries have remained behind them. The time between the

innovation and its adoption and its adoption may vary to country. nnovating

countries are few. 5ollowing countries are many. Technology leader7s encash on

skimming pricing strategies, wherein the margins are huge.

Eriksson, ?okia, 2otorola and @! have beensuccessful since they manufactured cell

phones. $urrently, the businessopportunities exist in every country in the world. The

people around the world are adaptable to the technology too. hile technology

innovation is adaptable to the masses, the companies involved in such business

prosper. Today 6ewlett #ackard,

5u;itsn, Apple, 1amsung and @enova competeagainst each other by educating the

workers on using their laptops and launch their new versions everywhere

LEGAL ENVIRONMENT:

This relates to the laws and regulations governing the conduct of business activities inthe country. Cefore entering any country, firms avail of the services of local legal

firms to understand business interpretations pertaining to labor legislations, taxes,

environment, pollution, investment, distribution, contracts, logistics etc.

The international legal environment has three aspects

a= 6ome country laws b= 6ost country laws c= nternational laws.

$ H6( C;*< L>

These deal with two important issues i= $onduct of the firm in the domestic territory.

ii= Trade with the other countries

5or international operators, the home country laws are not stringent. They are more of

facilitating or regulating in nature, but not controlling in normal practice.

&$ H* );*< >


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These include investment regulations, tariffs and duties, anti9dumping regulations and

protection of local industries from unfair competition from industrialied countries.

Tariffs and duties are used to discourage imports of non9essential products in order to

conserve foreign exchange and maintain a favorable balance of trade and to generate

revenue. 1even advanced countries impose laws against developing countries. 1uper

% against ndian nylon skirts imposed by 01A as inflammable fabric and ban on

ndian sea food by Europe are the examples.

)$ I*(*+ L>

These comprise treaties, conventions and agreement between nations, and have

basically the same standing as laws. They are particularly in areas relating to patents

and trademark protection and privacy laws. (ne has to understand the broad

provisions of 0? resolutions, and multilateral trade agreements such as the T(.

"isputes are solved

bydifferent means. 5ood and drug administration, health regulation, registration

formalities are ;udiciously implemented in international Cusiness operations.

nvestment restrictions in some sector, promotionin others and the role of regulatory

authorities are part of legal environment. 5or example, ?igerian government

nationalied the assets of Critish petroleum, when it was revealed that the company

as selling ?igerian crude oil to 1outh Africa, despite an embargo.


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COMPETITIVE ENVIRONMENT:

$ompetition is a threat imposed by an environment, which may effect or hamper or

challenge the operation of an international business firm. $ompetition either could be

from the firm7s home country or host country or third country. 1ometimes productrelated competition may

crop up through substitutes or low cost production process or technology or cost

reduction through economies of scale. The current international business operation

has to encounter competition as various levels such as entry, operation, production,

administration, human resource, technical resource, and financial

resource. "istribution and logistics. 2otorola had to face the face the competitionfrom ?okia, soon ?okia concentrated in fast growing markets of ndia and $hina

resulting the follower became leader in the world. $uba based hite

1pirit $ompanyB 6avana club entered very late in the field and surpassed the

erstwhile leader like 1mirnoff .Tusker and #hoenix F the ma;or beer brands in

$(2E1 $ountries


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HURDLE IN INTERNATIONAL ALE

#>$?!

#ricing is one of the most important marketing mix decisions, price being the only

marketing mix variable that generates revenues. #ricing is not a single concept, but a

multidimensional one with different meanings and implications for the manufacturer,

the middleman and the end9customer. #ricing strategy is of great importance because

it affects both revenue and buyer behaviour. The whole pricing environment istherefore considered, first from the point of view of the company and its strategies

and then from the aspect of the consumer. 6owever, it must not be forgotten that

there are other, external influences on pricing 9 not ;ust a firm7s competitors but also

from government and legislation. (nce these factors have been taken into account,

various pricing strategies are reviewed and some attention is given to how best to

implement those strategiesB how pricing levels can be ad;usted and how such tacticsdo affect buyer behaviour and company revenue. The multidimensional character of

price should be taken into account for the pricing of products and services. #ricing

involves the determination $E A>

The battle between #rocter O !amble and Dimberly9$lark brought #ampers and6uggies, respectively, to places they have never been, forcing down diaper prices


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worldwide, and expanding the global market for disposable diapers. A battle in Crail

between the two giants gives an interesting glimpse of the global markets of

tomorrow. "isposable diapers are still considered a luxury by the vast ma;ority of

