Description
It is generally understood that a company like Boeing, the world's largest commercial airline manufacturer, engages in international marketing when it sells its aeroplanes to airlines across the globe.
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INTERNATIONAL MARKETING:
AN OVERVIEW
This first topic will introduce you to the field of international marketing. We concentrate first on the
scope of international marketing, using several examples to illustrate that it is a broad process
encompassing many firms and a wide range of activities. We then present definitions that will relate
international marketing to other fields of study. In the next section, we examine the differences
between domestic and international marketing and explain why domestic companies often have
difficulty marketing abroad. The topic continues with a description o the major participants in
international marketing. We also provide an explanation of why mastering international marketing
skills can be valuable to your future career.
THE SCOPE OF INTERNATIONAL MARKETING
It is generally understood that a company like Boeing, the world's largest commercial airline
manufacturer, engages in international marketing when it sells its aeroplanes to airlines across the
globe. Likewise, Ford Motor Company, which operates large manufacturing plants in several
countries, engages in international marketing even though a major part of its output is sold in the
country where it is manufactured.
Today, however, the scope of international marketing has broadened and includes many other
business activities. The activities of large department store chains, include a substantial element of
importing. When these stores search for new products abroad, they practice another form of
international marketing.
A whole range of service industries are involved in international marketing; many large advertising
firms, banks, investment bankers, public accounting firms, consulting companies, hotel chains, and
airlines now market their services worldwide.
International marketing encompasses some activities that only indirectly result in international
transactions. A new breed of international marketer is illustrated by Carl Sontheimer, a retired
engineer who in the mid-1970s was looking for a retirement activity. He visited a food fair in France
and came across a food processor not yet found in the United States. He redesigned the machine,
and it became a best seller in the United States under the Cuisinart brand name. By looking for new
ideas outside his home market, Sontheimer was practicing a different type of international marketing-
one that has become a growth industry.
When Clark Equipment Company, a United States-based manufacturer of construction machinery,
acquired Euclid, another U.S. firm, the idea was to add Euclid's heavy construction trucks to Clark's
front-end loaders to improve Clark's position with its dealers in the United States. Many of these
dealers had been approached by Komatsu, the leading Japanese construction equipment company and
only second to Caterpillar worldwide. By adding Euclid trucks to its product line, Clark expected to
check Komatsu's expansion in the United States. Consequently, what appeared like a domestic market
move was actually aimed at a potential foreign competitor. Such competitive decisions are as much a
part of international marketing as any examples cited earlier,
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Definitions of International Marketing and International
Marketing Management
Having examined the scope of international marketing, we are now able to define it more accurately.
Any definition has to be built, however, on basic definitions of marketing and marketing management,
with an added explanation of the international dimension. We understand marketing as the
performance of business activities directing the flow of products and services from producer to
consumer. A successful performance of the marketing function by a firm is contingent upon the
adoption of the marketing concept, consisting of (a) a customer orientation, (b) an integrated
marketing organisation, and (c) customer satisfaction’s Marketing management is the execution of a
company's marketing operation. Management responsibilities consist of planning, organising, and
controlling the marketing program of the firm. To accomplish this job, marketing
management is assigned decision-making authority over product strategy, communication strategy,
distribution strategy, and pricing strategy. The combination of these four aspects of marketing is
referred to as the marketing mix.
For international marketing management, the basic aims of marketing and the responsibilities
described above remain unchanged. What is different is the execution of these activities in more than
one country. Consequently, we define international marketing management as the performance of
marketing activities across two or more countries. We are now moving from single-country decisions
to multi-country decisions. As shown in Figure 1, in some situations, only one or two countries are
involved; in other situations, dozens of countries are involved simultaneously.
A firm exporting products to Malaysia is engaged in a marketing effort across two countries: the
United States and Mexico. Another U.S. firm operating a subsidiary in Malaysia that manufactures and
markets locally under the direction of the Australian. head office is also engaged in international
marketing to the extent that the head office staff directs and supervises this effort. Consequently,
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international marketing does not always require the physical movement of products across national
borders. International marketing occurs whenever marketing decisions are made that encompass two
or more countries.
Relationships with Other Fields of Study
The field of international marketing is related to other fields of study. In its broadest terms,
international marketing is a subset of international business, which is defined as the performance of all
business functions across national boundaries. International business includes all functional areas
such as international production, international financial management, and international marketing (see
Figure 2).
International trade theory, which explains why nations trade with each other, is a related concept.
This theory is aimed at understanding product flows between countries, either in the form of exports
or imports. An Australian. corporation exporting machinery to Japan would find its transactions
recorded as an export in Australia whereas the same transaction would be treated as an import in
Japan.
In this situation, international marketing and international trade are concerned with the same
phenomenon.
Should the same company produce its machinery in Japan and sell locally, however, there would be
no exchange of goods between the two countries. Consequently, there would be no recognised
international trading activity. However, as we have seen earlier, the company's decision to build
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machinery in Japan and sell it there would still be considered an international marketing decision. We
can therefore conclude that international marketing goes beyond strict definitions of international
trading and includes a wider range of activities.
International marketing should not be confused with foreign marketing which consists of marketing
activities carried out by foreign firms within their own countries. Marketing by Brazilian firms in Brazil
is therefore defined as foreign marketing and is not the principle focus of this book. However,
Brazilian firms engaged in marketing their products in the United States are engaged in international
marketing and are subject to the same concepts and principles as are U.S. firms marketing in Brazil.
DIFFERENCES BETWEEN INTERNATIONAL AND DOMESTIC
MARKETING
Companies marketing products abroad have always had to deal with a wider range of issues than
those encountered by domestic firms. The following section will give some insight into the special
difficulties encountered in the international market,
Using a Domestic Strategy Abroad: Risk or Opportunity?
When a company uses an initial marketing strategy abroad, its success or failure depends greatly
upon the market where it is used. In 1977, Apple Computer Company began distribution of its
personal computer in Japan. At that time there were no other personal computer products on the
market.
