Unit 2
Global framework for export marketing
Case study
An example: tariff and non-tariff barriers to automotive imports
Of particular interest for the West Midlands region, India’s present MFN applied rate for motor cars is 60% and is currently an unbound industry. India further operates a number of duty exemption regimes for imports. These are opaque in nature and eligibility is typically subject to a number of conditions (often including an obligation to export from India). India’s automotive lobby, the Society of Indian Automotive Manufacturers, is vociferously opposed to reducing tariffs on motor cars, commercial vehicles and many component parts. In 2015, it commented on the prospect of a free trade agreement with the EU, stating, “FTAs with competing countries do not benefit Indian automobile industry”, arguing that “it is against the concept of 'Make in India' for local value addition and local employment”. As of today, diesel buses, motor cars (petrol and diesel), trucks, two wheelers and engines (petrol and diesel) are all on the list of items that SIAM seeks to exclude from FTA. In addition to this, India maintains substantial non-tariff barriers on the import of motor vehicles. In particular, they can only be imported direct from the country of manufacture (thus preventing the storage or warehousing of cars en-route). Moreover, new vehicles can only be imported through 3 ports, namely Chennai, Calcutta and Nhava Sheva in Mumbai. The restrictions on importing used vehicles are yet more stringent and apply to any vehicle that has been sold, leased or loaned prior to importation into India or has been registered (for use) in any country prior to being imported. This is true irrespective of whether the vehicle has actually been used. The vehicle must be 3 years old or less. In this case, two testing certificates are required (issued by a testing agency), one confirming that at the point of export, the vehicle complies with all Indian regulations and the second confirming that it conforms to its original homologation certificate. On arrival at port, it must be submitted for testing by the appropriate agency in order to be granted a certificate from said agency confirming compliance with Indian Motor Vehicles Act (1988) and subsequent legislation. Moreover, used vehicles can only be imported through the port at Mumbai. All used vehicles that are imported must have a minimum roadworthiness period of 5 years and this needs appropriate certification.
Free and fair international trade is an ideal situation as free trade is beneficial to all participating countries. However, various types of barriers/restrictions are imposed by different countries on international marketing activities. Such imposed or artificial restrictions on import and exports are called Trade barriers which are unfair and harmful to the growth of free trade among the nations. The trade barriers can be broadly divided into two broad groups.
- Tariff Barriers.
- Non-Tariff barriers.
a) Tariff barriers:
Tariffs refer to a customs duty or a tax on products that move across borders. The most important tariff barrier is the customs duty imposed by the importing country. A tax may also be imposed by the exporting country on its export. However, governments rarely impose tariff on export, because countries want to sell as much as possible to other countries. The main important tariff barriers are as follows:
Figure: Types of tariff barriers
1. Specific duty
Specific duty is based on the physical characteristics of goods. When a fixed sum of money, keeping in view the weight of measurement of a commodity, is levied as tariff it is known as specific duty. For example, Rs. 5.00 par meter of cloth or Rs. 5.00 on each T.V. Set or Washing machine imported, such duty is collected at the time of entry of goods.
2. Ad-valorem duty
Ad-valorem duties are imposed at a fixed percentage on the value of a commodity imported. Here, value of the commodity imported is taken as a base for the calculation of duty. Invoice is used as a base for this purpose. This duty is imposed on the goods whose value cannot be easily determined e.g. Work of art, rare manuscript, antiques, etc.
3. Compound duty
It is a combination of the specific duty and Ad-valorem duty on single product. For example, there can be a combined duty when 10% of value (ad-valorem) and Rs. 1/- on every meter of cloth charged as duty. Thus, in this case, both duties are charged together.
4. Sliding scale duty/Seasonal duties
The import duties which vary with the prices of commodities are called sliding scale duties. Historically, these duties are confined to agricultural products, as their prices frequently vary, mostly due to natural factors. These are also called as seasonal duties.
5. Countervailing duty
It is imposed on certain imports where products are subsidized by exporting governments. As a result of government subsidy, imports become cheaper than domestic goods. To nullify the effect of subsidy this duty is imposed in addition to normal duties.
6. Revenue tariff
A tariff which is designed to provide revenue to the home government is called revenue tariff. Generally, a tariff is imposed with a view of earning revenue by imposing duty on consumer goods, particularly, on luxury goods which demanded from the rich is inelastic.
7. Anti-dumping duty
At times, exporters attempt to capture foreign markets by selling goods at rock-bottom prices, such practice is called dumping. As a result of dumping, domestic industries find it difficult to compete with imported goods. To offset anti-dumping effects, duties are levied in addition to normal duties.