Crail7s %&- million people, whose average annual income is under P/,. Cefore

#O! and Dimberly arrived, rich and poor alike generally made do with cloth or

nothing at all. The disposables that were avail9 able were expensive, bulky, and leaky.

hen less than ) percent of the Crailian mass market used disposable diapers, #O!

launched #ampers 0ni, a no9frills, unisex diaper. Cefore 0ni, it cost more to pay for

disposable diapers than to pay for a maid to wash the cloth ones. The introduction of

the relatively cheap, high9quality 0ni fundamentally changed the economics of the

diaper market for most middle9class Crailians. T he plan was to put such

nonessentials as disposable diapers within the reach of millions of Crailians for the

8rst time. At the same time, the Crailian economy was on the upswingQ in:ation

had subsided, and overnight, the purchasing power of the poor increased by *

percent. @ow9priced products :ew off the shelves. #O! had to truck in diapers from

Argentina as it struggled to open new production lines. Cut the good days did not

last. Dimberly9$lark entered the market and began importing 6uggies from

Argentina. ith the help of a 0nilever unit as its Crailian distributor, Dimberly9

$lark gained immediate distribution across the country and quickly made deep

inroads into the market. 0nilever agreed to work with Dimberly9$lark because its

archrival in soap was #O!, and Dimberly9$lark7s archrival in diapers was #O!. The

two companies previously had entered into a global alliance to look for winFwin

situations when it was in both their best interests to partner and help each other, from

a competitive standpoint, against the dominant #O!. The Crailian market was the

perfect case for cooperation. ith 0nilever7s help, Dimberly9$lark Jpush girlsK in9

vaded markets to demonstrate the diaper7s absorption. 1ales rose rapidly and began to

exceed production. To increase market share, Dimberly9$lark formed an alliance with

Denko do Crail, #O!7s largest home9grown rival, and created the J2onicaK brand.

J2onica7s !ang,K a comic strip similar to J#eanutsK in the 0nited 1tates, sells widelyin Cra9 il. 1Ro #aulo malls were crowded with thousands of kids waiting to get an


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Easter photo taken with actors in 2onica suits, an honor that required the purchase of

three packs of diapers. 2onica diapers were a big hit, and Dimberly9$lark became

number one in the Crailian market. t was a tough blow to #O!. The company had

devoted an entire page of its annual report to how #ampers 0ni had tripled its market

share in Crail, helping #O! Jretain the number one position in a market that has

grown 8 vefold.K ?ow it suddenly found itself on the defensive. 5irst it cut prices, a

step #O! loathes. J#rice cutting is like violence ?o one wins,K said the head of its

Crailian operation. Then it broadened its prod9 uct range, rolling out an up9market

diaper called 1uper91eca, priced *) percent higher than #ampers 0ni. @ater, in a :

ank9 ing move, it also unveiled $onfort91eca, a bikini9style diaper originally

developed for Thailand and priced % to %) percent lower than the already9

inexpensive 0ni. D imberly9$lark 8 red back, matching the price cut and then

introducing a cheaper version of 2onica called Tippy Casic. 5our weeks later, #O!

cut prices another % percent on 1uper9 1eca and $onfort91eca. "espite the price

cuts, the two brands were still relatively expensiveB then a wave of really cheap

diapers arrived. $arrefour, a 5rench retailer that is now Crail7s biggest supermarket

chain, sells crudely made Cye9Cye #ipi diapers from 2exico. "espite their inferior

quality, the cheap imports pulled down diaper prices across the board. The real war

started when lower prices became so attractive that consumers who otherwise could

not afford diapers came into the market. As prices continued to drop, the market

grewB that attracted more producers, which were mostly small, local Crailian

companies that offered even lower9 priced competitive diapers. (ne such company,

2ili, saw its market share increase from -./ percent to %+.* percent over a three9year

period. hat accounts for growth of these smaller companiesS (ne analyst suggests

that the multi9 nationals are too sophisticated and, thus, too expensive for the

Crailian market J1maller companies are ;ust supplying what consumers need at a

price they can afford.K Cut it also can be said that as prices drop, products become

more attractive to a larger segment of the total market.

This case shows how pricing affect a company7s sales and how it can change buying

behaviour of consumers.


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#(@T$A@ >1D

$ompanies look at the host country7s current or future political system to assess the

political risk. 6owever, international businesses always face some political risk. fyou operate a $anadian company, foreign customers may be unable to pay in full and

on time because of instability from currency controls imposed by the government.

