International Marketing

The increasing integration of economies also derives from
portfolio investment (or indirect investment) in foreign
countries and from money flows in the international
financial markets. Portfolio investment refers to investments
in foreign countries that are withdrawable at short
notice, such as investment in foreign stocks and bonds.
In the international financial markets, the borders
between nations have, for all practical purposes, disappeared.
The enormous quantities of money that are traded
on a daily basis have assumed a life of their own. When
trading in foreign currencies began, it was as an adjunct to
the international trade transaction in goods and services—
banks and firms bought and sold currencies to complete
the export or import transaction or to hedge the exposure
to fluctuations in the exchange rates in the currencies of
interest in the trade transaction.
In today’s international financial markets, however,
traders usually trade currencies without an underlying
trade transaction. They trade on the accounts of the banks
and financial institutions they work for, mostly on the
basis of daily news on inflation rates, interest rates, political
events, stock and bond market movements, commodity
supplies and demand, and so on. The weekly volume
of international trade in currencies exceeds the annual
value of the trade in goods and services.
The effect of this trend is that all nations with even
partially convertible currencies are exposed to the fluctuations
in the currency markets. A rise in the value of the local
currency due to these daily flows vis-à-vis other currencies
makes exports more expensive (at least in the short run) and
can add to the trade deficit or reduce the trade surplus. A
rising currency value will also deter foreign investment in
the country and encourage outflow of investment.
It may also encourage a decrease in the interest rates
in the country if the central bank of that country wants to
maintain the currency exchange rate and a decrease in the
interest rate would spur local investment. An interesting
example is the Mexican meltdown in early 1995 and the
massive devaluation of the peso, which was exacerbated by
the withdrawal of money by foreign investors. The massive
depreciation of many Asian currencies in the 1997 to
1999 period, known as the Asian financial crisis, is also an
instance of the influence of these short-term movements
of money. Today, the influence of these short-term money
flows is a far more powerful determinant of exchange rates
than an investment by a Japanese or German automaker.
Despite its economic size, the United States continues
to be relatively more insulated from the global economy
than other nations. Most of what Americans consume
is produced in the United States—which implies
that, in the absence of a chain reaction from abroad, the
United States is relatively more insulated from external
shocks than, say, Germany and China.
The dominant feature of the global economy, however,
is the rapid change in the relative status of various
countries’ economic output. In 1830 China and India
alone accounted for about 60 percent of the manufactured
output of the world. Nevertheless, the share of the world
manufacturing output produced by the twenty or so
countries that today are known as the rich industrial
economies increased from about 30 percent in 1830 to
almost 80 percent by 1913.
In the 1980s, the U.S. economy was characterized as
“floundering” or even “declining,” and many pundits predicted
that Asia, led by Japan, would become the leading
regional economy in the twenty-first century. Then the
Asian financial crisis of the late 1990s changed the economic
milieu of the world; by the early twenty-first century,
the U.S. economy was growing at a faster rate than
that of any other developed country. The United States
and Western European economies have become the twin
engines of the world economy, driven by increased trade
and investment as a result of continued deregulation,
improved technology, and transatlantic mergers, among
other things. Obviously, a decade is a long time in the everchanging
world economy; and indeed, no single country
has sustained its economic performance continuously.
SEE ALSO Capital Investments; International Business;
Investments
BIBLIOGRAPHY
United Nations Conference on Trade and Development. (2005).
World investment report 2004. Geneva: UNCTAD.
U.S. Census Bureau. (2005). Statistical abstract of the United
States. Washington, DC: U.S. Government Printing Office.
World Trade Organization. (2004, October 25). 2004 trade
growth to exceed 2003 despite higher oil prices (Press
release). Retrieved November 18, 2005, from
http://www.wto.org/english/news_e/pres04_e/pr386_e.htm
Masaaki Kotabe
INTERNATIONAL
MARKETING
The American Marketing Association defines marketing
as the process of planning and executing the conception,
pricing, promotion, and distribution of ideas, goods, and
services to create exchanges that satisfy individual and

416 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
International Marketing
organizational goals. A firm is considered an international
organization when it engages in cultivating exchange relationships
with individuals or organizations beyond its
national boundaries. The decision to do business overseas
is usually influenced either by the domestic or global
economy.
Companies might be pushed into international marketing
by the general lack of opportunity in the domestic
markets. Organizations might be pulled into global markets,
without necessarily abandoning their domestic markets,
by growing opportunities for their products or
services in other countries. Firms attempting to compete
on a global basis should be aware that nations differ
greatly in their political, legal, economic, and cultural
environments. Complexity of the international marketing
environment necessitates a careful consideration of
whether to market aboard, where to market, and what
objectives to pursue.
