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Assignment set 1
Q: 1 Explain the different economic indicators which give us the idea of the economic condition of the country in brief.
The economic condition can be measured with the help of some economic indicators. These are the variables designed to predict changes in the business cycle.
The size of population
He larger the population, larger will be the market. The population of a country changes because of the three factors listed below:
1) Birth rate.
2) Death rate.
3) Migration in and out of the country
The distribution of population is an important aspect of forecasting the demand of the product and is helpful in market segmentation decisions. Different age groups will have different demands and population density is a good pointer of market attractiveness.
Level of income and its distribution:
The income level is usually represented by Gross national product (GNP) or Gross Domestic product (GDP). GDP: it is the aggregate of the total output of goods and services by a country during a financial year.
GNP: GDP plus the income from abroad. World Bank has classified countries by their per capita income in the following categories:
Low income countries US $ 875 or less.
Middle income countries US $ 876-10725.
High income countries US $ 10,726 or above.
Another way of classifying countries according tots economic activity can be: Less developed countries, Pre-industrial countries, Developing countries, industrialized countries, advanced countries.
the study of population helps in making market segments and accordingly the company can cater to the demands of both high and low price versions of the same product in the same country.
To evaluate the economic condition of a country, we must know the structure of the market.
The main classifications are:
The main characteristics of this market are:
Lots of producers and consumers.
Price is set by the market forces (demand and supply).
Willingness to pay.
Monopolistic competition is more realistic condition than perfect competition.
Main characteristics of this market are:
Large number of firms producing slightly differentiated products.
Sole producer of a particular product so is a monopolist of that product/brand.
The differentiation is only from the point of view of buyers.
Each firm has some degree of control over prices.
Buyers become loyal to the product/brand.
New firms are free to enter the market.
Main characteristics of this market are:
- Few firms having similar or different products.
- Each firm has some degree of control over price.
- Reaction of rivals is very important.
- Interdependence of behavior in case of oligopoly.
- New entry is difficult.
Stages of business cycle
Prosperity – boom – decline – depression – recovery
Consumption pattern: Consumption means final purchase of the goods and services by the individuals
Inflation is defined as a general increase in the level of prices. When the level of prices are high in a country companies might not find it beneficial to sell its products as the purchasing power of individuals reduces as the real income reduces.
Accessibility to human resources: The abundance of human resource makes the manufacturing process easy and lowers the cost of production. To understand the nuances of the business in the host country, the company prefers to recruit the local skilled or semi-skilled labor. That is why the company looks at this factor while analyzing the economic environment of the host country.
Infrastructure: The importance of infrastructure needs no emphasis. For the functioning of the company, road and rail connection, telecommunication facilities, power supply and so on is required. A support infrastructure is a precondition for the development of any industry. The companies must assess the availability of infrastructure of the host country.
Q: 2 Write short notes on:
- Arbitration b) FDI
Arbitration Arbitration is a technique of dispute resolution in international commercial transactions, or outside the court .it is that techniquie in which the third party reviews the evidences and impose decision. It is most commonly used in matters such as consumers and empolyments.it is faster and cost effective process. Some of the benefits of arbitration may be as follow:
- It limits the dispute and associated libilities because most legal systems there are very limited avenues for for appeal of an arbitral award.
- In judicial proceedings the official language of the country is automatically applied where as in arbitral priceedings any language may be used.
- Arbitration awards are generallu easier than judicial awards.
- Arbitration is often faster than litigation in court
- It is more flexible and cheaper for businesses.
- Arbitral awards and proceedings are generally made confidential and non-public.
- Arbitrators with appropriate degrees are appointed when the subject ,atter of the dispute is highly technical.
- Exclusionary rules of evidence don’t apply; everything can come into evidence so long as relevant and non-cumulative.
- There is less exposure to punitive damages and run away juries from defense point of view
- The fact of finality of arbitration awards that normally there is no right of appeal to the courts to change the award.