However, by 1985 Apple still had only a very small market share, and the company had failed to
achieve any significant market penetration. Initially, Apple left all marketing to Japanese distributors
and provided little or no support. Japanese competitors and IBM had begun to market Japanese-
language machines. The Apple could only be used by Japanese who understood English very well,
which limited its market to a small group. It was only years later that Apple brought in a team of
technicians from its head office to adapt products to the Japanese language and built a subsidiary
staff with local managers. At this point, it will be an uphill battle to expand sales beyond the
estimated 10,000 units in a market believed to be about 1.2 million units
Although Apple did poorly in Japan, it operated very successfully in France. There, Apple became the
leader in personal computers, reaching sales of $94 million in 1984 and expecting sales of $128 million
in 1985. In France, Apple used many of the high-visibility promotions begun in the United States by
adapting them to the French environment. Promotional activities included sponsoring film festivals
and selling Apple jogging suits, decals, and duffel bags. Each year an "Apple Expo" was held in Paris.
Apple did extremely well by focusing on in home businesses and independent professionals, such as
doctors and lawyers, achieving a market share of 35 percent in 1984 compared to 27 percent for IBM.'
In the two examples described above, Apple tried to duplicate a marketing strategy that had proven
successful in its home market. In Japan it failed, whereas in France it succeeded, with Apple
achieving a higher market share than in its home market. We don't mean to imply that companies
risk failure each time they expand an initial marketing strategy across the globe. Coca-Cola, Pepsi
Cola, and Eastman Kodak have found that the same basic strategy can be employed in many
countries. What is the reason that some companies meet success and others fail?
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DETERMINING INTERNATIONAL MARKETING STRATEGIES:
FACTORS LIMITING STANDARDISATION'
From an international marketing manager's point of view, the most cost-effective method to market
products or services worldwide is to use the same program in every country, provided environmental
conditions favour such an approach. However invariably, as we have seen in the previous section,
local market characteristics exist that require some form of adaptation to local realities. One of the
challenges of international marketing is to determine the extent of standardisation for any given local
market. To do this, the international marketing manager must become aware of any factors that
would limit standardisation. Factors limiting standardisation can be categorised into four major
groups: market characteristics, industry conditions, marketing institutions, and legal restrictions (see
Table 1).
Market Characteristics
Market characteristics can have a profound effect on international marketing strategy. The physical
environment of any country-determined by its climate, product use conditions, and population size-
often forces marketers to adjust products to local conditions. Many cars in Canada come equipped
with a built-in heating system that is connected to an electrical outlet to keep the engine from freezing
while turned off. In warmer climates, cars are not equipped with such a heating unit but are more
likely to require air conditioning. The product use conditions for washing machines in Europe differ
from country to country. In Germany, manufacturers have been forced to add built-in heaters
because home makers prefer to boil the water during the regular washing cycle and use a coldwater
fill. British home makers prefer to fill washing machines with hot water directly from a house boiler,
making a built-in heating unit unnecessary. A country's population will affect the market size in terms
of volume, allowing for lower prices in larger markets. Market size or expected sales volume greatly
affect channel strategy. Company-owned manufacturing and distribution are often possible in larger
markets, whereas independent distributors are often used in smaller countries.
Macroeconomic factors also greatly affect international marketing strategy. The income level, or gross
national product (GNP) per capita, varies widely among nations-from below $100 for some of the
world's poorest nations to above $10,000 for rich countries such as Kuwait, Sweden, and the United
States. Depending on income level, countries have been categorised according to stages of economic
development, ranging from a pre-industrial stage to full economic maturity." As can be expected,
marketing environments will differ considerably according to income level. If the population's level of
technical skill is low, a marketer might be forced to simplify product design to suit the local market.
Pricing may be affected to the extent that countries with lower income levels show higher price
elasticities for many products compared to developed countries. Furthermore, convenient access to
credit is often restricted to buyers in developing countries, impacting negatively on the sale of capital
goods and consumer durables. Exchange rate fluctuations distort prices among countries for many
products that otherwise might sell at similar prices. This leads to the problem of cross shipping
products to take advantage of price gaps. With specialisation among channel members differing
widely among various countries, depending on macroeconomic factors, companies often find
themselves forced to adjust channel policies to compensate for the absence of the middleman they
normally rely on in their home country. Wage levels and the availability of manpower may influence a
company to choose a different approach for its salesforce. Since the motivation to purchase some
products depends on a country's income level, advertising and promotion strategy may have to be
adjusted for such changes.
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Cultural and social factors are less predictable influences on the marketing environment, and they
have often frustrated many international marketers. Customs and traditions have the greatest effect
on product categories when a country's population has had prior experience with a given product
category. INCAP, an agency supported by several central American governments and located in
Guatemala, developed a low cost, high protein beverage in the form of atole (thin gruel), a popular
drink customarily consumed hot by Guatemalans. This same product was rejected by consumers in
neighbouring El Salvador because the product would thicken when it was cool, which was the way El
Salvadorians usually consumed Another hurdle in international marketing is language, which has
become a major focus for international marketers. There are many examples of poor translations of
promotional material. Pepsi Cola once used a literal translation of its popular U.S. campaign theme
"Come Alive with Pepsi" in Germany without realising that come alive in German meant "come alive
out of the grave.
