Chapter – II

International Marketing Environment

One of the most important decisions in international marketing is the selection of the market.
Therefore, it is of great significance for an international marketer to carefully evaluate the factors
affecting international market selection and the diversity in the environments of these factors must
be considered before coming to any decision. The factors that determine strategies and policies of
international marketing are:
 Economic Environment
 Socio- Cultural Environment
 Political Environment
 legal Environment
 Technological Environment
I) Economic Environment
The macro dimensions of "the environment is economic, social and cultural, political and legal
and technological”. Each is important, but perhaps the single most immortal characteristic of the
global market environment is the economic dimension. With money, all things (well, almost all!)
are possible. Without money, many things are impossible for the marketer. Luxury products, for
example, cannot be sold to low-income consumers. Hypermarkets for food, furniture, or durables
require a large base of consumers with the ability to make large purchases of goods and the ability
to drive away with those purchases. Sophisticated industrial products require sophisticated
industries as buyers.
The assessment of a foreign market environment should start with the evaluation of economic
variables relating to the size and nature of the markets. Because of the large number of
worthwhile alternatives,, initial screening of markets should be done efficiently yet effectively
enough, with a wide array of economic criteria, to establish a preliminary estimate of market
potential.
The world Economy
The world economy has changed profoundly since World War II. Perhaps the most fundamental
change is the emergence of global markets; responding to new opportunities, global competitors
have steadily displaced local ones. Concurrently, the integration of the world economy has
increased significantly. Economic integration stood at 10 percent at the beginning of the 20th

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century; today, it is approximately 50 percent. Within the past decade, there have been several
remarkable changes in the" world economy that hold important implications for business.
Economic Systems
There are three types of economic systems capitalist, socialist, and mixed. This classification is
based on the dominant method of resource allocation market allocation, command or central plan
allocation, and mixed allocation, respectively.
A) Market Allocation
A market allocation system is one that relies on consumers to allocate resources. Consumers
"write" the economic plan by deciding what will be produced by whom. The market system is an
economic democracy--citizens have the right to vote with their pocketbooks for the goods of
their choice. The amount individuals pay for items is determined by the law
of supply and [Link] role of the state in a market economy is to promote competition and
ensure consumer protection. The United States, Western European countries and Japan the triad
countries that account for three quarters of gross world product-are examples of predominantly
market economies.
B) Command Allocation
In a command allocation system, the state has broad powers to serve the public interest. These
include deciding which products to make and how to make them. Consumers are free to spend
their money on what is available, but decisions about what is produced and, therefore, what is
available are made' by state planners. Because demand exceeds supply, the elements of the
marketing mix are not used as strategic variables. There is little reliance on product
differentiation, advertising, and promotion; distribution is handled by the government to cut out
"exploitation" by intermediaries. Cuba stands as one of the last bastions of the command
allocation approach.
C) Mixed System
There are, in reality, no pure market or command allocation systems among the world's
economies. All market systems have a command sector, 'and all command systems have a market
sector; in other words, they are "mixed." In a market economy, the command allocation sector is
the proportion of gross domestic product (GDP) that is taxed and spent by government.
Similarly, farmers in most socialist countries were traditionally permitted to offer part of their
production in a free market. In a mixed economy, government can intervene in key sectors like

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education, or healthcare while leaving other. China has given considerable freedom to businesses
and individuals in the Guangdong province to operate within a market system. Still, China's
private sector constitutes only 1 to 2 percent of national output.
Regional Economic Integration
Since World War II, a tremendous interest among nations in economic cooperation emerged.
This interest has been stimulated by the success of the European Community inspired by US
economy under the Marshall Plan. There are four degrees of economic cooperation, ranging from
agreement between two or more nations to reductions of barriers to trade, to the full scale
economic integration of two or more national economies. Below we shall discuss each scale one
by one in brief:
1) Free Trade Area: A free trade area (FTA) is a group of countries that have agreed to
abolish all internal barriers to trade among themselves. Countries that belong to a free
trade area can and do trade policies with third countries. The free trade area is the least
restrictive and loosest form of economic integration among nations. In a free trade area,
all barriers to trade among member countries are removed. Goods and services are freely
traded among member countries. Each member country maintains its own trade barriers
vis-à-vis nonmembers. The European Economic Area is an FTA that includes the
15nation European Union and Norway, Liechtenstein, and Iceland. The Canada-U.S. Free
Trade Area formally came into existence in 1989. In 1992, representatives from the
United States, Canada, and Mexico' concluded negotiations for the North American Free
trade Agreement (NAFTA). The agreement approved by both houses of the U.S.
Congress and became effective on January 1, 1994.
2) Customs Union: The customs union is one step further along the spectrum of economic
integration. As in the free trade area, members of the customs union dismantle barriers to
trade in goods and services among members. In addition, however, the customs union
establishes a common trade policy with respect to nonmembers. Typically, this takes the
form of a common external tariff, where imports from nonmembers are subject to the
same tariff when sold to any member country. A customs union is more difficult to
achieve than a free-trade area because each member must yield its sovereignty in
commercial policy matters, not just with member nations but also with the whole world.

