International marketing occurs when a business directs its products and services toward consumers in more than one country. While the overall concept of marketing is the same worldwide, the environment within which the marketing plan is implemented can be drastically different. Common marketing concerns—such as input costs, price, advertising, and distribution—are likely to differ dramatically in the countries in which a firm elects to market. Furthermore, many elements outside the control of managers, both at home and abroad, are likely to have a large impact on business decisions. The key to successful international marketing is the ability to adapt, manage, and coordinate a marketing plan in an unfamiliar and often unstable foreign environment.
Businesses choose to explore foreign markets for a host of sound reasons. Commonly, firms initially explore foreign markets in response to unsolicited orders from consumers in those markets. In the absence of these orders, companies often begin to export to: establish a business that will absorb overhead costs at home; seek new markets when the domestic market is saturated; and to make quick profits. Marketing abroad can also spread corporate risk and minimize the impact of undesirable domestic situations, such as recessions.
While companies choosing to market internationally do not share an overall profile, they seem to have two specific characteristics in common. First, the products that they market abroad, usually patented, have high earnings potential in foreign markets; in other words, the international sale of these products should eventually generate a substantial percentage of the products' total revenue. Also, these products usually have a price or cost advantage over similar products or have some other attribute making them novel and more desirable to end users abroad. Second, the management of companies marketing internationally must be ready to make a commitment to these markets. They must be willing to educate themselves thoroughly on the particular countries they choose to enter and must understand the potential benefits and risks of a decision to market abroad.
Marketing abroad is not a recent phenomenon. In fact, well-established trade routes existed three or four thousand years before the birth of Christ. Modern international marketing, however, can arguably be traced to the 1920s, when liberal international trading was halted by worldwide isolationism and increased barriers to trade. The United States furthered this trend by passing the Smoot-Hawley Tariff Act of 1930, raising the average U.S. tariff on imported goods from 33 to 53 cents. Other countries throughout the world imposed similar tariffs in response to the United States' actions, and by 1932 the volume of world trade fell by more than 40 percent. These protectionist activities continued throughout the 1930s, and the Great Depression, to which many say protectionism substantially contributed, was deeper and more widespread than any other depression in modern history. Furthermore, according to the United Nations, this protectionism undermined the standard of living of people all over the world and set the stage for the extreme military buildup that led to World War II.
One result of the Great Depression and World War II was strengthened political will to end protectionist policies and to limit government interference in international trade. Thus, by 1944 representative countries attending the Bretton Woods Conference established the basic organizational setting for the post-war economy, designed to further macroeconomic stability. Specifically, the framework that arose created three organizations: the International Trade Organization (ITO), the World Bank, and the International Monetary Fund (IMF).
Although negotiations undertaken for the ITO proved unsuccessful, the United States proposed that the commercial policy provisions that were originally be included in the ITO agreements should be temporarily incorporated into the General Agreement on Tariffs and Trade (GATT). In 1947, 23 countries agreed to a set of tariff reductions codified in GATT. Although GATr was at first intended as a temporary measure, because ITO was never ratified, it became the main instrument for international trade regulation. GATT was succeeded by the World Trade Organization (WTO), which was established in January 1995 after GATT officially ended in April 1994. The WTO's main function has been to resolve trade disputes, and it developed procedures for handling trade disputes that were much improved over the GATr procedures. In its first 18 months the WTO settled more than 50 trade disputes.
In the 1960s and 1970s, world trading patterns began to change. While the United States remained a dominant player in international trade, other less developed countries began to manufacture their own products. Furthermore, the United States became more reliant than ever on imported goods. For example, by 1982 one in four cars sold in the United States was foreign-made and more than 40 percent of electronic products were produced or assembled abroad. To make matters worse, the United States consistently imported a sizable portion of its fuel needs from other countries. All of these elements created a U.S. dependency on world trade.
As free market policies continued to be the dominant political force concerning trade around the world, a host of new markets opened. Specifically, in the late 1980s, Central and Eastern European markets opened with the dissolution of the Soviet Union. By the 1990s, world trade began with China, as well as with countries in South America and the Middle East—new markets that looked quite promising. In spite of the changes in the world trade arena, the United States, Japan, and Europe continued to play a dominant role, accounting for 85 percent of the world's trade.
Interestingly, while the trend of opening new world markets continued, there was another trend toward regional trade agreements. These agreements typically gave preferential trade status to nations that assented to the terms of a pact over those nations that did not participate. Two examples are the creation of a unified European Market and the ratification of the North American Free Trade Agreement (NAFTA). Created in 1958, and renamed most recently in 1993, the European Union (EU) is a regional organization designed to gradually eliminate customs duties and other types of trade barriers between members. Imposing a common external tariff against nonmember countries, EU countries slowly adopted measures that would unify and, theoretically, strengthen member economies. Member nations include Belgium, France, Germany, Great Britain, Italy, Luxembourg, the Netherlands, Denmark, Ireland, Greece, Spain, and Portugal.