TABLE 1. Factors Limiting Standardisation in Different Marketing Mix Areas
Product Design Pricing
Distribution Channels
Market Characteristics
PHYSICAL ENVIRONMENT: Climate Market size Market size
Product use conditions
MACROECONOMIC Level of technical skill Income level Specialising among
FACTORS: Income level Availability of credit channel members
Labor costs in relation Exchange rates Customer mobility
to capital costs
CULTURAL AND SOCIAL Customs and traditions Attitude toward bar- Consumer shopping
FACTORS: Attitudes toward for- gaining patterns
eign goods Attitude toward credit
Industry Conditions
STAGE OF PRODUCT LIFE
CYCLE IN EACH MARKET:
COMPETITION:
Extent of product
differentiation
Quality technological
level of competition
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Elasticity of demand
Prices of substitutes
Local costs
Availability of outlets
Competitors' control
of channels
Marketing Institutions
DISTRIBUTION SYSTEMS: Prevailing margins Number and types
available
ADVERTISING MEDIA AND
AGENCIES:
Legal Restrictions Product standards Tariffs and taxes Ability to "force"
Patent laws Antitrust laws distribution
Tariffs and taxes Resale price mainte- Resale price mainte-
nance nance
Restrictions on sales of
products in certain
outlets
Market Characteristics
PHYSICAL ENVIRONMENT:
MACROECONOMIC
FACTORS:
CULTURAL AND SOCIAL
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FACTORS:
Industry Conditions
STAGE OF PRODUCT LIFE
CYCLE IN EACH MARKET:
COMPETITION:
Marketing Institutions
DISTRIBUTION SYSTEMS:
ADVERTISING MEDIA AND
AGENCIES:
Legal Restrictions
Sales Force
Market size
Dispersion of customers
Wage levels
Availability of manpower
Attitudes toward selling
Need for missionary sales effort
Competitors' sales forces
Number, types, and dispersion of outlets, channel patterns
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Effectiveness of pull strategy
Employment restrictions
Specific restrictions on selling
Advertising and Promotion
Purchase motivation
Language literacy symbolism
Awareness or prior
experience with product
Competitive advertising
messages and budgets
Extent of self-service
Desirability of private
brands
Media availability, cost, overlaps
Trademark laws
Specific restrictions on messages
Source: Harvard Business Review. An exhibit adapted from "Can you Standardise
Multinational Marketing?" by R. D. Buzzell (November-December 1968)
Industry Conditions
Industry conditions often vary by country since products frequently are in varying stages of the
product life cycle. New product introduction in a country without prior experience might affect the
extent of product differentiation since only one or two versions of the product might be introduced
initially. Also, a company might find itself in a situation where limited awareness or prior experience
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of a country will require a considerable missionary sales effort and primary demand stimulation,
whereas in more mature markets the promotional strategy is likely to concentrate on brand
differentiation. The level of local competition can be expected to vary substantially by country. The
higher the technological level of the competition, the more an international company must improve
the quality level of its products. The varying prices of local substitutes or low local production costs
can be expected to influence pricing policy. In countries where competitors control channels and
maintain a strong sales force, the strategy of a multinational company might differ significantly from
that in a country where the company holds a competitive advantage.
Marketing Institutions
For historic and economic reasons, marketing institutions have assumed different forms in different
countries. Practices in distribution systems often entail different margins for the same product,
requiring a change in company pricing strategy. Availability of outlets is also likely to vary by country.
Mass merchandisers such as supermarkets, discount stores, and department stores are widely
available in the United States and other industrialised countries but are largely absent in less
developed nations in Southern Europe, Latin America, and other parts of the world. Such variations
may lead to considerably different distribution strategies. Likewise, advertising agencies and media
are not equally accessible in all countries; and the absence of mass media channels in some countries
makes a "pull" strategy less effective.
Legal Restrictions
Legal restrictions also require consideration for the development of an international marketing
strategy. Product standards issued by local governments must be observed. To the extent that they
differ from one country to another, unified product design often becomes an impossibility. Tariffs and
taxes may require adjustments in pricing to the extent that a product can no longer be sold on a high-
volume basis. Specific restrictions may also be problematic. In Europe, restrictions on advertising
make it impossible to mention a competitor's name, despite the fact that such an approach may be an
integral part of the advertising strategy in Australia.
To carry out the international marketing task successfully, international managers have to be
cognisant of all the factors that influence the local marketing environment. Frequently, they need to
target special marketing programs for each country.
MAJOR ACTORS IN INTERNATIONAL MARKETING
Several types of companies are major participants in international marketing. Among the leaders are
multinational corporations (MNCs), exporters, importers, and service companies. These firms may be
engaged in manufacturing consumer or industrial goods, in trading, or in the performance of a full
range of services. What all participants have in common is a need to deal with the complexities of the
international marketplace.
Multinational Corporations
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Multinational corporations (MNCS) are companies that manufacture and market products or services in
several countries. Typically an MNC operates a number of plants abroad and markets products
through a large network of fully owned subsidiaries.
Although the United States is home to the largest number of MNCS, the first multinationals were of
European origin and included firms such as Nobel and Alfa-Laval of Sweden, Unilever of the United
Kingdom, Royal Dutch/Shell of the Netherlands, and Nestle of Switzerland. Some of the first U.S.
companies to go multinational included Singer, which opened its first subsidiary in England in 1870,
and NCR, Remington, Burroughs, Otis, and Westinghouse. Most of these companies possessed
valuable patents that they wanted to protect from competition abroad. To cash in on their
technological advantage, they opened branch plants in many European countries.
Today, the majority of large, U.S., Fortune 500 firms are multinational corporations, and most others
have at least some international business involvement. Among the leaders are Exxon, Dow Chemical
and Gillette, with more than half of their sales generated abroad . 14 The ranks of MNCs have been
swelled by a large number of European and Asian firms. Fortune's list of the largest foreign
corporations included 77 from the United Kingdom, 32 from Canada, 36 from France, 55 from West
Germany, 20 from Sweden, 12 from Switzerland, and 10 from Italy. Interestingly, many of the
Fortune firms were from countries outside of Europe and North America. There were 147 from Japan,
10 from South Korea, 7 from Brazil, and 5 from India. Only a few years ago, the list was made
up largely of European and Canadian companies."
Service Companies
The early MNCs were largely manufacturers of industrial equipment and consumer products. Many of
the newer MNCs are service companies. Commercial banks, investment bankers, and brokers have
turned themselves into multinational service networks. Airlines and hotel companies have gained
multinational status. Less noticeable are the multinational networks of public accounting firms,
consulting companies, advertising agencies, and a host of other service related industries.
Examples of service companies with international involvement abound. McDonald's now gets close to
20 percent of its revenues from foreign operations, and almost 40 percent of its new outlets are
foreign.
With some 7,000 restaurants in the United States and tough competition from other domestic chains,
McDonald's expects most of its future growth to come from abroad.
Exporters
Exporters are firms that market products abroad but produce largely in their home country. Most
large exporters have evolved into multinational companies. However, multinational companies, by
shipping products between subsidiaries, have maintained some of the largest export operations.
Importers
As described earlier, importing is as much an international marketing decision as exporting.
Companies that neither export nor have multinational status may still participate in international
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marketing through their importing operations. Many of the largest U.S. retail chains maintain import
departments that are in contact with suppliers in many overseas countries. Other major importers are
MNCs which source products from their own plants abroad or from other clients.
Among the largest U.S. importers are oil companies and subsidiaries of foreign MNCS, particularly
those of European and Japanese origin.
For the purpose of this subject, we will use international company or international firm as umbrella
terms that may include MNCS, exporters, importers, and service companies.