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 3) Common Market: A common market goes beyond the removal of internal barriers to
trade and the establishment of common external barriers to the important next stage of
eliminating the barriers to the flow of factors (labor and capital) within the market. A
common area builds on the elimination of the internal tariff barriers and the establishment
of common external barriers. It seeks to coordinate economic and social policy within the
market to allow free flow of capital and labor from country to country. When factors of
production are mobile, the capital, labor, and technology may be employed in their most
productive uses.
4) Economic union: The full evolution of an economic union would involve the creation
of a unified central bank; the use of a single currency; and common policies on
agriculture, social services and welfare, regional development, transport, taxation,
competition and mergers, construction and building, and so on. A fully developed
economic union requires extensive political unity, which makes it similar to a
nation. The further integration of nations that were members of fully developed
economic unions would be the formation of a central government that would bring
together independent political states into a single political framework. The
European Union (EU) is approaching its target of completing most of the steps
required to create a full economic union, but major hurdles remain.
Stage of Integration Abolition Common Removal of Harmonization of
of Tariffs Tariff & Quota Restrictions on Economic, Social &
& Quotas System Factor Movements Regulatory Policies
Free trade area Yes No No No
Customer union Yes Yes No No
Common market Yes Yes Yes No
Economic union Yes Yes Yes Yes

Political Environment
Global marketing activities take place within the political environmental of governmental
institutions, political parties, and organizations through which a country’s people and rulers
exercise power. The political environment of international marketing includes any national or
international political factor that can affect a company’s operations. A factor is political when it

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is derived from the government sector. The politics of a nation obviously influence the practice
of international marketing.
In this regard, we can categorize the international political environment in to three categories: the
host country (foreign), the international politics and the home country (domestic) political
environment. Below, we shall try to see the dimension of each in brief.
1. International Political Environment
It involves political relations between two or more countries. The political relationship in
between US and China can be a prime example. After decades of bitter opponents, both countries
become very interested in improving their political and economic ties. This is in contrast to our
discussion below concerned for what happens only in the host country. The international
company is inevitably becomes somewhat involved with the host country’s international
relations, no matter how neutral it may try to be. This is so because it is a foreigner from a
specific country and its operations are frequently related to the operations in other countries,
either on the supply or demand side or both. So in addition to screening the host country’s
environment, a company also needs to look into international happenings and as to how the
relations are going on in the host countries it operates its business.
2. Home country political environment
The firm’s home country political environment can constrain its international operations as well
as its domestic operations. At first glance, it would seem that domestic politics should pose no
threat and that a company should have minimal problems at home. This is often not the case. For
instance, the home country politics can limit the countries that the home country international
firm may operate. For e.g. US has a rule preventing its firms to operate business with Cambodia,
Cuba and till recent times with Libya and recently there have been a movement to restrain its
companies from operating business around Congo claiming that the different military groups are
using the money they generate from the minerals for the use of unnecessary and immoral
military operations.
Apart from this, domestic criticism of the company’s international activities may largely come
from labor and political organizations, which frequently accuse the company of exporting capital
and job. Although these organizations usually have no objection to the exportation of products,
they may feel that imports and direct investment abroad create unemployment at home. To

