Question

Define International Marketing. Explain nature and scope of

International Marketing.

Answer
Introduction

Today, the marketing organisations are not restricted to their national borders. The entire world is open for them. New markets
are springing forth in emerging economies like China, Indonesia, India, Korea, Mexico, Chile, Brazil, Argentina, and many
other economies all over the world. In todays global market opportunities are on a par with the expansion of economies, with
the increasing purchasing power, and with the changing consumer taste and preferences.
The economic, social, and political changes affect the practice of business worldwide, the business orgaisations have to remain
flexible enough to react rapidly to changing global trends to be competitive.
The objective of this post is to make you understand the term International Marketing and nature and scope of international
marketing.

Definitions of International Marketing

According to Kotler, "Global marketing is concerned with integrating and standardizing marketingactions across a number of
geographic markets."
According to Cateora, "International marketing is the performance of business activities that direct the flow of goods and
services to consumers and users in more than one nation."
According to Cateora and Graham, "International marketing is the performance of business activities designed to plan, price,
promote, and direct the flow of a companys goods and services to consumers or users in more than one nation for a profit."
According to Terpstra and Sorathy, international marketing consists of finding and satisfying global customer needs better
than the competition, both domestic and international and of coordinating marketing activities with in the constraints of the
global environment.
International marketing is different from domestic marketing not only in scope but also in nature. Following are the nature and
scope of international marketing.

Nature of International Marketing

1. Broader market is available Unlike domestic marketing the market is not restricted to national population. Population of
other countries can also be targeted in international marketing.
2. Involves at least two set of uncontrollable variables In domestic marketing the marketers have to interact with only one
set of uncontrollable variables. In international marketing at least two set of uncontrollable variables are involved or more if the
marketing organization deals in more countries.

3. Requires broader competence Special management skills and broader competence is required in international
marketing/business.
4. Competition is intense An international marketing organization has to compete with both the domestic competitors and
the international competitors. Hence, the competition is intense in international marketing.
5. Involve high risk and challenges International marketing is prove to various kinds of risk and challenge like political
risk, cultural differences, changes in fashion and style of foreign customers, sudden war, changes in government rules and
regulations, communication challenges due to language and cultural barriers, etc,.

Scope of International Marketing

1. Export It is a function of international business whereby goods produced in one country are shipped to another country for
further sale or trade.
2. Import Goods or services brought into one country from another for use or sale.
3. Re-export Import of semi-finished goods, further processing, and export of finished goods.

4. Management of international operations

Operating marketing and sales facilities abroad,

Establishing production or assembly facilities in foreign countries, and

Monitoring the operations and practices of other MNCs and agencies.

What is Free Trade Area?

A free-trade area (FTA) is a trade bloc whose member countries have signed a free-trade agreement (FTA), which eliminates
tariffs, import quotas, and preferences on most (if not all) goods and services traded between them. If people are also free to
move between the countries, in addition to FTA, it would also be considered an open border. It can be considered the second
stage of economic integration. Countries choose this kind of economic integration if their economical structures are
complementary. If their economical structures are competitive, they are more likely to form a customs union.

February 27, 2000 International participation in Free Trade Areas (FTAs) grew rapidly in the second half of the 20th century,
and plans are underway to expand regional economic integration in the century ahead. The reason is simple. FTAs are engines
of growth and progress. They exploit country comparative advantages, accommodate specialization and division of labor,
expand the size of export markets, and promote efficiency and competition within the free trade area.

Free Trade Areas are like flying geese that work together as a team to reach a desirable distant destination. Individually, a
single goose does not have the strength and endurance to make the journey. However, flying in a V or chevron formation and
working as a team makes it possible for the group to accomplish what they could not do alone. Flocks of geese can migrate
thousands of miles, and the bigger the flock the further they can travel.