THE IMPORTANCE OF INTERNATIONAL MARKETING
International marketing is a very broad activity, and it is expanding rapidly. As we discussed earlier,
international trade is one of the important components of international marketing. Between 1973 and
1986, total world trade was estimated to have grown from about $574 billion to $2,1 10 billion. Some
55 percent of this volume was in manufactured products compared to about 43 percent in primary
products.
Why Companies Become Involved in International Marketing
Companies become involved in international markets for a variety of reasons. Some firms simply
respond to orders from abroad without any organised efforts of their own. But most companies take a
more active role because they have determined that it is to their advantage to pursue foreign business
export volume on an incremental basis. The profitability of a company can increase when fixed
manufacturing costs are already committed and additional economies of scale are achieved.
Companies move into foreign markets to get additional volume. H. J. Heinz, the United States-based
food producer, achieved about one third of its sales abroad, mostly in Europe, Australia, and New
Zealand However, the company's entire sales of more than $3 billion were achieved with only 15
percent of the world's population. As a result, Heinz is aggressively looking for opportunities in Third-
World countries, with the goal of increasing sales in those areas to $1 billion by 1990.
When a company's customers move overseas, many firms follow suit. Major U.S. banks have shifted
to serve their U.S. clients in key financial centers around the world by opening branches. United
States advertising agencies have created networks to serve the interests of their multinational clients.
As some Japanese manufacturers opened plants in the United States, many of their component
suppliers followed and built operations nearby. Not following these clients would have meant a loss of
business.
Companies also enter the international arena for purely defensive purposes. Those that are
concerned about foreign competition, in particular certain U.S. companies, have launched businesses
in Japan to check the advance of Japanese competitors. Others such as Olivetti of Italy entered the
United States to learn from the most advanced market in the office equipment industry. Whether
companies participate for the pursuit of new opportunities or for any other reason,
most have been able to enhance their overall competitiveness as a result of pursuing foreign ventures.
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Why Study International Marketing?
You have probably asked yourself why you should study international marketing. You also may have
wondered about the value of this knowledge in your future career. While it is not very likely that
many university graduates find an entry-level position in international marketing, it is nevertheless a
fact that each year United States-based international companies hire large numbers of marketing
professionals. Since many of these firms are becoming increasingly internationalised, competence in
international marketing will become even more important in the future-and many marketing
executives will be pursuing international marketing as a career. Career opportunities exist with a large
number of exporters; and candidates will require international marketing skills. Furthermore, each
year many university graduates are hired for the marketing efforts of foreign-based MNCs in the
United States.
These companies are also looking for international competence within their managerial ranks.
With the U.S. service sector becoming increasingly internationalised, many graduates joining service
industries have found themselves confronted with in- international opportunities at early stages of
their careers. Today, consulting engineers, bankers, brokers, and public accountants are all in need of
international marketing skills to compete in a rapidly changing environment. Consequently, a solid
understanding and appreciation of international marketing will benefit the careers of most business
students, regardless of the field or industry they might enter.
A Need for More Globetrotters
Compared to other industrialised nations, the United States severely lacks a sufficient number of
international marketing professionals. The professionals and the firms actively participating in
international marketing through exporting, importing, or production abroad have been called
globetrotters .33 Globetrotters, as active participants in international marketing, play a key role in the
success of international firms. In this competitive business, the United States has seen its share of
world exports steadily decline. In 1953, the United States accounted for 19 percent of total world
exports, more than twice the share of second-ranked United Kingdom with about 8 percent. At that
time, Japan accounted for only 2 percent of world exports. In 1984, the U.S. share had decreased to
12 percent, whereas Japan and Germany shared second place with about 8 percent each. There are
other indications that the United States is lagging behind other countries in globetrotting. From 1870
to 1970, the United States almost always reported a positive trade balance, exporting more goods
than importing. This began to change in the 1970s, and despite the large increase in earnings of the
service industry, the overall balance of trade has turned substantially negative by about $120 billion
(see Figure 1.3) .31 It has been estimated that a trade deficit of this size has cost the United States
several million jobs. Although many reasons for this lagging performance lie beyond the control of
individual companies, there is much that company management can do to redress the imbalance.
Foreign companies fight much harder than U.S. firms to retain foreign markets. Because the foreign
firms' domestic markets are usually smaller than the U.S. market, foreign firms are more motivated
than U.S. firms to succeed abroad.
Despite this problem, foreign trade or international marketing is still not given enough attention by
large sectors of society. Whereas university graduates in other countries learn one or more foreign
languages as a matter of course, Australian. graduates usually have no foreign language competence.
Although it is too simplistic to associate foreign language capabilities with effective globetrotting, this
comparison nevertheless serves as an indicator of interest in international business.
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A Need for More Globe Watchers
Few of us can avoid the impact of international competition today. Many of our domestic industries
have fallen upon hard times. Foreign competition has made enormous inroads in the manufacture of
apparel, textiles, shoes, electronic equipment, and steel. As a result, these industries have become
internationalised. Although foreign competition for many consumer goods has been evident for years,
inroads by foreign firms in investment good industries have been equally spectacular.
Retailers also have new competition. Aside from foreign investors buying up existing U.S. retailing
companies, new firms with novel approaches have entered the country. One of the most recent
arrivals is Sweden based IKEA, which features inexpensive, easy-to-assemble Scandinavian furniture.
IKEA has built its first store in Philadelphia, selling flat-packed furniture that customers can cart away
by themselves and assemble at home. IKEA already operated a chain of more than 70 stores in many
European countries, earning sales of more than $1 billion
Certainly, managers everywhere will be called upon to react to economic developments in many parts
of the world. In this new economic world-where international business involves not only the exporting
or importing of products but also the transfer of marketing ideas and practices-more and more
companies will be asking managers to become globe watchers.
William Litwin serves as an excellent example of how astute globe watching can be converted into a
profitable business. In 1975, in the midst of the oil crisis, Litwin observed a Japanese-made kerosene
stove on the boat of a relative. With the intent of selling such a stove through his own country store,
he visited its manufacturer in Japan. After some days of negotiation, he was allowed to represent the
Japanese company in the U.S. on an exclusive basis for an initial one year period, and later for an
indeterminate period. Litwin sold the kerosene stove through a newly founded company, Kero-Sun.
Kero-Sun accounted for about one-third of the three million kerosene stoves sold in the United States
in 1981, and volume quickly grew to more than $100 million in 1982.
doc_557217797.pdf
It is generally understood that a company like Boeing, the world's largest commercial airline manufacturer, engages in international marketing when it sells its aeroplanes to airlines across the globe.