Types of #olitical >isk A company needs to evaluate all of these issues when

analying level of political risk in a country. $ompanies must consider the safety of

both their products and their people in unstable political situations.

%= >isk of !eneral #olitical nstability !eneral political instability may not be

considered serious enough to cause investors to withdraw from a country. 6owever,

general instability risk raises uncertainty about $anadian pro;ects overseas.*= (wnership >isk when operations are threatened by government takeover or

expropriation, owners may lose their offshore property. This is referred to as

protectionism and nationaliation of business.

= (perations >isk !overnment policies of the host country may impede businessoperations such as finance, marketing, or property. These policies are known as

operations risk.-= Transfer >isk government policy may adversely affect currency exchange rates.

hen policy results in currency devaluation or economic downtime which can affect

a company7s ability to transfer capital out of the host country. hen a company

creates wealth in another country it may be forced to return a considerable amount to

the country7s government. This process is known as repatriation of earnings.


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Even if a company cannot know in advance the scope of the risks, if it can predict the

possibility of risk, provide for it, and still pro;ect a profit, its venture may be ready for

approval. There are a number of questions that the company should ask itself

%. s terrorism part of the political landscapeS Terrorism, civil unrest, and the overthrowof governments can seriously affect the international business community. *. $ould

extremist groups pose a danger to the general stability of societyS . 6as there been a

withdrawal of freedomsS f the country7s nationals are treated in this way, foreign

companies doing business there could find themselves having to conform to

restrictive laws. ithdrawal from freedoms is a signal of unstable government and

risk. As the government tries to protect a weakening hold on power, it becomes morecontrolling. -. hat, if any, is the military7s role in governmentS f it is in power,

how firm is its grasp on powerS ). s corruption part of the business ethicS $ould a

company find itself having to make higher and higher payments to officialsS +.

$ould religious or ethnic pressures lead to civil strife and endanger employees or

propertyS


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$(0?TE>5ET?! A?" #>A$M

$ounterfeit and pirated goods come from a wide range of industriesQapparel,

automotive parts, agricultural chemicals, pharmaceuticals, books olex are sold every year, netting illegal

pro8ts of at least P) million. Although dif9 8 cult to pinpoint, lost sales from the

unauthoried use of 0.1. patents, trademarks, and copyrights amount to more than

P billion annually. That translates into more than two million lost ;obs. 1oftware,music, and movies are especially attractive targets for pirates because they are costly

to develop but cheap to reproduce and distribute over the nter9 net. #irated $" music

sales are estimated to exceed P) billion annually and are growing at + percent per

year. And unauthoried 0.1. software that sells for P) in this country can be

purchased for less than P% in East Asia. The Cusiness 1oftware Alliance, a trade

group, estimates that software companies lost over P%+.) billion in the Asia9#aci8c

region, P%+.- billion in Europe, and P&.- billion in ?orth America in *&. 4udging

from the press on the topic, one might conclude that $hina is the biggest piracy

problem. 6owever, $hina has moved fast off the list of * worst piracy rates,

according to Exhibit 3.*. At this writing, it ranks *3 and piracy has fallen to 3&

percent, down from &* percent ;ust a few years earlier. 2oreover, the dollars lost in

the 0nites 1tates because of software piracy are the most in the world at P/.- billion,

with $hina coming in a close second at P3.+ billion. $hina7s progress is due primarily

to education programs, enforcement, and 2icrosoft7s historic agreement with

@enovo. e also note that other populous nations have made ma;or progress in

reducing software piracy ussia down %%, Crail down %, 4apan and Iietnam

both down 3 percent, ndia down %% percent= between *- and *&. >ecent

research implies that for companies like 2icrosoft, some level of piracy actually can

serve the company. t can be seen as a kind of product trial that ultimately builds

commitment. As updated versions of products become available, purchases may


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actually follow. #articularly as countries such as $hina begin to enforce T( statutes

on piracy, customers conditioned on pirated goods may indeed be willing and able to

pay for the new versions. 5actors leading to counterfeit are as stated belowB

%= nadequate protection

The failure to protect intellectual property rights adequately in the world marketplace

can lead to the legal loss of rights in potentially pro8table markets. Cecause patents,

processes, trademarks, and copyrights are valuable in all countries, some companies

have found their assets appropriated and pro8tably exploited in foreign countries

without license or reim9 bursement. %3 5urthermore, they often learn that not only

are other 8rms producing and selling their products or using their trademarks, but the