The largest and most successful "flock of nations" is the European Union (EU). It began with six countries (Belgium, France,
Germany, Italy, Luxembourg, and the Netherlands) that signed the Treaties of Rome in 1957, forming the European Economic
Community (EEC). The original objectives were to realize a political association that brought West Germany into the Western
European Alliance and to develop a plan for the post war reconstruction of the region. Over subsequent years it evolved to the
present day 15 member European Union (EU), eleven of which are members of the European Monetary Union (EMU). The EU
represents 6.3% of the world's population, 20% of world GDP, and over 40% of world exports.

The eleven member European Monetary Union (EMU) represents the highest degree of economic integration among nations.
There are other less ambitious degrees of international cooperation. The most basic is a Free Trade Area which is an
agreement between two (or more) countries to reduce or eliminate trade barriers among members, but each member nation

maintains its own external trade policy for non member countries. The North American Free Trade Agreement (NAFTA)
combining the United States, Canada, and Mexico is an example. The next level of integration is a Customs Union which is
like a freetrade area, but the member countries have a common external trade policy for non members. The European
Economic Community (EEC) was originally a customs union. However, by the 1990s it had evolved to a full-fledged Common
Market which, in addition to having a common external trade policy, allows for free mobility of labor and capital within its region.
The final stage of economic integration is a Monetary Union where the countries have a common currency and centralized
monetary policy. The United States of America (USA) is a monetary union with the dollar as its currency and the Federal
Reserves system as its central bank. It is also a Political Union with a common set of laws and tax policies governing the 50
states.

Free Trade Areas tend to involve countries within a geographic region, but the United States entered into its first free trade
agreement with Israel in 1985. Later, it signed an agreement with Canada in 1989, and more recently Mexico was added in
1994 to form the North American Free Trade Agreement (NAFTA). The three members NAFTA represents just over 5% of the
world's population, approximately 23% of world GDP, and about 18% of the world's exports. Each of the three member
countries derives significant benefit from their agreement to reduce trade barriers. The United States needs resources from
both Canada and Mexico, and it needs a large market for its export sector. Canada is a large industrialized country, rich in both
resources and literacy, but with a small population and domestic market. Mexico has an abundance of oil and natural gas. It
also has a rapidly expanding population and a relatively large semi-skilled and unskilled labor force.

NAFTA is still a work in progress. It ultimately plans to eliminate tariffs among the three countries on industrial products by the
year 2004. Its rules of origin requires that a product contain 62.5% domestic content (i.e., within the region) in order to qualify
for tariff free movement. That way other nations cannot locate final assembly plants or distribution centers in Mexico and then
ship them to the large US market duty free.

NAFTA demonstrates that free trade agreements have their detractors. One of the fears is that jobs will be lost in the home
country to (more efficient) producers in the other member countries. This was an especially large issue in the United States
when Mexico joined NAFTA. Many people were opposed to Mexico's entry out of concern that American jobs would be lost to
Mexican workers who work for lower wages. There was also a concern that Mexico's lower environmental standards gave
Mexican firms an unfair comparative advantage. There is an element of validity to both of these concerns. When a freetrade
agreement is initially launched, there are shifts in resource utilization and trade patterns. Each region begins to specialize in its
comparative cost advantage. Mexico has a distinct cost advantage in products that are produced with relatively low and semiskilled labor. On the other hand, importing duty free components from Mexican companies into the United States benefits many
producers in the United States and their customers. Consumers are the biggest beneficiaries of a free trade agreement,
because they get better products for lower prices. Ironically, most consumers are not conscious of this. Recent opinion polls
taken in the United States indicate that most Americans have a negative opinion of NAFTA. Respondents also indicate that they
do not want the United States to enter into any more free trade agreements in the future.