THE MARKETING ASSOCIATION OF AUSTRALIA AND NEW ZEALAND
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WEB: www.marketing.org.au E-MAIL: [email protected]
1
INTERNATIONAL MARKETING:
AN OVERVIEW
This first topic will introduce you to the field of international marketing. We concentrate first on the
scope of international marketing, using several examples to illustrate that it is a broad process
encompassing many firms and a wide range of activities. We then present definitions that will relate
international marketing to other fields of study. In the next section, we examine the differences
between domestic and international marketing and explain why domestic companies often have
difficulty marketing abroad. The topic continues with a description o the major participants in
international marketing. We also provide an explanation of why mastering international marketing
skills can be valuable to your future career.
THE SCOPE OF INTERNATIONAL MARKETING
It is generally understood that a company like Boeing, the world's largest commercial airline
manufacturer, engages in international marketing when it sells its aeroplanes to airlines across the
globe. Likewise, Ford Motor Company, which operates large manufacturing plants in several
countries, engages in international marketing even though a major part of its output is sold in the
country where it is manufactured.
Today, however, the scope of international marketing has broadened and includes many other
business activities. The activities of large department store chains, include a substantial element of
importing. When these stores search for new products abroad, they practice another form of
international marketing.
A whole range of service industries are involved in international marketing; many large advertising
firms, banks, investment bankers, public accounting firms, consulting companies, hotel chains, and
airlines now market their services worldwide.
International marketing encompasses some activities that only indirectly result in international
transactions. A new breed of international marketer is illustrated by Carl Sontheimer, a retired
engineer who in the mid-1970s was looking for a retirement activity. He visited a food fair in France
and came across a food processor not yet found in the United States. He redesigned the machine,
and it became a best seller in the United States under the Cuisinart brand name. By looking for new
ideas outside his home market, Sontheimer was practicing a different type of international marketing-
one that has become a growth industry.
When Clark Equipment Company, a United States-based manufacturer of construction machinery,
acquired Euclid, another U.S. firm, the idea was to add Euclid's heavy construction trucks to Clark's
front-end loaders to improve Clark's position with its dealers in the United States. Many of these
dealers had been approached by Komatsu, the leading Japanese construction equipment company and
only second to Caterpillar worldwide. By adding Euclid trucks to its product line, Clark expected to
check Komatsu's expansion in the United States. Consequently, what appeared like a domestic market
move was actually aimed at a potential foreign competitor. Such competitive decisions are as much a
part of international marketing as any examples cited earlier,
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Definitions of International Marketing and International
Marketing Management
Having examined the scope of international marketing, we are now able to define it more accurately.
Any definition has to be built, however, on basic definitions of marketing and marketing management,
with an added explanation of the international dimension. We understand marketing as the
performance of business activities directing the flow of products and services from producer to
consumer. A successful performance of the marketing function by a firm is contingent upon the
adoption of the marketing concept, consisting of (a) a customer orientation, (b) an integrated
marketing organisation, and (c) customer satisfaction’s Marketing management is the execution of a
company's marketing operation. Management responsibilities consist of planning, organising, and
controlling the marketing program of the firm. To accomplish this job, marketing
management is assigned decision-making authority over product strategy, communication strategy,
distribution strategy, and pricing strategy. The combination of these four aspects of marketing is
referred to as the marketing mix.
For international marketing management, the basic aims of marketing and the responsibilities
described above remain unchanged. What is different is the execution of these activities in more than
one country. Consequently, we define international marketing management as the performance of
marketing activities across two or more countries. We are now moving from single-country decisions
to multi-country decisions. As shown in Figure 1, in some situations, only one or two countries are
involved; in other situations, dozens of countries are involved simultaneously.
A firm exporting products to Malaysia is engaged in a marketing effort across two countries: the
United States and Mexico. Another U.S. firm operating a subsidiary in Malaysia that manufactures and
markets locally under the direction of the Australian. head office is also engaged in international
marketing to the extent that the head office staff directs and supervises this effort. Consequently,
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international marketing does not always require the physical movement of products across national
borders. International marketing occurs whenever marketing decisions are made that encompass two
or more countries.
Relationships with Other Fields of Study
The field of international marketing is related to other fields of study. In its broadest terms,
international marketing is a subset of international business, which is defined as the performance of all
business functions across national boundaries. International business includes all functional areas
such as international production, international financial management, and international marketing (see
Figure 2).
International trade theory, which explains why nations trade with each other, is a related concept.
This theory is aimed at understanding product flows between countries, either in the form of exports
or imports. An Australian. corporation exporting machinery to Japan would find its transactions
recorded as an export in Australia whereas the same transaction would be treated as an import in
Japan.
In this situation, international marketing and international trade are concerned with the same
phenomenon.
Should the same company produce its machinery in Japan and sell locally, however, there would be
no exchange of goods between the two countries. Consequently, there would be no recognised
international trading activity. However, as we have seen earlier, the company's decision to build
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machinery in Japan and sell it there would still be considered an international marketing decision. We
can therefore conclude that international marketing goes beyond strict definitions of international
trading and includes a wider range of activities.
International marketing should not be confused with foreign marketing which consists of marketing
activities carried out by foreign firms within their own countries. Marketing by Brazilian firms in Brazil
is therefore defined as foreign marketing and is not the principle focus of this book. However,
Brazilian firms engaged in marketing their products in the United States are engaged in international
marketing and are subject to the same concepts and principles as are U.S. firms marketing in Brazil.
DIFFERENCES BETWEEN INTERNATIONAL AND DOMESTIC
MARKETING
Companies marketing products abroad have always had to deal with a wider range of issues than
those encountered by domestic firms. The following section will give some insight into the special
difficulties encountered in the international market,
Using a Domestic Strategy Abroad: Risk or Opportunity?
When a company uses an initial marketing strategy abroad, its success or failure depends greatly
upon the market where it is used. In 1977, Apple Computer Company began distribution of its
personal computer in Japan. At that time there were no other personal computer products on the
market.