foreign companies are the rightful owners in the countries where they operate. There

have been many cases in which companies have legally lost the rights to trade9 marks

and have had to buy back these rights or pay royalties for their use. The problems of

inadequate protective measures taken by the owners of valuable assets stem from a

variety of causes. (ne of the more frequent errors is assuming that because the

company has established rights in the 0nited 1tates, they will be protected around the

world or that rightful ownership can be established should the need arise. This

assumption was the case with 2c"onald7s in 4apan, where enterprising 4apanese

registered its golden arches trademark. (nly after a lengthy and costly legal action

with a trip to the 4apanese 1upreme $ourt was 2c"onald7s able to regain the

exclusive right to use the trademark in 4apan. After having to JbuyK its trademark for

an undisclosed amount, 2c"onald7s maintains a very active program to protect itstrademarks.

The failure to protect intellectual property rights adequately in the world marketplace

can lead to the legal loss of rights in potentially pro8table markets. Cecause patents,

processes, trademarks, and copyrights are valuable in all countries, some companies

have found their assets appropriated and pro8tably exploited in foreign countries

without license or reim9 bursement. %3 5urthermore, they often learn that not only

are other 8rms producing and selling their products or using their trademarks, but the


34/42

foreign companies are the rightful owners in the countries where they operate. There

have been many cases in which companies have legally lost the rights to trade9 marks

and have had to buy back these rights or pay royalties for their use. The problems of

inadequate protective measures taken by the owners of valuable assets stem from a

variety of causes. (ne of the more frequent errors is assuming that because the

company has established rights in the 0nited 1tates, they will be protected around the

world or that rightful ownership can be established should the need arise. This

assumption was the case with 2c"onald7s in 4apan, where enterprising 4apanese

registered its golden arches trademark. (nly after a lengthy and costly legal action

with a trip to the 4apanese 1upreme $ourt was 2c"onald7s able to regain the

exclusive right to use the trademark in 4apan. After having to JbuyK its trademark for

an undisclosed amount, 2c"onald7s maintains a very active program to protect its

trademarks.

*= #rior use versus >egistration

n the 0nited 1tates, a common9law country, ownership of # rights is established by

prior use whoever can establish 8rst use is typically considered the rightful owner. n

many code9law countries, however, ownership is established by registration rather

than by prior useQthe 8rst to register a trademark or other property right is

considered the rightful owner. 5or example, a trademark in 4ordan belongs to

whoever registers it 8rst in 4ordan. Thus you can 8nd J2c"onald7sK restaurants,

J2icrosoftK software, and J1afewayK groceries all legally belonging to 4ordanians.

After a lengthy court battle that went to the 1panish 1upreme $ourt, ?ike lost itsright to use the J?ikeK brand name for sports apparel in 1pain. $idesport of 1pain

had been using ?ike for sports apparel since %&* and sued to block ?ike


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$hina has improved intellectual property rights protection substantially and generally

recognies J8rst to invent.K 6owever, a $hinese company can capture the patent for a

product invented elsewhereB it needs only to reverse9engineer or reproduce the

product from published speci8cations and register it in $hina before the original

inventor. @atvia and @ithuania permit duplicate registration of trademarks and brand

names. A cosmetics maker registered ?ivea and ?ive;a cosmetics brands in the

former 1oviet 0nion in %&/+ and again in @atvia in %&&*, but a @atvian 8rm had

registered and had been selling a skin cream called ?ive;a since %&+-. ?either the

1oviet nor the @atvian authorities noti8ed either 8 rm. Applicants are responsible for

informing themselves about similar trademarks that are already registered. The case is

being taken to the 1upreme $ourt of @atvia. t is best to protect # rights through

registration. 1everal international conventions provide for simultaneous registration

in member countries.

= nternational conservation 2any countries participate in international conventions designed for mutual

recognition and protection of intellectual property rights. There are three ma;or

international conventions%. The #aris $onvention for the #rotection of ndustrial #roperty, commonly referred

to as the #aris $onvention, includes the 0nited 1tates and % other countries.*. The nter9American $onvention includes most of the @atin American nations and

the 0nited 1tates.. The 2adrid Arrangement, which established the Cureau for nternational

>egistration of Trademarks, includes *+ European countries.