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discourage such activity, organizations may advocate a requirement of local content for products
that are sold in their country.
In another scenario, the home country government, instead of providing support for international
trade, can turn out to be a significant hindrance. There may be many government regulations that
interferes with the free flow of trade and the actions taken by home country may be motivated
more by political consideration than by sound economic reasoning. For decades Taiwan has
refused to trade with China even though China has what Taiwan needs: cheap labor.
3. Host country political environment
These are the politics of foreign country within which a firm run business. This part of
international business can range from being favorable and friendly to hostile and unfavorable.
Say for example when a company decides to export a product from its home country, it may
quickly discover that the host country’s political environment is not always hospitable. The host
government most often views imports negatively claiming that imports adversely contribute to
the host country’s balance of payment. For example it is for such and like reason that the
Ethiopian government charge higher tariff on products that are assumed to be luxurious and non
essential products that can be produced locally.
A government encouragement and discouragement of foreign investment is usually dictated by
consideration of balance of payments, economic developments and political realities. Balance of
payment problem results in policies favoring investment that improve the country’s export,
stimulate employment.
Therefore, any company doing business outside its home country should carefully study nature
of government in the target country and analyze salient issues arising from the political
environment. These include the governing party’s attitude toward sovereignty, the country’s
national interest, political intervention, political risk, the threat of equity dilution, and
expropriation.
The International legal Environment
Government sets rules and regulations to normalize the business activities under its territories
while safeguarding the society’s wellbeing. Many of the rules set by government may have an
adverse effect on the business. Hence forth, the business firm should be aware of the
government’s rules and regulations and accordingly abide by it. The impact of these factors can
be wide ranging and subtle. It can range from the effects of a change in government to the

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policies persuaded by individual government departments or agencies. Such changes can have
important consequences both for individual business and for the whole sector of the economy.
Bases for legal system
1. Islamic Law (Shariah): this legal system is derived from the interpretation of the Koran
and found in Pakistan, Iran, Saudi Arabia and other Islamic states. It encompasses
religious duties and obligations as well as the secular aspect of law regulating human
acts. Broadly speaking, Islamic law defines a complete system that prescribes specific
patterns of social and economic behavior for all individuals. It includes issues such as
property rights, economic decision making and types of economic freedom. The
overriding objective of the Islamic system is social justice. Among the most unique
aspects of Islamic law is the prohibition against the payment of interest.
2. Common Law: The basis for common law is tradition, past practices and legal precedents
set by the courts through transfer of statutes, legal legislation and past rulings. Common
law seeks interpretation through the past decisions of higher courts which interpret the
same statutes or apply established and customary principles of law to a similar set of
facts. Judges' decisions are guided not so much by statutes as by previous court decisions
and interpretations of what certain laws are or should be. As a result, these countries' laws
are tradition-oriented. Countries with such a system include the United States, Great
Britain, Canada, India, and other British colonies.
3. Code law: It is based on all inclusive system of written rules (codes) of law. Under code
law, the legal system is generally divided into three separate codes: commercial, civil and
criminal. As the name implies, the main rules of the law are embodied in legislative
codes. Every circumstance is clearly spelled out to indicate what is legal and what is not.
There is also a strict and literal interpretation of the law under this system.
Jurisdiction in international legal disputes
Company personnel working abroad should understand the extent to which they are subject to
the jurisdiction of host-country courts. Employees of foreign companies working in Ethiopia
must understand that courts have jurisdiction to the extent that the company can be demonstrated
to be "doing business" in the region in which the court sits. The court may examine whether the
foreign company maintains an office, solicits business, maintains bank accounts or other
property, or has agents or other employees in the state in question.

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Legal resources in resolving international disputes
Should the settlement of a dispute on private basis become impossible, the foreign marketer must
resort to more resolute action? Such action can take the form of conciliation, arbitration or as last
resort litigation. Most international business people prefer a settlement through arbitration rather
than by suing a foreign company.
1. Arbitration: International commercial disputes often are resolved by arbitration rather
than litigation. The usual arbitration procedure is for the parties involved to select a
disinterested and informed party as a referee to determine the merits of the case and
make judgment that both parties agree to honor. Arbitration is the hearing and
determination of a case in controversy by an arbiter.
2. Conciliation: Although arbitration is recommended as the best means of setting
international disputes, conciliation can be an important first step for resolving
commercial disputes. Conciliation is a non binding agreement between parties to
resolve dispute by asking a third party to mediate differences.
3. Litigation: Lawsuits in pubic courts are avoided for many reasons. Most observers of
litigation between citizens of different courtiers believe that almost all victories are
false because the cost frustrating delays and extended aggravation which these cases
produce are more oppressive by far than any matter of comparable size. The best
advice is to seek settlement, if possible, rather than sue. Apart from this, companies
may refrain from litigation due to fear of creating poor image and damaging public
relations, fear of unfair treatment etc.
Intellectual Property: Patents and Trademarks
Intellectual Property is a general term that describes Inventions or other discoveries that have
been registered with government authorities for the sale or use by their owner. Such terms as
patent, trademark, copyright or trade secret fall into the category of intellectual property.
Individuals and firms have the freedom to own and control the rights to- intellectual property
(i.e., inventions and creative works). The terms patent, trademark, copy right, and trade secret are
often use interchangeably.
 A patent is a government grant of certain rights given to an inventor for a limited time in
exchange for the disclosure of the invention. The most important of these rights is" the