However, by 1985 Apple still had only a very small market share, and the company had failed to
achieve any significant market penetration. Initially, Apple left all marketing to Japanese distributors
and provided little or no support. Japanese competitors and IBM had begun to market Japanese-
language machines. The Apple could only be used by Japanese who understood English very well,
which limited its market to a small group. It was only years later that Apple brought in a team of
technicians from its head office to adapt products to the Japanese language and built a subsidiary
staff with local managers. At this point, it will be an uphill battle to expand sales beyond the
estimated 10,000 units in a market believed to be about 1.2 million units
Although Apple did poorly in Japan, it operated very successfully in France. There, Apple became the
leader in personal computers, reaching sales of $94 million in 1984 and expecting sales of $128 million
in 1985. In France, Apple used many of the high-visibility promotions begun in the United States by
adapting them to the French environment. Promotional activities included sponsoring film festivals
and selling Apple jogging suits, decals, and duffel bags. Each year an "Apple Expo" was held in Paris.
Apple did extremely well by focusing on in home businesses and independent professionals, such as
doctors and lawyers, achieving a market share of 35 percent in 1984 compared to 27 percent for IBM.'
In the two examples described above, Apple tried to duplicate a marketing strategy that had proven
successful in its home market. In Japan it failed, whereas in France it succeeded, with Apple
achieving a higher market share than in its home market. We don't mean to imply that companies
risk failure each time they expand an initial marketing strategy across the globe. Coca-Cola, Pepsi
Cola, and Eastman Kodak have found that the same basic strategy can be employed in many
countries. What is the reason that some companies meet success and others fail?
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DETERMINING INTERNATIONAL MARKETING STRATEGIES:
FACTORS LIMITING STANDARDISATION'
From an international marketing manager's point of view, the most cost-effective method to market
products or services worldwide is to use the same program in every country, provided environmental
conditions favour such an approach. However invariably, as we have seen in the previous section,
local market characteristics exist that require some form of adaptation to local realities. One of the
challenges of international marketing is to determine the extent of standardisation for any given local
market. To do this, the international marketing manager must become aware of any factors that
would limit standardisation. Factors limiting standardisation can be categorised into four major
groups: market characteristics, industry conditions, marketing institutions, and legal restrictions (see
Table 1).
Market Characteristics
Market characteristics can have a profound effect on international marketing strategy. The physical
environment of any country-determined by its climate, product use conditions, and population size-
often forces marketers to adjust products to local conditions. Many cars in Canada come equipped
with a built-in heating system that is connected to an electrical outlet to keep the engine from freezing
while turned off. In warmer climates, cars are not equipped with such a heating unit but are more
likely to require air conditioning. The product use conditions for washing machines in Europe differ
from country to country. In Germany, manufacturers have been forced to add built-in heaters
because home makers prefer to boil the water during the regular washing cycle and use a coldwater
fill. British home makers prefer to fill washing machines with hot water directly from a house boiler,
making a built-in heating unit unnecessary. A country's population will affect the market size in terms
of volume, allowing for lower prices in larger markets. Market size or expected sales volume greatly
affect channel strategy. Company-owned manufacturing and distribution are often possible in larger
markets, whereas independent distributors are often used in smaller countries.
Macroeconomic factors also greatly affect international marketing strategy. The income level, or gross
national product (GNP) per capita, varies widely among nations-from below $100 for some of the
world's poorest nations to above $10,000 for rich countries such as Kuwait, Sweden, and the United
States. Depending on income level, countries have been categorised according to stages of economic
development, ranging from a pre-industrial stage to full economic maturity." As can be expected,
marketing environments will differ considerably according to income level. If the population's level of
technical skill is low, a marketer might be forced to simplify product design to suit the local market.
Pricing may be affected to the extent that countries with lower income levels show higher price
elasticities for many products compared to developed countries. Furthermore, convenient access to
credit is often restricted to buyers in developing countries, impacting negatively on the sale of capital
goods and consumer durables. Exchange rate fluctuations distort prices among countries for many
products that otherwise might sell at similar prices. This leads to the problem of cross shipping
products to take advantage of price gaps. With specialisation among channel members differing
widely among various countries, depending on macroeconomic factors, companies often find
themselves forced to adjust channel policies to compensate for the absence of the middleman they
normally rely on in their home country. Wage levels and the availability of manpower may influence a
company to choose a different approach for its salesforce. Since the motivation to purchase some
products depends on a country's income level, advertising and promotion strategy may have to be
adjusted for such changes.
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Cultural and social factors are less predictable influences on the marketing environment, and they
have often frustrated many international marketers. Customs and traditions have the greatest effect
on product categories when a country's population has had prior experience with a given product
category. INCAP, an agency supported by several central American governments and located in
Guatemala, developed a low cost, high protein beverage in the form of atole (thin gruel), a popular
drink customarily consumed hot by Guatemalans. This same product was rejected by consumers in
neighbouring El Salvador because the product would thicken when it was cool, which was the way El
Salvadorians usually consumed Another hurdle in international marketing is language, which has
become a major focus for international marketers. There are many examples of poor translations of
promotional material. Pepsi Cola once used a literal translation of its popular U.S. campaign theme
"Come Alive with Pepsi" in Germany without realising that come alive in German meant "come alive
out of the grave.