n addition, the orld ntellectual #roperty (rganiation


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negotiation and alternative dispute resolutionB O" partners and sells ideas to marketing partners, rather than developing and

marketing only its own ideas. (ne pro;ects ex empli8es its innovative approach to

developing and protecting intellectual property in $hina. The #6E?N nitiative was

a commercial, industrial, and >O" pro;ect to develop mobile interactive digital

services for the */ (lympics. @ed by 5rance Tele9 com, it involved 8nancing and

technology contributions from both European and $hinese corporations and

governmental organiations. Although many American 8rms have established design

and >O" centers in $hina al9 ready, 0.1. government restrictions on high9tech export

and American executives7 competitive angst prevent associations such as the

#6E?N nitiative for 0.1. 8rms in $hina. Thus, our arm7s length relationships in


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$hina limit both the amount of technology we develop and the degree of protection

afforded it compared with European and Asian competitors. 2oreover, our pleas for

the $hinese government to Jprotect our intellectual propertyK sound exploitative to

both the authorities and the public there.

( B:5inally, we suggest an excellent way for #9rich 8rms to make money

in $hina currently and in the near future, using the oldest pricing strategy of all

$harge what the market will bear. Even with the reluctant help of the $hinese

authorities in en9 forcing the T(UT>#s agreement, $hinese consumers will

continue the creative copying of foreign intellectual property until they are charged

what they perceive as JreasonableK prices. ndeed, we applaud the recent heroic,albeit controversial, marketing strategies of arner Cros. in $hina, which nearly

halved the prices of its "I"s to P%.// and distributed the products within days of

their release in theatres earlier than anywhere else in the world.

CAE: C;*((+* A;*6*+,( =( P* I,(*+8*+

Cackgroundithout authentic parts a vehicle can become compromised and turn into a

deadly weapon. 2any people take for granted the fact that when a vehicle ispurchase from a genuine retailer, the automobile received is authentic. hile thismay be true, the danger lies in the authenticity of each individual part that buildsthe actual automotive itselfThe economic downturn has pressured manufacturers to cut costs and seekcheaper parts. hile many industries have been affected, the automotiveindustry has been particularly hard hit. The crisis has forced many outsourcedmanufacturers to seek a more intensive cost cutting strategy through reducedlabor or cheaper materials. hen manufacturers begin to source cheaper

materials they often neglect to check the quality and authenticity of the newsupplier. nstead the focus is shifted to cost savings which results in substandardparts, from less trusted suppliers entering the supply chain. Vuiteobviously, the results can have a devastating effect on the customer, and anequally damaging effect on the brand owner. t is essential for the top automotivecompanies to be aware of the situation and take action against counterfeit autoparts,to protect their consumers, and their brand (ne of the world7s top ) automotive

makers was recently experiencing large problems with counterfeit brake pads. !iven

the huge and immediate problems with low9quality brake pads, the brand owner was

understandably worried about the deadly consequences. The manufacturer asked the


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TWI >heinland !roup to undertake an investigation to discover the full extent of the

situation in a specific city in $hina.O&'()*+,( 9 P)(

The ob;ective of the investigation was to examine the level of counterfeit brakepads in the local market and to determine the financial damages and risk level tothe brand reputation. The investigators conducted mystery9shopping in ) shops,across % shopping areas, and randomly purchased both authentic andcounterfeit goods.R(;*

(ur investigation team identified that in total, % of the ) shops investigatedoffered counterfeit brake pads. (f the % shops, nearly half offered both genuineand fake branded brake pads while the other half were selling counterfeit

branded brake pads ([email protected] revealed that one method of distribution was Jsalting.K !iven that G of

the shops were offering both counterfeit and genuine brake pads, it can beassumed that this common method is widely used in this location. 1alting is asales method where the retailer mixes both counterfeit and genuine products intotheir inventory. As all the products are packaged as genuine, the retailer can sellthe counterfeit products at genuine prices and generate a hefty profit from themargin. hile the tactic is profitable for the retailer, the results can be deadly forthe purchaser. The fact that of the existing products available, only *)G of thestock was genuine, proves the high probability that consumers are in factunintentionally purchasing counterfeit brake pads at the cost of genuine ones.