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 one under which the patented invention tan" be made, used, or sold only with the
authorization of the patent owner.
 A trademark relates to any work, name, or symbol, which is used in trade to distinguish a
product from other similar goods (e.g., "Coke"). Trademark laws are used to prevent
others from making a produced with a confusingly similar mark. Similar rights may be
acquired in marks used in the sale of advertising of services (service marks).
 A copyright protects the writings of an author against copying literary, dramatic, musical,
and artistic-and more recently computer software-works are included within the
protection of copyright laws.
 The term trade secret refers to know-how (e.g., manufacturing methods, formulas, plans,
and so on) that is kept secret within a particular business. This knows how generally
unknown in the industry, may offer the firm a competitive advantage.
Socio – Cultural Environment
It is the most basic cause of human wants and behavior. It is a set of symbols and artifacts
created by a society and handed down from generation to generation as determinants and
regulators of human behavior. It is made up of institutions and other forces that affect a society’s
basic values, perceptions, preferences and behaviors. The society in which people live shapes
their basic beliefes, values and norms. They absorb a world view that defines their relationship to
themselves, to others, to nature etc. People in every society hold many core beliefes and values
that tend to exist for a long. Below we shall dwell upon the characteristics and dimensions of
culture.
Culture and Marketing
Culture influences every aspect of marketing. A marketing oriented firm should make decisions
based on customer perspectives. Customers‘actions are shaped by their lifestyles and behavior
patterns as they stem from their society‘s culture. Thus, the products that people buy, the
attributes that they value are all culture-based choices. Thus, a person‘s perspectives, resources,
problems and opportunities are generated and conditioned by culture to a considerable extent.
Culture will have its impact on the food habits of people. Food consumption and preparation also
are interrelated with many of the other universals of culture, including religious observances and
ceremonies, fasting. Cultural pressures easily overrule physiological necessities. Therefore, it
becomes even more difficult for an individual alien to a culture to predict that culture‘s

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preference for or rejection of certain food habits. No matter who shops, or where, cultural
differences always affect decision making when it comes to the product and its price, as well as
to the way it is distributed and promoted.
The marketer's task is to identify cultures in the target market that have something to do with the
firm's product i.e. as to how the culture affects the product's acceptability (positively or
negatively), and then to design the product in such a way that it is commensurate with the
culture. In addition, as old patterns gradually give way to new, culture is subjected to change
through time. Hence, a marketer should also keenly look in to any cultural shifts in order to find
out if any kind of threat for the firm's product (to keep up its products in line with the new trends
of culture) or opportunity such as for developing new product emerges thereof.
Technological Environment
The type of technology in use, the level of technological developments, the speed with which
new technologies are adopted and diffused the type of technologies that are appropriate, the
technology policy etc are important to business. Moreover, advances in technology may also
cause relocation of production. For example, several companies in the advanced countries have
shifted the T.V. production to developing countries to take advantage of the cheap labor.
However, when further technological developments reduced the labor content of the T.V some
firms relocated their production back to the developed countries.
Several developing countries even import second hand plant and machinery. There is often a
time lag between countries in adoption and diffusion of technologies. The developing countries
generally lag behind the developed ones. This lag has, however, been diminishing the several
cases.
Advances in the technologies of food processing, packaging and preservation, transportation etc
have facilitated product improvements and introduction drove considerably improved the
marketability of products. The advent of microwave ovens has given a new dimension to food
marketing.
Intermediate technology, which combines elements of traditional technology with elements of
modern technology, gained importance in the developing countries. Thus, the sophisticated
capital-intensive technologies in use in the developed countries are not acceptable in some
sectors. Thus differences in the technological environment may call for product modifications.

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