TABLE 1. Factors Limiting Standardisation in Different Marketing Mix Areas
Product Design Pricing
Distribution Channels
Market Characteristics
PHYSICAL ENVIRONMENT: Climate Market size Market size
Product use conditions
MACROECONOMIC Level of technical skill Income level Specialising among
FACTORS: Income level Availability of credit channel members
Labor costs in relation Exchange rates Customer mobility
to capital costs
CULTURAL AND SOCIAL Customs and traditions Attitude toward bar- Consumer shopping
FACTORS: Attitudes toward for- gaining patterns
eign goods Attitude toward credit
Industry Conditions
STAGE OF PRODUCT LIFE
CYCLE IN EACH MARKET:
COMPETITION:
Extent of product
differentiation
Quality technological
level of competition
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Elasticity of demand
Prices of substitutes
Local costs
Availability of outlets
Competitors' control
of channels
Marketing Institutions
DISTRIBUTION SYSTEMS: Prevailing margins Number and types
available
ADVERTISING MEDIA AND
AGENCIES:
Legal Restrictions Product standards Tariffs and taxes Ability to "force"
Patent laws Antitrust laws distribution
Tariffs and taxes Resale price mainte- Resale price mainte-
nance nance
Restrictions on sales of
products in certain
outlets
Market Characteristics
PHYSICAL ENVIRONMENT:
MACROECONOMIC
FACTORS:
CULTURAL AND SOCIAL
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FACTORS:
Industry Conditions
STAGE OF PRODUCT LIFE
CYCLE IN EACH MARKET:
COMPETITION:
Marketing Institutions
DISTRIBUTION SYSTEMS:
ADVERTISING MEDIA AND
AGENCIES:
Legal Restrictions
Sales Force
Market size
Dispersion of customers
Wage levels
Availability of manpower
Attitudes toward selling
Need for missionary sales effort
Competitors' sales forces
Number, types, and dispersion of outlets, channel patterns
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Effectiveness of pull strategy
Employment restrictions
Specific restrictions on selling
Advertising and Promotion
Purchase motivation
Language literacy symbolism
Awareness or prior
experience with product
Competitive advertising
messages and budgets
Extent of self-service
Desirability of private
brands
Media availability, cost, overlaps
Trademark laws
Specific restrictions on messages
Source: Harvard Business Review. An exhibit adapted from "Can you Standardise
Multinational Marketing?" by R. D. Buzzell (November-December 1968)
Industry Conditions
Industry conditions often vary by country since products frequently are in varying stages of the
product life cycle. New product introduction in a country without prior experience might affect the
extent of product differentiation since only one or two versions of the product might be introduced
initially. Also, a company might find itself in a situation where limited awareness or prior experience
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of a country will require a considerable missionary sales effort and primary demand stimulation,
whereas in more mature markets the promotional strategy is likely to concentrate on brand
differentiation. The level of local competition can be expected to vary substantially by country. The
higher the technological level of the competition, the more an international company must improve
the quality level of its products. The varying prices of local substitutes or low local production costs
can be expected to influence pricing policy. In countries where competitors control channels and
maintain a strong sales force, the strategy of a multinational company might differ significantly from
that in a country where the company holds a competitive advantage.
Marketing Institutions
For historic and economic reasons, marketing institutions have assumed different forms in different
countries. Practices in distribution systems often entail different margins for the same product,
requiring a change in company pricing strategy. Availability of outlets is also likely to vary by country.
Mass merchandisers such as supermarkets, discount stores, and department stores are widely
available in the United States and other industrialised countries but are largely absent in less
developed nations in Southern Europe, Latin America, and other parts of the world. Such variations
may lead to considerably different distribution strategies. Likewise, advertising agencies and media
are not equally accessible in all countries; and the absence of mass media channels in some countries
makes a "pull" strategy less effective.
Legal Restrictions
Legal restrictions also require consideration for the development of an international marketing
strategy. Product standards issued by local governments must be observed. To the extent that they
differ from one country to another, unified product design often becomes an impossibility. Tariffs and
taxes may require adjustments in pricing to the extent that a product can no longer be sold on a high-
volume basis. Specific restrictions may also be problematic. In Europe, restrictions on advertising
make it impossible to mention a competitor's name, despite the fact that such an approach may be an
integral part of the advertising strategy in Australia.
To carry out the international marketing task successfully, international managers have to be
cognisant of all the factors that influence the local marketing environment. Frequently, they need to
target special marketing programs for each country.
MAJOR ACTORS IN INTERNATIONAL MARKETING
Several types of companies are major participants in international marketing. Among the leaders are
multinational corporations (MNCs), exporters, importers, and service companies. These firms may be
engaged in manufacturing consumer or industrial goods, in trading, or in the performance of a full
range of services. What all participants have in common is a need to deal with the complexities of the
international marketplace.
Multinational Corporations
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Multinational corporations (MNCS) are companies that manufacture and market products or services in
several countries. Typically an MNC operates a number of plants abroad and markets products
through a large network of fully owned subsidiaries.
Although the United States is home to the largest number of MNCS, the first multinationals were of
European origin and included firms such as Nobel and Alfa-Laval of Sweden, Unilever of the United
Kingdom, Royal Dutch/Shell of the Netherlands, and Nestle of Switzerland. Some of the first U.S.
companies to go multinational included Singer, which opened its first subsidiary in England in 1870,
and NCR, Remington, Burroughs, Otis, and Westinghouse. Most of these companies possessed
valuable patents that they wanted to protect from competition abroad. To cash in on their
technological advantage, they opened branch plants in many European countries.
Today, the majority of large, U.S., Fortune 500 firms are multinational corporations, and most others
have at least some international business involvement. Among the leaders are Exxon, Dow Chemical
and Gillette, with more than half of their sales generated abroad . 14 The ranks of MNCs have been
swelled by a large number of European and Asian firms. Fortune's list of the largest foreign
corporations included 77 from the United Kingdom, 32 from Canada, 36 from France, 55 from West
Germany, 20 from Sweden, 12 from Switzerland, and 10 from Italy. Interestingly, many of the
Fortune firms were from countries outside of Europe and North America. There were 147 from Japan,
10 from South Korea, 7 from Brazil, and 5 from India. Only a few years ago, the list was made
up largely of European and Canadian companies."
Service Companies
The early MNCs were largely manufacturers of industrial equipment and consumer products. Many of
the newer MNCs are service companies. Commercial banks, investment bankers, and brokers have
turned themselves into multinational service networks. Airlines and hotel companies have gained
multinational status. Less noticeable are the multinational networks of public accounting firms,
consulting companies, advertising agencies, and a host of other service related industries.
Examples of service companies with international involvement abound. McDonald's now gets close to
20 percent of its revenues from foreign operations, and almost 40 percent of its new outlets are
foreign.
With some 7,000 restaurants in the United States and tough competition from other domestic chains,
McDonald's expects most of its future growth to come from abroad.
Exporters
Exporters are firms that market products abroad but produce largely in their home country. Most
large exporters have evolved into multinational companies. However, multinational companies, by
shipping products between subsidiaries, have maintained some of the largest export operations.
Importers
As described earlier, importing is as much an international marketing decision as exporting.
Companies that neither export nor have multinational status may still participate in international
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marketing through their importing operations. Many of the largest U.S. retail chains maintain import
departments that are in contact with suppliers in many overseas countries. Other major importers are
MNCs which source products from their own plants abroad or from other clients.
Among the largest U.S. importers are oil companies and subsidiaries of foreign MNCS, particularly
those of European and Japanese origin.
For the purpose of this subject, we will use international company or international firm as umbrella
terms that may include MNCS, exporters, importers, and service companies.