(ther aspects revealed by the investigation include the appearance of certaincounterfeit brake pads which are not actually manufactured by the brand owner.n other words, counterfeit versions have appeared in several shops indicatingthat the counterfeiters have a wider product line that the actual brand ownerXith the counterfeit versions supplying the demand for the specific vehicle types,the client is losing out on potential revenue.#erhaps the most worrying of all the findings was that out of the ) shops, totalstocks of the genuine brake pads make up only +.-G of the actual total marketof the branded brake pads. ith the client producing at least *),

automobiles each year in $hina, we speculate that the minimum sie of the entiretrue market volume of branded brake pads is at least one million units 2C each year in $hina.C);+

The alarming rate of counterfeit brake pads in the market is a huge threat to thebrand owners brand reputation and consequently value. 2ore importantly, theunintentional purchase of chip board brake pads or the equivalent can result indeadly consequences for the end9user. After the conclusion of the investigation,the TWI >heinland !roup provided the client with a range of anti9counterfeitingsolutions to ensure brand risk management and protection. ?ow that the client ismuch more knowledgeable and understands the high risks to their company, they


39/42

are ready to take the next steps forward to protecting their brand and consumers.5urther discussions are currently underway.


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Targeted 5ear andUor Animosity

t is important for marketers not to confuse nationalism, whose animosity is directed

generally toward all foreign countries, with a widespread fear or animosity directed at

a particular country. This confusion was a mistake made by Toyota in the 0nited1tates in the late %&/s and early %&&s. 1ales of 4apanese cars were declining in the

1tates, and an advertising campaign was designed and delivered that assumed the

problem was American nationalism. 6owever, nationalism was clearly not the

problem, because sales of !erman cars were not experiencing the same kinds of

declines. The properly de8ned problem was JAmericans7 fear of 4apan.K ndeed, at

the time, Americans considered the economic threat from 4apan greater than themilitary threat from the 1oviet 0nion. 1o when Toyota spent millions on an

advertising campaign showing $amrys being made by Americans in a Toyota plant in

Dentucky, it may well have exacerbated the fear that the 4apanese were JcoloniingK

the 0nited 1tates. Cest9selling titles in 5rance, including The orld s ?ot

2erchandise, ho s Dilling 5ranceS The American 1trategy, and ?o Thanks 0ncle

1am, epitomie its animosity toward the 0nited 1tates. Although such attitudes may

seem odd in a country that devours 0.1. movies, eats 0.1. fast foods, views 0.1. soap

operas, and shops at 0.1. almart stores, national animosityQwhatever the causeQ

is a critical part of the political environment. The 0nited 1tates is not immune to the

same kinds of directed negativism either. The rift between 5rance and the 0nited

1tates over the raqF0.1. war led to hard feelings on both sides and an American

backlash against 5rench wine, 5rench cheese, and even products Americans thought

were 5rench. 5rench7s mustard felt compelled to issue a press release stating that it is

an JAmerican company founded by an American named L5rench.7K Thus, it is quite

clear that no nation9state, however secure, will tolerate penetration by a foreign

company into its market and economy if it perceives a social, cultural, economic, or

political threat to its well9being.


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>esistance to $hange

A characteristic of human culture is that change occurs. That people7s habits, tastes,

styles, behavior, and values are not constant but are continually changing can be

veri8ed by read9 ing *9year9old magaines. 6owever, this gradual cultural growth

does not occur without some resistanceB new methods, ideas, and products are held to

be suspect before they are accepted, if ever. 2oreover, research shows that consumers

in different cultures display differing resistance. The degree of resistance to new

patterns varies. n some situations, new elements are accepted completely and

rapidlyB in others, resistance is so strong that acceptance is never forthcoming.

1tudies show that the most important factors in determining what kind and how much

of an innovation will be accepted is the degree of interest in the particular sub;ect, as

well as how drastically the new will change the oldQthat is, how disruptive the

innovation will be to presently acceptable values and behavior patterns. (bservations

indicate that those innovations most readily accepted are those holding the greatest

interest within the society and those least disruptive. 5or example, rapid

industrialiation in parts of Europe has changed many long9honored attitudes

involving time and working women. Today, there is an interest in ways to save time

and make life more productiveB the leisurely continental life is rapidly disappearing.

ith this time consciousness has come the very rapid acceptance of many

innovations that might have been resisted by most ;ust a few years ago. nstant foods,

labor9saving devices, and fast9food establishments, all supportive of a changingattitude toward work and time, are rapidly gaining acceptance. A n understanding of

the process of acceptance of innovations is of crucial importance to the marketer. The

marketer cannot wait centuries or even decades for acceptance but must gain

acceptance within the limits of 8nancial resources and pro;ected pro8tability periods.

#ossible methods and insights are offered by social scientists who are concerned with

the concepts of planned social change. 6istorically, most cultural borrowing and theresulting change has occurred without a deliberate plan, but increasingly, changes are


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occurring in societies as a result of purposeful attempts by some acceptable

institution to bring about change, that is, planned change

Factors Influencing International Sales

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