Comprised of Canada, the United States, and Mexico, NAFTA was passed by the U.S. House and Senate in November 1994. In total, 360 million consumers are subject to the agreement, with spending power of about $6 trillion. Therefore, NAFTA is 20 percent larger than the EU.
With non-European multinational corporations facing tariff barriers put up by the EU, the most attractive international markets were those emerging in the developing countries of Asia, Russia, and Latin America. According to Christopher Miller, professor of international marketing at the Thunderbird Graduate School of International Management, "There's nowhere else to go. With the advent of the EU, it's harder and harder for non-European companies to get into Europe. Anyone within the boundaries has no tariffs, and those outside it have more barriers." In emerging markets, companies could expect to achieve 30 to 40 percent growth rates, according to Miller.
There are four general ways to develop markets on foreign soil. They are: exporting products and services from the country of origin; entering into joint venture arrangements with one or more foreign companies; licensing patent rights, trademark rights, etc. to companies abroad; and establishing manufacturing plants in foreign countries. A company can commit itself to one or more of the above arrangements at any time during its efforts to develop foreign markets. Each method has distinct advantages and disadvantages and, thus, no single method is best in all instances.
Companies taking their first steps internationally often begin by exporting products manufactured domestically. Since the risks of financial losses can be minimized, exporting is the easiest and most frequently used method of entering international markets. Achieving export sales can be accomplished in numerous ways. Sales can be made directly, via mail order, or through offices established abroad. Companies can also undertake indirect exporting, which involves selling to domestic intermediaries who locate specific markets for the firm's products or services. While having numerous benefits, exporting can place constraints on marketing strategies. The exporter often knows little about typical consumer-use patterns or, if using an intermediary, may have little influence over product pricing.
International licensing occurs when a country grants the right to manufacture and distribute a product or service under the licenser's trade name in a specified country or market. Common examples are granting foreign firms rights to technology, trademarks, and patents. Although large companies often grant licenses, this practice is most frequently used by small and medium-sized companies. Often seen as a supplement to manufacturing and exporting activities, licensing may be the least profitable way of entering a market. It can be advantageous, however, because it allows domestic firms to avoid certain obstacles. To illustrate, companies can use licenses when their own money is scarce, when foreign import restrictions forbid other ways of entering a market, or when a host country is apprehensive about foreign ownership.
Two particular types of licensing are franchising and management contracts. Similar to franchising domestically, world franchising occurs most often in fast foods, soft drinks, hotels, and car rentals. The major benefit of this type of license is the ability to standardize foreign operations with minimal investment. A second type of licensing arrangement is referred to as a management contract, often resulting from external pressures from a host government. This contract can occur when the host government nationalizes strategic industries for political or economic purposes. Rather than banish the company completely, the country hires the foreign owner to manage the firm and to give technical and managerial knowledge to the local population.
A third way to enter a foreign market is through a joint venture arrangement, whereby a company trying to enter a foreign market forms a partnership with one or more companies already established in the host country. Often, the local firm provides expertise on the intended market, while the multinational firm is better able to accomplish general management and marketing tasks. Use of this method of international investing has accelerated dramatically in the past 20 years. The biggest incentive to entering this type of arrangement is that it reduces the company's risk by the amount of investment made by the host-country partner. Other potential advantages to a joint venture arrangement are that: (1) it may allow firms with insufficient capital to expand internationally; (2) it may allow the marketer to use the partner's preexisting distribution channels; and (3) it may let the marketer take advantage of special skills possessed by the host country partner. While this method of market entry often results in the loss of total control over business operations, it is the only method of foreign investment that some host governments (especially less developed countries) will allow.
A company can also expand abroad by setting up manufacturing operations in a foreign country. This method is optimal when the foreign demand for a product justifies the costly investment required. Other benefits to manufacturing abroad can be the avoidance of high import taxes, the reduction of transportation costs, the use of cheap labor, and better access to raw materials. When a company chooses to manufacture abroad, the markets of the host country are serviced by that particular manufacturing facility. Moreover, often products from the same facility are sent to other countries—even back to the original home country—for distribution.