THE IMPORTANCE OF INTERNATIONAL MARKETING
International marketing is a very broad activity, and it is expanding rapidly. As we discussed earlier,
international trade is one of the important components of international marketing. Between 1973 and
1986, total world trade was estimated to have grown from about $574 billion to $2,1 10 billion. Some
55 percent of this volume was in manufactured products compared to about 43 percent in primary
products.
Why Companies Become Involved in International Marketing
Companies become involved in international markets for a variety of reasons. Some firms simply
respond to orders from abroad without any organised efforts of their own. But most companies take a
more active role because they have determined that it is to their advantage to pursue foreign business
export volume on an incremental basis. The profitability of a company can increase when fixed
manufacturing costs are already committed and additional economies of scale are achieved.
Companies move into foreign markets to get additional volume. H. J. Heinz, the United States-based
food producer, achieved about one third of its sales abroad, mostly in Europe, Australia, and New
Zealand However, the company's entire sales of more than $3 billion were achieved with only 15
percent of the world's population. As a result, Heinz is aggressively looking for opportunities in Third-
World countries, with the goal of increasing sales in those areas to $1 billion by 1990.
When a company's customers move overseas, many firms follow suit. Major U.S. banks have shifted
to serve their U.S. clients in key financial centers around the world by opening branches. United
States advertising agencies have created networks to serve the interests of their multinational clients.
As some Japanese manufacturers opened plants in the United States, many of their component
suppliers followed and built operations nearby. Not following these clients would have meant a loss of
business.
Companies also enter the international arena for purely defensive purposes. Those that are
concerned about foreign competition, in particular certain U.S. companies, have launched businesses
in Japan to check the advance of Japanese competitors. Others such as Olivetti of Italy entered the
United States to learn from the most advanced market in the office equipment industry. Whether
companies participate for the pursuit of new opportunities or for any other reason,
most have been able to enhance their overall competitiveness as a result of pursuing foreign ventures.
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Why Study International Marketing?
You have probably asked yourself why you should study international marketing. You also may have
wondered about the value of this knowledge in your future career. While it is not very likely that
many university graduates find an entry-level position in international marketing, it is nevertheless a
fact that each year United States-based international companies hire large numbers of marketing
professionals. Since many of these firms are becoming increasingly internationalised, competence in
international marketing will become even more important in the future-and many marketing
executives will be pursuing international marketing as a career. Career opportunities exist with a large
number of exporters; and candidates will require international marketing skills. Furthermore, each
year many university graduates are hired for the marketing efforts of foreign-based MNCs in the
United States.
These companies are also looking for international competence within their managerial ranks.
With the U.S. service sector becoming increasingly internationalised, many graduates joining service
industries have found themselves confronted with in- international opportunities at early stages of
their careers. Today, consulting engineers, bankers, brokers, and public accountants are all in need of
international marketing skills to compete in a rapidly changing environment. Consequently, a solid
understanding and appreciation of international marketing will benefit the careers of most business
students, regardless of the field or industry they might enter.
A Need for More Globetrotters
Compared to other industrialised nations, the United States severely lacks a sufficient number of
international marketing professionals. The professionals and the firms actively participating in
international marketing through exporting, importing, or production abroad have been called
globetrotters .33 Globetrotters, as active participants in international marketing, play a key role in the
success of international firms. In this competitive business, the United States has seen its share of
world exports steadily decline. In 1953, the United States accounted for 19 percent of total world
exports, more than twice the share of second-ranked United Kingdom with about 8 percent. At that
time, Japan accounted for only 2 percent of world exports. In 1984, the U.S. share had decreased to
12 percent, whereas Japan and Germany shared second place with about 8 percent each. There are
other indications that the United States is lagging behind other countries in globetrotting. From 1870
to 1970, the United States almost always reported a positive trade balance, exporting more goods
than importing. This began to change in the 1970s, and despite the large increase in earnings of the
service industry, the overall balance of trade has turned substantially negative by about $120 billion
(see Figure 1.3) .31 It has been estimated that a trade deficit of this size has cost the United States
several million jobs. Although many reasons for this lagging performance lie beyond the control of
individual companies, there is much that company management can do to redress the imbalance.
Foreign companies fight much harder than U.S. firms to retain foreign markets. Because the foreign
firms' domestic markets are usually smaller than the U.S. market, foreign firms are more motivated
than U.S. firms to succeed abroad.
Despite this problem, foreign trade or international marketing is still not given enough attention by
large sectors of society. Whereas university graduates in other countries learn one or more foreign
languages as a matter of course, Australian. graduates usually have no foreign language competence.
Although it is too simplistic to associate foreign language capabilities with effective globetrotting, this
comparison nevertheless serves as an indicator of interest in international business.
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A Need for More Globe Watchers
Few of us can avoid the impact of international competition today. Many of our domestic industries
have fallen upon hard times. Foreign competition has made enormous inroads in the manufacture of
apparel, textiles, shoes, electronic equipment, and steel. As a result, these industries have become
internationalised. Although foreign competition for many consumer goods has been evident for years,
inroads by foreign firms in investment good industries have been equally spectacular.
Retailers also have new competition. Aside from foreign investors buying up existing U.S. retailing
companies, new firms with novel approaches have entered the country. One of the most recent
arrivals is Sweden based IKEA, which features inexpensive, easy-to-assemble Scandinavian furniture.
IKEA has built its first store in Philadelphia, selling flat-packed furniture that customers can cart away
by themselves and assemble at home. IKEA already operated a chain of more than 70 stores in many
European countries, earning sales of more than $1 billion
Certainly, managers everywhere will be called upon to react to economic developments in many parts
of the world. In this new economic world-where international business involves not only the exporting
or importing of products but also the transfer of marketing ideas and practices-more and more
companies will be asking managers to become globe watchers.
William Litwin serves as an excellent example of how astute globe watching can be converted into a
profitable business. In 1975, in the midst of the oil crisis, Litwin observed a Japanese-made kerosene
stove on the boat of a relative. With the intent of selling such a stove through his own country store,
he visited its manufacturer in Japan. After some days of negotiation, he was allowed to represent the
Japanese company in the U.S. on an exclusive basis for an initial one year period, and later for an
indeterminate period. Litwin sold the kerosene stove through a newly founded company, Kero-Sun.
Kero-Sun accounted for about one-third of the three million kerosene stoves sold in the United States
in 1981, and volume quickly grew to more than $100 million in 1982.
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