FDI (Foreign Direct Investment) foreign direct investment, a company directly invests in another country to make or market an entity in a foreign country. The investing company may make investment in a number of ways in overseas by setting up associated or subsidiary company in foreign country by joint venture, mergers or shares of a foreign company. Foreign direct investment is passive investment such as stock and bonds in contrast to portfolio investment.
Brown field strategy is one form in which the company aspiring to go international decides to invest in an existing company in a suitable location/country. That existing company has most of the infrastructure, but the technology involved may be obsolete, present operating capacity may far less than the installed capacity and also may be in need of funds for modernization and increase production.
The second form of market entry strategy is through green field investment, where a new unit is established after creating all the required infrastructure and permission from the local government.
Q:3 What are the issues related channel decisions in international marketing?
Most producers rarely sell their goods directly to the final consumers. Most often producers rely on a marketing channel which comprise of a host of marketing intermediaries performing a variety of functions and bearing a variety of names. One of the most crucial decisions facing management is marketing-channel decisions. All the other marketing decisions are very closely affected by the company’s selected channels.
1-Relatively long-term commitments to other businesses are involved in a company’s channel decisions.
2-There is also a powerful inertial tendency in channel arrangements
3-The scope of distribution channels extends beyond simple convenience to include impacting the product’s meaning.
Effectiveness of international distribution channels:
The Five C’s Framework can be used by international marketers to determine the effectiveness of their international distribution channels:
Coverage – Ability of channel to connect with targeted customers to accomplish market share and growth objectives.
Character – Congruence of channel with the company’s sought after product positioning.
Continuity – The channel loyalty to the company.
Control – The ability of the company to control the whole marketing program for the product or service.
Cost – The investment needed to set up and maintain the channel- variable associated with sales level.
Fixed costs needed to manage the channel: training of sales force, facilities and inventories.
Control over distribution:
1-There is a global trend toward shorter distribution channels and closer links, if not direct relationships, with those active participants in the channel.
2-It is the view of some that the sole way to internationalise is to navigate closer and closer to complete control by means of totally owned subsidiary. This however is a fairly incorrect one.
3-First, we have to consider Industry characteristics, the value-addition of the business and what the consumers really desire are to be first considered. Secondly, close control through a commission agent or joint venture is often possible. Control and ownership should not be directly equated.
Q:4 What are the different strategies adopted by the marketer while fixing the price for the product?
Different strategies are adopted by the marketers while fixing the price for the product and these strategies need to be monitored and reviewed at regular intervals.
Cost based pricing or Cost plus pricing: This is the most common method of pricing followed by the marketers.
Price = [Fixed costs + Variable costs + Overheads + Marketing costs] + specified percentage of the total costs (representing the profit portion)
Market Oriented Pricing
method is highly flexible and provides for prices to be changed in tune with changes in the market conditions. This method is also referred to as ‘what the traffic will bear method’,
Following the leaders is a common trend seen in every field of activity in our daily lives. Similarly, even in the case of fixing prices, many firms simply follow the dominant competitors. These dominant competitors are also called as ‘price leaders’
Three alternative ways of following the competitor:
Fixing the price at the same level as that of the competitor
Fixing a lower price than the one fixed by the competitor
Fixing a price which is higher than that of the competitor’s
This method is commonly adopted when dealing with powerful buyers who buy in large quantity, for example, Governments and institutions.
Customer determined price
In case of international marketing, often, the foreign buyer indicates the price at which he is prepared to buy the product. By virtue of this, the seller is pre-empted from quoting his price.
For any marketer, there is a particular point in his business game where he is able to cover all the expenses incurred by him but he is not able to earn any profit from the activity he is pursuing.
Break-even price – the price for a given level of output at which there is neither any loss nor profit.
Break-even point – popularly called BEP, this is the point or the level of sales at which the total revenue will exactly equal the total cost.
Margin of safety – the difference between the BEP and the expected capacity utilization is known as the margin of safety.
