BASES OF INTERNATIONAL MARKETING CHAPTER 1

At the end of this chapter, students will be able to discuss: Export Behavior Theories and Motives Internationalization Stages Export Network Model – Relationship Marketing. At the end of this chapter, students will be able to discuss: Export Behavior Theories and Motives Internationalization Stages Export Network Model – Relationship Marketing.

Potential Benefits from Export Marketing a)The Effects of Imports Increased supply and variety of goods, and lower prices, for consumers. Lower domestic production costs through import of raw materials and capital equipment, and access to technological advances through imports, licensing, and foreign direct investment. a)The Effects of Imports Increased supply and variety of goods, and lower prices, for consumers. Lower domestic production costs through import of raw materials and capital equipment, and access to technological advances through imports, licensing, and foreign direct investment.

b)The Effect of Exports Economics of scale in production processes with resulting lower costs. Diversification of risks. Etc. b)The Effect of Exports Economics of scale in production processes with resulting lower costs. Diversification of risks. Etc.

c)Increasing Productivity and Efficiency Increased productivity through better utilization of resources. Increased productivity through technology transfer. Increased productivity through learning of better ways of organizing and doing business. c)Increasing Productivity and Efficiency Increased productivity through better utilization of resources. Increased productivity through technology transfer. Increased productivity through learning of better ways of organizing and doing business.

International Trade Theories A.The Classical Theory of International Trade i. Absolute Advantage ii. Comparative Advantage iii. Equal Advantage A.The Classical Theory of International Trade i. Absolute Advantage ii. Comparative Advantage iii. Equal Advantage

I.Absolute Advantage Country A produces one product more cheaply and country B produces another more cheaply. I.Absolute Advantage Country A produces one product more cheaply and country B produces another more cheaply.

II. Comparative Advantage Country A produces both products more cheaply, and country B produces one of them at a much greater cost and the other at only a little greater cost. II. Comparative Advantage Country A produces both products more cheaply, and country B produces one of them at a much greater cost and the other at only a little greater cost.

III. Equal Advantage The ratio of production costs of the two are the same in both countries. III. Equal Advantage The ratio of production costs of the two are the same in both countries.

B. The Factor Proportion Theory Resources are distributed unevenly internationally. A nation will export products that use a large amount of the factors of production of which it has an abundance, and are thus cheap. It will import products that use large amounts of factors of production which are scarce, and therefore expensive, in the country. B. The Factor Proportion Theory Resources are distributed unevenly internationally. A nation will export products that use a large amount of the factors of production of which it has an abundance, and are thus cheap. It will import products that use large amounts of factors of production which are scarce, and therefore expensive, in the country.

C. The Product Life Cycle Theory of International Trade For the innovator country, in the first stage, production and use are domestic. Then exports are started. Eventually, production may be shifted overseas to be nearer markets and/or to use lower cost labor. The originally exporting country may become an importer. C. The Product Life Cycle Theory of International Trade For the innovator country, in the first stage, production and use are domestic. Then exports are started. Eventually, production may be shifted overseas to be nearer markets and/or to use lower cost labor. The originally exporting country may become an importer.

Export Behavior Theories and Motives Basic Goals To earn profit Required for survival To allow pursuit of non-profit-oriented goals. Basic Goals To earn profit Required for survival To allow pursuit of non-profit-oriented goals.

Exhibit 1.0 A classification of export motives

Specific Reasons Export motives may arise from internal influences or external influences; May be reactive or proactive; May also be considered innovation oriented or problem oriented. Specific Reasons Export motives may arise from internal influences or external influences; May be reactive or proactive; May also be considered innovation oriented or problem oriented.

 Managerial Urge - Export behavior is related to individual decision-making characteristics.  Unique Product/Technology Competence  Risk Diversification with different markets in different stages of economic cycle  Foreign Market Opportunities  Economies of Scale in production, advertising, distribution, or other areas: may be able to use both domestic and foreign resources (financing, marketing, production, human resources, research).  Managerial Urge - Export behavior is related to individual decision-making characteristics.  Unique Product/Technology Competence  Risk Diversification with different markets in different stages of economic cycle  Foreign Market Opportunities  Economies of Scale in production, advertising, distribution, or other areas: may be able to use both domestic and foreign resources (financing, marketing, production, human resources, research).

 Small Domestic Market or only part of domestic market can be easily reached; stagnant or declining home market.  Excess Capacity or Resources - Problems may arise because of dumping (selling a product in a foreign market at a price lower than it is sold for in the domestic market).  Other Goals: Development of people; ‘offshore’ plants to supply home markets.  Companies usually operate with multiple goals in mind.  Small Domestic Market or only part of domestic market can be easily reached; stagnant or declining home market.  Excess Capacity or Resources - Problems may arise because of dumping (selling a product in a foreign market at a price lower than it is sold for in the domestic market).  Other Goals: Development of people; ‘offshore’ plants to supply home markets.  Companies usually operate with multiple goals in mind.