Although firms marketing abroad face many of the same challenges as firms marketing domestically, international environments present added uncertainties which must be accurately interpreted. Like domestic marketing, international marketing requires managers to make decisions that are within the firm's control, such as which product to market, what price it should command, the optimal promotion strategy, and the best distribution channels. Furthermore, like firms marketing domestically, firms marketing internationally must be prepared to react to factors in the home country which might affect their ability to do business. Examples include domestic politics, competition, and economic conditions.
International marketers face a host of issues that are out of their direct control, both at home and abroad. For instance, although domestic policies on foreign trade cannot be controlled by individual businesses, firms marketing abroad must be aware of how domestic policies help or hinder foreign trade activities. Firms marketing abroad must also be prepared for uncertainties presented solely by the business environment in the host country as well. Four very important issues to note in a host country are its laws, politics, economy, and competition. Other issues are the host country's geography, infrastructure, currency, distribution channels, state of technological development, and cultural differences.
The legal and political environments of the host countries are two of the most important variables faced by international marketers. First, companies operating abroad are bound by both the laws of host and home countries; moreover, legal systems around the world vary in content and interpretation. These laws can affect many elements of marketing strategies, particularly when they are in the form of product restrictions or specifications. Also, politics can be a huge concern for companies operating abroad and is, perhaps, the most volatile aspect of international marketing. Unstable political situations can expose businesses to numerous risks that they would rarely face at home. When governments change regulations, there are usually new opportunities for both profits and losses, and firms must usually make modifications to existing marketing strategies in response. For instance, the opening of Central and Eastern Europe presented both high political risks and huge potential market opportunities for companies willing to take the risks.
Economic conditions, per capita gross national product (GNP), and levels of economic development vary widely around the world. Before entering a market, firms marketing abroad must be aware of the economic situation there; the economy—not to mention individual standards of living—has a huge impact on the size and affluence of a particular target market. Furthermore, marketers must educate themselves on any trade agreements existing between countries as well as on local and regional economic conditions. Being aware of economic conditions and the likely direction that those conditions will take can help marketers better understand the profitability of potential markets. For example, many companies had to reevaluate international marketing strategies as international financial crises affected the economies of Southeast Asia, Russia, and Latin America in 1997-98.
Competition overseas can come from a variety of sources as well. Further, it has the potential to be much fiercer than competition at home. Often, if a market is ready to accept foreign goods, numerous manufacturers—both indigenous and foreign based—will be willing to risk entry into that market. Making the situation more intense, the governments of many other countries may subsidize manufacturers to help them enter a particular market.
Obviously, the more foreign markets in which a firm enters, the more of these uncontrollable events the firm must consider. To make the situation more interesting, the solutions to problems occurring in one country are often inapplicable to problems occurring in a second country because of differences in the political climates, economies, and cultures. The uncertainty of different foreign business environments creates the need to closely study the environment within each new market entered.
Companies that are truly global competitors employ a long-term international marketing strategy to overcome the uncertainties associated with conducting business abroad. Their long-term strategies enable them to weather short-term economic or political crises, such as the peso devaluation in Mexico. Such companies are prepared to make increased investments during downturns, and as a result they are better prepared when economic conditions improve.
Culture is a very important aspect of international marketing because the elements that compose it affect the way consumers think. The language a population speaks, the average level of education, the prevailing religion, and other social conditions affect the priorities the inhabitants have and the way they react to different events.
With this in mind, it is easy to see that managers of firms operating only in the domestic market are often able to react to many market uncertainties correctly and automatically because they intuitively understand the culture and the impact of changing conditions. In foreign markets, however, this is not the case. Because they were not raised in the country in which they are trying establish a market, managers abroad often do not fully understand the culture and lack the proper frame of reference. Thus, decisions that they would make automatically at home could be dramatically incorrect when operating abroad. Unless special efforts are made to understand the cultural meanings for activities in each foreign market, managers will likely misinterpret the events taking place and risk making the wrong decisions.
This problem is so real that some authorities in international marketing believe that unconscious references to a firm's domestic cultural values contribute to most international business problems. To overcome these potential disastrous decisions, firms must understand the cultural factors existing in both their domestic country and the host country. Business problems and goals must be defined in terms of the host country's culture. Being able to separate home-country norms from those in the host country can be a very challenging task. Often, the influence of one's own culture is underrated.
American multinational corporations have been in the forefront of developing international brands that cut across local cultural differences. Companies such as Coca-Cola, IBM, and McDonald's have created international brands to sell their products to large market segments worldwide. Other American examples of global icons include Intel, MTV, CNN, and Disney. The advertising and marketing campaigns that built these international brands took a universalist approach, building on the American tradition of assimilation. However, as culturally diverse emerging markets become more important to international marketing, campaigns targeted to specific cultures will appear more frequently.
[ Kathryn Snavely ,
updated by David P Bianco ]
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