ASSESSING FOREIGN MARKETS
In general, in considering global marketing, an organization
faces five major types of decisions. First, before
expanding the firm’s operations overseas, is to determine
whether the firm’s resources are compatible with the foreign
market opportunities. If the response to this first
determination is affirmative, the second consideration is
the market-selection decision, that is, which foreign market
or markets to enter. The third decision concerns the
mode of entry and operational consideration in the attractive
markets. The fourth, the marketing mix decision,
considers the appropriate product, promotion, price, and
distribution programs for the selected markets. Finally,
the marketing organization decision determines the best
way for the firm to achieve and maintain control over its
international business operations.
Once a firm has prepared a list of promising markets
to enter, the difficult task is to collect data related to the
market potential and environmental forces of each country.
Conducting research in the international market is
difficult because of language diversity, general distrust of
outsiders, high illiteracy rates in some countries, and the
prevailing local customs.
ENTRY MODES
In general, companies select markets that rank high on
market attractiveness. Among factors influencing market
Pepsi sign in Moscow shows the logo in both English and Russian. © PETER TURNLEY/CORBIS

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 417
International Marketing
attractiveness are: high market growth potential, low
political risk, favorable attitudes to foreign investment,
and favorable competitive environment. Once a final
decision is made about a country to enter, companies have
several entry options. The entry modes are classified into
export, contractual, and investment entry modes.
Exporting. The export entry mode is either indirect or
direct. With indirect exporting a company may use
domestic or international intermediaries, such as domestic-
based export merchants or agents, trading companies,
brokers, local wholesalers, and retailers. Indirect exporting
is perhaps the lowest risk type of international marketing.
The main drawback of indirect marketing, especially
through domestic-based export merchants, is that the
company relinquishes most of its international marketing
activities to the merchants. Companies eventually may
decide to handle their own export activities.
With direct exporting a company also has several
options. For example, it may establish a domestic-based
export department or division to handle export activities.
The company may also establish an overseas sales branch.
Finally, the company may use foreign-based distributors
who buy and sell the goods on behalf of the company. In
direct exporting, the investment level and risk factors are
somewhat greater, but so is the potential return.
Contractual Entry. Contractual entry modes include
licensing, turnkey construction contracts, and management
contracts. Foreign licensing is a simple way of getting
involved in international marketing. In licensing
arrangements, a firm offers the right to use its intangible
assets (manufacturing process, trade secrets, patents, company
name, trademarks, or other items of value) to a
licensee in exchange for royalties or some other form of
payment. The licensor gains entry at little risk; the
licensee gains production expertise or a well-known product
or brand name. The major drawbacks of licensing are:
(1) it is less flexible than exporting; (2) the firm has less
control over a licensee than over its own exporting or
manufacturing abroad; and (3) if sales are higher than
expected, the licensor’s profits are limited by the licensing
agreement.
A turnkey construction contract is a mode of entry
that requires that the contractor make the project operational
before releasing it to the owner. Management contracts
give a company the right to manage the day-to-day
operations of a local company. Here the domestic firm
supplies the management know-how to a foreign company
that supplies the capital.
Investment Entry. Investment entry modes include sole
ownership and joint ventures. Sole ownership investment
entry strategy involves setting up a production subsidiary
in a foreign country. Joint ventures involve a joint-ownership
arrangement between a U.S. company, for example,
and one in the host country to produce and market goods
in a foreign market.
The ultimate form of international involvement is
direct ownership of foreign-based assembly or manufacturing
facilities. If a company wants full control (and profits),
it may choose this mode of entry. Companies new to
international operations would be well advised to avoid
this scale of participation because direct investment entails
the highest risk. Among potential risks a firm may face are
currency devaluation, worsening markets, or expropriation.
ADAPTATION STRATEGIES
Once a decision for a market entry mode has been made,
a firm must decide how much, if any, to adapt its marketing
mix—product, promotion, price, and distribution—
to a foreign market. Warren J. Keegan (1995)
distinguished five adaptation strategies of product and
communication to a foreign market (see Table 1). These
strategies are discussed briefly below.
Straight Extension. In straight extension the same product
is marketed to all countries (a “world” product),
except for labeling and language used in the product manuals.
The assumption behind this strategy is that consumer
needs are essentially the same across national
boundaries. Straight extension can be successful when
products are not culture sensitive and economies of scale
are present. The Philip Morris USA tobacco company
used this strategy successfully with its Marlboro brand cigarette.