Margin of safety = expected capacity utilization – break-even point
From the above we can interpret:
a) Lower the BEP, higher the chance of the project making profit
b) Lower the BEP, higher the margin of safety
c) If the BEP is very high, the risk will also be very high.
Marginal Cost Pricing
This approach is more suitable in evaluating and analyzing the profitability of the new orders in case of firms with idle capacity i.e., the firm is not utilizing its installed optimally.
Creative pricing is a concept derived from the marginal costing approach. Creative pricing approach advocates tapping the advantage of the flexibility between the lower limit of break-even price and the upper limit of the competitor’s price for a similar product. If the marginal cost is very less when compared to the price of the competitor, there is leverage to the exporter to adopt aggressive pricing policies in case of export order.
Q: 5 what is personal selling? Explain with reasons why local nationals are preferred as sales personnel in international marketing?
Delivery of a specially designed message to a prospect by a seller, usually in the form of face-to-face communication, personal correspondence, or a personal telephone conversation.
According to Stanton, “personal selling is the personal communication of information to persuade prospective customer to buy something – a product, service, idea or something else. This is in contrast to the mass, impersonal communication of advertising, sales promotion and or other promotional tools”
Personal selling is one of the most effective way of marketing communication. It also helps to overcome the marketing barriers in few cases.
1) A side benefit for your business is the opportunity to gain market research from this personal contact. You can gain knowledge about what your potential clients really think, what your competitors are up to and what is currently missing from the marketplace offerings
2) On account of the personal touch, the marketer is in a position to get meaningful feedback, suggestions for improvement and redress the complaints and grievances promptly.
3) Personal selling is highly flexible as the marketer can develop specific plans to handle every customer.
4) It is highly cost-effective especially for the small marketers with limited resources at their disposal.
5) Personal selling is an effective and fast track approach to convert inquiry into sales.
6) Opportunity to build a stronger long-term relationship. Personal contact will encourage loyalty
7) Try before you buy – depending on your product/service, potential clients may be able to trial the product/services before actually purchasing.
Advantages of using local nationals
International business firms need to engage the services of expert sales force as a first step in managing personal selling. While recruiting marketing and sales personnel going to handle a particular foreign market,
Local market need to be appointed. However, if in a foreign market, third country nationals are likely to succeed in personal selling, third country personnel can also be engaged. With the growth in international marketing, it is anyway ideal to use local nationals for the purpose of personal selling. English being the internationally accepted language, sales person so selected need to have good spoken English to enable them to translate the objectives of the business firm into a profitable venture.
For example the sale of certain consumer goods like vacuum cleaner (Eureka Forbes) and water purifiers (Aqua guard) through personal selling is very effective. The sales personnel are reaching the ultimate users and persuading them to purchase the goods explaining the technology and long- term advantages to the households. They also convey the disadvantages to the households if the particular consumer goods are not used in terms of inability to provide pure drinking water and maintaining the houses clean.
Q: 6 discuss the advantages of direct and indirect exporting.
Advantages of direct exporting
In direct export eliminating intermediaries increases the potential profit
- In direct marketing you have greater flexibility to improve or redirect your marketing efforts as your business develops in foreign ,market
- Marketplace is better understood
- You can present yourself fully committed and engaged in t he export process
- Fast and direct feedback by customers are provided to you for your product and performance
- You know whom to contact if something isn't working
- Better protection for trademarks, patents and copyrights are provided.
- Better communication with the customers is available for more effective and efficient performance and product.
- Awareness of customers is increased.
- Transactions take place over greater control.
Advantages if indirect exporting
- It does not require any market expertise
- Concentration of resources towards production
- It provides a path to enter foreign markets without the complexities
- Little or no financial commitment as the clients' exports usually covers most expenses associated with international sales.
- Low risk exists for companies who consider their domestic market to be more important and for companies that are still developing their R&D, marketing, and sales strategies.
- Export management is outsourced, alleviating pressure from management team
- In indirect exporting company can start exporting with no incremental investment in fixed capital, low start-up costs and few market risks but with prospects for incremental sales.