8. Protective tariff
In order to protect domestic industries from stiff competition of imported goods, protective tariff is levied on imports. Normally, a very high duty is imposed, so as to either discourage imports or to make the imports more expensive as that of domestic products.
9. Single column tariff
Under single column tariff system, the tariff rates are fixed for various commodities and the same rates are made applicable to imports from all countries. These rates are uniform for all counties as discrimination is not made as regards the rates of duty.
10. Double column tariff
Under double column tariff system, two rates of duty on all or on some commodities are fixed. The lower rate in made applicable to a friendly country or to a country with bilateral trade agreement. The higher rate is made applicable to all other countries with which trade agreements are not made.
11. Triple column tariff
Under triple column tariff, three different rates of duty are fixed. These are- (i) general rate (ii) international rate and (iii) preferential rate. The first two rates are similar to lower and higher rates while the preferential rate is substantially lower than the general rates and is applicable to friendly countries.
b) Non-tariff barriers
A non-tariff barrier is any barrier other than a tariff that raises an obstacle to free flow of goods in overseas markets. Non-tariff barriers, do not affect the price of the imported goods but only the quantity of imports. Some of the important non-tariff barriers are as follows-
Figure: Types of non-tariff barriers
1. Quota System
Under this system, a country may fix in advance, the limit of import quantity of a commodity that would be permitted for import from various countries during a given period. The quota system can be divided into the following categories.
(i) Tariff/Customs Quota: - A tariff quota combines the features of the tariff as well as the quota. Here, the imports of a commodity up to a specifically volume are allowed duty free or at a special low rate duty. Imports in excess of this limit are subject to a higher rate of duty.
(ii) Unilateral Quota: - The total import quantity is fixed without prior consultations with the exporting countries.
(iii) Bilateral Quota:- In this case, quotas are fixed after negotiations between the quota fixing importing country and the exporting country.
(iv) Mixing Quota :- Under the mixing quota, the producers are obliged to utilized domestic raw materials up to a certain proportion in the manufacturing of a finished product.
2. Prior Import Deposits
Some countries insist that importers should deposit even up to 100% of their imports value in advance with a specified authority, normally their central bank. Only after such deposits, the importers are given a green signal to import the goods.
3. Foreign Exchange Regulations
The importer has to ensure that adequate foreign exchange is available for import of goods by obtaining a clearance from Exchange Control Authorities prior to the concluding of contract with the supplier.
4. Consular Formalities
Some countries impose strict rules regarding consular documents necessary for importing goods. They include import certificates, Certificate of origin and certified consular invoice. Penalties are provided for non-compliance of such documentation formalities.
5. State Trading
State trading is useful for restricting imports from abroad as final decision about import are always taken by the government. State trading acts are one non-tariff barrier.
6. Export Obligation
Countries, like India, impose compulsory export obligation on certain importers. This is done to restrict imports. Those companies, who do not fulfill export obligation (to compensate for imports) have to pay a fine or penalty.
7. Preferential Arrangements
Some nations form trading groups are preferential arrangements in respect of trade amongst themselves. Imports from member countries are given preferences, whereas, those from other countries are subject to various tariffs and other regulations.
8. Other Non-tariff Barriers
There are a number of other non-tariff barriers such as health and safety regulations, technical formalities, environmental regulations, embargoes etc.
Basis of difference | Tariff barriers | Non-tariff barriers |
1.Meaning | Tariff Barriers implies the taxes or duties imposed by the government on its imports, so as to provide protection to its domestic companies and increase government revenue. | Non-tariff barriers cover all the restrictions other than taxes imposed by the government on its imports, so as to provide protection to the domestic companies and discriminate new entrants. |
2. Permissibility | World Trade Organization allowed the imposition of tariff barriers to its member nation but at a reasonable rate only. | World Trade Organization abolished the imposition of import quotas and voluntary export restraints. |
3. Nature | Explicit in nature | Implicit in nature. |
4. Form | Taxes and Duties | Regulations, Conditions, Requirements, Formalities, etc. |
5. Revenue | Government receives revenue | No revenue is received by the government |
6.Affects | It affects the price of imported goods. | It affects the quantity or price or both of the imported goods. |
7. Monopolistic Organizations | As the government charges import duty, monopolistic groups can be controlled. | The monopolistic organization charges high prices through low output. |
8. Profit | High profits made by the importers can be controlled. | Importers can make more profits. |
Key takeaways-
- Free and fair international trade is an ideal situation as free trade is beneficial to all participating countries. However, various types of barriers/restrictions are imposed by different countries on international marketing activities.