Although most Americans have a negative opinion of free trade agreements, negotiations are underway to form the most
ambitious free trade area of them all. The Asia-Pacific Economic Cooperation (APEC) currently involves 21 countries spanning
4 continents. It includes large countries like the United States, Japan, Canada, Russia, Australia and the People's Republic of
China as well as small countries like Chile, Peru, Indonesia, Thailand, Brunei Darussalam, Philippines, and Vietnam. Originally,
the Osaka Action Agenda in 1995 set a goal to form a free trade area among the developed country members by the year 2010,
and the developing countries were to be enjoined in 2020. More recently, the focus has shifted to bring about free trade more
rapidly among all members in nine product sectors including energy, chemicals, medical equipment, fish, and forest products.
APEC's 21 countries currently account for over 40% of world trade.

Many of the members of APEC already belong to the 10 country Association of Southeast Asian Nations (ASEAN) which was
originally formed by 5 Southeast Asian nations in 1984 and added 4 more nations in the 1990s. ASEAN is comprised of small,
developing nations with a combined GDP of less than US $600 billion, but earlier this month representatives met in Jakarta,
Indonesia to consider the feasibility of an Asian Free Trade Area (AFTA) alliance with Australia and New Zealand's Closer
Economic Relations (CER). The preliminary date for inauguration of AFTA-CER is 2010.

An AFTA-CER alliance would not be the first time that two distinct geographic free trade areas considered merging. A merger
between the European Union (EU) and the Southern Cone Free Trade Area (MERCOSUR) in South America is already
scheduled for full completion in the year 2005. MERCOSUR was formed in 1991 and is comprised of 6 countries: Argentina,
Brazil, Paraguay, and Uruguay are the original members; Bolivia and Chile joined as associate members in 1996. Following its
inception, relations between Brazil and Argentina improved and trade within the region increased dramatically. However, it
underscores another problem with free trade areas called the trade diversion effect. When a country enters into a free trade
agreement with its associate members, it diverts trade from outside the region to more trade within its own area because of the
tariff reduction or elimination. Maintaining relatively high tariffs for non members gives members an advantage, but it precludes
imports from non member countries that may otherwise have a comparative advantage. Consumers benefit from more trade
within the region, but they must pay higher prices for products produced outside the region. In other words, there is a positive
trade creation effect but also a negative trade diversion effect. The broader the free trade area, the smaller the trade diversion
effect. For this reason, some experts think that MERCOSUR is the natural and logical foundation for a larger South American
Free Trade Area (SAFTA) to be formed sometime in the not too distant future, and it was the impetus for its merger with the
European Union (EU).

Plans are also underway that would eventually merge the European Union (EU), the Euopean Free Trade Area (EFTA), and the
Central European Free Trade Area (CEFTA). The latter is the newest free trade area in Europe comprised of Poland, Hungary,
Slovakia, the Czech Republic, Slovenia, and Romania. Since its inception in 1993, the macro economic performance of CEFTA
members has improved dramatically. In each nation GDP is up, unemployment is down, and inflation has subsided.

The acceleration of free trade agreements in the second half of the 20th century was an integral part of economic globalization.
Some see the world evolving into three distinct trade regions -- Europe, the Americas, and the Asia Pacific Rim -- with their
participants being forged into thriving economic regions. On the other hand, populist sentiment is running against globalization
in many local communities and specific sectors within countries. The battleground is the political arena -- not economics
academia. The vast majority of economists favor free trade, whether it is between just two countries or among a large group of
nations. But economists don't have very many political votes, and politicians need votes to get elected and re-elected. If they
perceive their constituents to be against free trade agreements, then they will forestall any further regional economic integration
and in some instances revoke agreements already in progress.

Free Trade Agreements

Free trade agreements (FTAs) are generally made between two countries. Many governments, throughout the world have
either signed FTA, or are negotiating or contemplating new bilateral free trade and investment agreements.

The agreements are like stepping stones towards international integration into a global free market economy. There is another
way to ensure that governments implement the liberalization, privatization and deregulation measures of the corporate
globalization agenda.

It is assumed that free trade and the removal of regulations on investment will head to economic growth reducing poverty and
increasing standards of living and generating employment opportunity.

Past evidences show that these kinds of agreements allow transnational corporations (TNCs) more freedom to exploit workers
shaping the national and global economy to suit their interests. In simple terms it removes all restrictions on businesses.