The strategy has also been successful with cameras,
consumer electronics, and many machine tools.
Product Modification. A product modification strategy
keeps the physical product essentially the same; modifica-
Five international product and promotion strategies
Do not change
product
Promotion
Do not change
promotion
Adapt
promotion
Adapt
product
Develop new
product
Product
Straight
extension
Communication
adaptation
Product
adaptation
Dual
adaptation
Product
invention
Table 1

418 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
International Marketing
tions, however, are made to meet local conditions or preference
in package sizes or colors. Manufacturers of computers,
copiers, cars, and calculators have been successful in
using this strategy. Companies may develop a country-specific
product. If this strategy is employed, the product is
substantially altered or new products are produced across
countries. For example, hand-powered washing machines
have been successfully marketed in Latin America.
Communication Adaptation. It is extremely difficult to
standardize advertising across countries because of variations
in economic, social, and political environments.
Companies, however, can use one message everywhere,
varying only the language or color. Marlboro and Camel
cigarettes, for example, essentially use the same message in
their international promotion programs. Transferability of
an advertising message is still a difficult problem even
when the primary benefits of the product remain intact
across national boundaries. Some promotional blunders
are well known to marketing students. Coors’s slogan
“Turn it loose” in Spanish was read by some as “suffer
from diarrhea”; in Spain, Chevrolet’s Nova translated as
“it doesn’t go”; and a laundry soap ad claiming to wash
“really dirty parts” was translated in French-speaking
Quebec to read “a soap for washing private parts.”
Dual Adaptation. The fourth strategy, dual adaptation,
involves altering both the product and the communications.
The classic example comes from National Cash
Register, which manufactured a crank-operated cash register
and promoted it to businesses in less-developed
countries.
Product Invention. When products cannot be sold as they
are, product invention strategy may be used. Ford and
other automakers have sold completely different makes of
cars in Europe than the ones they sell in the United States.
Brewing companies have sold alcohol-free beer in countries
where sales of alcoholic beverages are prohibited.
PRICE
Multinational companies find it difficult to adopt a standardized
pricing strategy across countries because they
have to deal with fluctuating exchange rates, differences
among countries in transportation costs, governmental tax
policies, and controls (such as dumping and price callings).
Keegan proposed three global pricing alternatives.
The first policy is called extension/ethnocentric. Under
this policy, the firm sets the same price throughout the
world and the customers absorb all freight and import
duties. The main advantage of this policy is its simplicity,
but its weakness is its failure to take into account local
markets’ demand and competitive conditions.
The second alternative is called adaptive/polycentric.
Under this policy, local management establishes whatever
price it deems appropriate at any particular time. This
policy is sensitive to local conditions; nevertheless, it may
favor product arbitrage where differences in price between
markets exceed the freight and duty cost separating the
markets.
The last alternative is called invention/geocentric
pricing. This policy is an intermediary position. It neither
sets a single worldwide price nor relinquishes total control
over prices to local management. This policy recognizes
both the importance of local factors (including costs) and
the firm’s market objectives.
CHANNELS OF DISTRIBUTION
Two major types of international alternatives are available
to a domestic producer. The first is the use of domestic
middlemen who provide marketing services from their
domestic base. If this arrangement is chosen, there are several
domestic middlemen available from which the companies
may choose. Export management companies,
manufacturers’ export agents, trading companies, and
complementary marketers are possible alternatives.
If a company is unwilling to deal with domestic middlemen,
it may decide to deal directly with middlemen in
foreign countries. This alternative shortens the channel of
distribution, thereby bringing the manufacturer closer to
the market. The main drawback of this alternative is that
foreign middlemen are some distance away and, therefore,
more difficult to control than domestic ones.
SUMMARY
International marketing has become increasingly important
to U.S. firms. At the same time, global markets are
becoming riskier because of fluctuating exchange rates,
unstable governments, high product-communication
adaptation costs, and several other factors. Therefore, the
first step in considering expanding to the overseas markets
is to understand the international marketing environment.
Second, the firm should clearly define its objective
for international operations. Third, in considering which
foreign markets to target, a firm must analyze each country’s
physical, legal, economic, political, cultural, and
competitive environments. Once the target market or
markets are selected, the firm has to decide how to enter
the target market. Companies must next decide on the
extent to which their product, price, promotion, and distribution
should be adapted to each country. Finally, the
firm must develop an effective organization for pursuing international marketing