Development of Export Firm: Internationalization Stages 1. Stage-theory Approach (Johansen and Vahlne,1977) Four Stages of International Operations: 1.No permanent export 2.Export via agent 3.Export via sales subsidiaries 4.Production in a foreign subsidiaries 1. Stage-theory Approach (Johansen and Vahlne,1977) Four Stages of International Operations: 1.No permanent export 2.Export via agent 3.Export via sales subsidiaries 4.Production in a foreign subsidiaries

2. Levels of Exporting 1.Export of surplus 2.Export marketing 3.Overseas Market Development 4.Technology Development 2. Levels of Exporting 1.Export of surplus 2.Export marketing 3.Overseas Market Development 4.Technology Development

Exhibit 1.1 Levels of exporting

Internationalization of manufacturing firms often, but not always, occurs in several stages such as: 1.export operation stage; 2.foreign sales subsidiary stage; 3.licensing and contracting alliances; 4.foreign production subsidiary or alliance stage. Internationalization of manufacturing firms often, but not always, occurs in several stages such as: 1.export operation stage; 2.foreign sales subsidiary stage; 3.licensing and contracting alliances; 4.foreign production subsidiary or alliance stage.

Network Model/ Relationship Marketing Basic assumption: The individual firm is dependent upon resources controlled by other firms. It is often advantageous for firms, particularly those in international markets, to build up lasting, cooperative relationships with other businesses: distributors, agents, customers, competitors, consultants, and government agencies. Stress on mutual trust, interaction, and mutual commitment. Basic assumption: The individual firm is dependent upon resources controlled by other firms. It is often advantageous for firms, particularly those in international markets, to build up lasting, cooperative relationships with other businesses: distributors, agents, customers, competitors, consultants, and government agencies. Stress on mutual trust, interaction, and mutual commitment.

Advantages: Expected in reducing transaction costs and in cooperative actions to improve quality and responsiveness and reduce costs of overall operations. Dangers include loss of control and release of internal information. Networks of business relationships may be classified by geographical areas, products, technology, etc. (national nets, production nets, product nets, etc.) Advantages: Expected in reducing transaction costs and in cooperative actions to improve quality and responsiveness and reduce costs of overall operations. Dangers include loss of control and release of internal information. Networks of business relationships may be classified by geographical areas, products, technology, etc. (national nets, production nets, product nets, etc.)

Ethical/Moral Issues International marketers often must deal with : (a) different sets of ethics; (b) different views of what constitutes socially acceptable behavior; and (c) different legal requirements. International marketers often must deal with : (a) different sets of ethics; (b) different views of what constitutes socially acceptable behavior; and (c) different legal requirements.

Defining Ethics Ethics is what most people in a society view as being moral, good and right. What is ethical in one society may be considered unethical in another. Examples are given of different attitudes toward; (a) the paying of interest on loans; (b) women in the workforce; and (c) bribes. Ethics is what most people in a society view as being moral, good and right. What is ethical in one society may be considered unethical in another. Examples are given of different attitudes toward; (a) the paying of interest on loans; (b) women in the workforce; and (c) bribes.

The above, and particularly the issue of making facilitating payments or bribes, may result in conflicts between a person’s ethical code, the laws of the home country, and/or the laws of the host country. Environmental issues are of increasing concern, particularly in the more economically developed countries. The above, and particularly the issue of making facilitating payments or bribes, may result in conflicts between a person’s ethical code, the laws of the home country, and/or the laws of the host country. Environmental issues are of increasing concern, particularly in the more economically developed countries.

Possible Bases for Ethical Decision Making No universally agreed upon standard or model, but approaches include: (a) Principle of utilitarianism: correctness determined by results. (b) Principle of rights: overall benefits to society do not justify overriding rights of some people. (c) Principle of justice: fair treatment. No universally agreed upon standard or model, but approaches include: (a) Principle of utilitarianism: correctness determined by results. (b) Principle of rights: overall benefits to society do not justify overriding rights of some people. (c) Principle of justice: fair treatment.

Applying Ethics in International Marketing Need for concern with issues of: products or services; promotion; and customers. Some specific do’s and don’ts are given with regard to products, market penetration, advertising and promotion, prices, and the treatment of customers, employees, and suppliers. International marketer needs knowledge of ethics, values, and customs (and laws) of host markets as well as home market. Need for concern with issues of: products or services; promotion; and customers. Some specific do’s and don’ts are given with regard to products, market penetration, advertising and promotion, prices, and the treatment of customers, employees, and suppliers. International marketer needs knowledge of ethics, values, and customs (and laws) of host markets as well as home market.

Social Responsibility and the Business Environment Views of the proper goals for business vary among countries (e.g. Britain and the US; continental Europe, Japan). Even in U.S., more is expected from businesses than profit maximization. Continuing arguments for and against companies doing more than is legally required. Overall tendency in most countries is to expect and/or demand a higher level of social responsibility Views of the proper goals for business vary among countries (e.g. Britain and the US; continental Europe, Japan). Even in U.S., more is expected from businesses than profit maximization. Continuing arguments for and against companies doing more than is legally required. Overall tendency in most countries is to expect and/or demand a higher level of social responsibility

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