FTAs severely constrain future governments in their policy options and help to lock in existing economic reforms which may
have been imposed by the IMF, World Bank or Asean Development Bank, or pursued by national governments of their own
volition. It works towards removing all restrictions on businesses as other free trade and investment agreements perform.

FTAs are sometimes of narrow range in their dealing of traded goods. You can note the US-Cambodia bilateral textile trade
agreement which was extended in January 2002 for a further 3 years.

India and Sri Lanka signed a free trade agreement in December 1998 with India agreeing to a phase out of tariffs on a wide
range of Sri Lankan goods within 3 years, while Sri Lanka agreed to remove tariffs on Indian goods over eight years. One of its
objectives which was stated was to contribute, by the removal of barriers to bilateral trade "to the harmonious development and
expansion of world trade".

Other FTAs are much more comprehensive and cover other issues including services and investment. These agreements
generally take existing WTO agreements as their benchmark.

Regional Trading Groups and Emerging Markets

During the last decade two opposing views prevailed regarding the direction of global trade in the future. One view suggested
that the world is dividing into major regional trading groups such as the European Union, NAFTA, and the ASEAN Free Trade
Area that are now and will continue to be the major markets of the future. The other view was that global economic power may
be shifting away from the traditional industrialized markets to the developing world and its emerging markets. Chinas
ascendancy and the continuing networking among countries through bilateral and multilateral trade agreements such as the
WTO are yielding a third view: The dominant trend is a new globalization of markets where the notion of nation is becoming
less important and the desires of consumers begin to dominate.

The most important argument given in support of this last view is that developed countries have mature, stable markets
dominated by global companies. Thus their economies will grow more slowly than emerging markets and offer less opportunity
for new trade. Conversely, enormous demand will be created as emerging economies continue the rate of economic
development experienced over the last decade. These emerging economies will need highways, communications networks,
utilities, factories, and the other capital goods necessary for industrialization. And as their economies continue to prosper,
consumer goods will be needed to satisfy the demands of a newly affluent consumer market. Rather than international trade
being driven by the major industrialized countries, emerging economies may be the engine for global market growth. Many
exports predict that over the next 50 years the majority of global economic growth will be in the developing world, principally in
those countries now on the threshold to the desire for economic development and industrialization and may soon be among the
future emerging markets.

Example: Free Trade Agreements - Considering U.S exports

Free Trade Agreements (FTAs) have proved to be one of the best ways to open up foreign markets to U.S. exporters. Trade
Agreements reduce barriers to U.S. exports, and protect U.S. interests and enhance the rule of law in the FTA partner country.
The reduction of trade barriers and the creation of a more stable and transparent trading and investment environment make it
easier and cheaper for U.S. companies to export their products and services to trading partner markets. Forty-one percent of
U.S. goods exports went to FTA partner countries in 2010, with exports to those countries growing at a faster rate than exports
to the rest of the world from 2009 to 2010, 23% vs. 20%.

With which countries does the United States have an FTA?

The United States has 12 FTAs in force with 17 countries. In addition, the United States has negotiated FTAs with Korea,
Panama and Colombia, but these agreements have not yet entered into force. The United States is also in the process of
negotiating a regional FTA, the Trans-Pacific Partnership, with Australia, Brunei Darussalam, Chile, Malaysia, New Zealand,
Peru, Singapore and Vietnam.

U.S. FTA Partner Countries:

Australia

Bahrain

Chile

DR-CAFTA: Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, & Nicaragua

Israel

Jordan

Morocco

NAFTA: Canada & Mexico

Oman

Peru

Singapore

References:

http://trade.gov/fta/

http://www.worldgameofeconomics.com/FreeTradeAreas.htm

http://en.wikipedia.org/wiki/Free_trade_area

http://exim.indiamart.com/free-trade-agreement/

http://global economicgames.com

INTERNATIONAL MARKETING By: Philip Cateora, John L Graham, Prashant Salwan