Economic groupings/economic integration is a group of countries which join together for enhancing trade and development. The member countries try to encourage trade within the group by removing or reducing tariff and non-tariff barriers. They may discriminate against non-members by collectively imposing common external barriers. The major types of economic integration are as follows-
1. Preferential Trade Arrangement
It is the lowest form of integration. The members of the group impose lower trade barriers on member nations. However, the members individually impose trade barriers on non-members. An example of this type of integration is SAPTA that was signed by seven countries of south Asia including India in 1995.
The main features are as follows:
(a) The member nations reduce trade barriers on member nations.
(b) The member nations individually impose trade barriers on non-members.
(c) There are restrictions on movement of labour and capital within the group.
(d) The member nations do not adopt common economic policies.
2. Free Trade Area
In this case, the member nations remove all trade barriers amongst them. But each nation retains or imposes its own barriers on trade with non-members. Examples of types of integration include SAFTA, NAFTA etc.
The main features of Free Trade Area are as follows:
(a) The member nations remove trade barriers on member nations.
(b) The member nations individually impose trade barriers on non-members.
(c) There are restrictions on movement of labour and capital within the group.
(d) The members do not adopt common economic policies.
3. Customs Union
It is similar to Free Trade Area. It removes all trade barriers on member nations. In addition, it imposes common external barriers on non-members. The best example is that of European Economic Community (EEC) that came into existence in 1957 by signing Treaty of Rome by six countries- France, Italy, Germany, Belgium, Netherlands and Luxemburg.
The main features are as follows:
(a) Removal of all trade barriers amongst member nations.
(b) Collective bargaining with non-members.
(c) Common external barriers on non-members.
(d) Members restrict the movement of labour and capital within the region.
4. Common Market
It is a higher degree of economic integration. It treats the entire market of all member nations as one market. The best example is that of European Common Market (ECM). The EEC got converted into ECM in 1993.
This type of integration involves.
(a) Removal of all trade barriers amongst member nations.
(b) Common external barriers on non-members.
(c) Removal of restrictions of movement of labour and capital among member nations.
(d) Collective bargaining with non-members.
5. Economic Union
It is the highest degree of economic integration. Example of this type of integration is the European Union that came into existence in 1995. The ECM got converted in to EU. Benelux is another example that was formed after World War II by 3 countries Belgium, Netherlands and Luxemburg.
The main features of economic union are on follow-
(a) Removal of all trade barriers on trade amongst member nations.
(b) Free movement of labour and capital among member nations.
(c) Common economic policies such as monetary policies and fiscal policies, agriculture policies etc.
(d) Common external barriers on non-members etc.
Trade blocs and free international trade do not go together. In fact, trade blocs are against the growth of free global/international trade. They adversely affect the process of trade liberalization at the global level. However, trade blocs are also useful for integration of economies of member countries. All member countries are getting benefits from this trade bloc. In brief trade blocs have positive and negative aspect which are discussed below-
Figure: Economic integration implications
Positive Implications
- Trade Creation
Economists argue that economic integration leads to trade creation. This is because, a trading bloc may remove tariff on member nations. As a result, a high cost producing country of the bloc can import goods from law cost producing member nation. Due to formation of a free trade area, there is proper allocation of resources, and the nations can take advantage of comparative cost. Due to the comparative cost advantage, trade creation takes place.
2. Competition
The formation of a trading bloc leads to intense competition between firms of the entire bloc. Due to intense competition, the efficiency of the firms improves. This leads to reduction in prices and improvement in quality.
3. Economies of large scale
Due to economic integration, there can be economies of large scale production and distribution. Firms in the region will try to specialize in those goods and services which they are more capable of producing. This leads to large scale production and distribution, which in turn brings economies of large scale. The economies of large scale are partly passed on to the consumers in form of lower prices.
4. Economic growth
The formation of a trading bloc can increase economic growth of the region. Due to reduction of trade barriers, firms in the region would be in a position to produce goods at a lower price. This would increase demand, which in turn would lead to large scale production. The increase in production of goods and services may lead to economic growth in the region.
5. Employment
Due to large scale production and distribution of goods, the employment also increases. There can be direct and indirect effect on employment. The direct effect in the industries producing goods and services. The indirect effect is due to the increase in employment in the supporting industries such as ancillary units, banking, insurance etc.
6. Technological development
Due to economic integration, there can be improvements in technology. As the firms grow, they would go for higher technological developments. A part of the increased profits can be utilized for research and development for the purpose of improving technology that will help to reduce prices, and improve quality.
7. Investment
There can be higher investment. The member nations may reduce or remove restrictions on investment. Therefore, there can be an increase in intra-regional investments, which in turn would increase the economic development of the region. Also, the region would be in a position to attract more investment from other countries due to its growth potential.
8. Social and cultural relations
Due to integration, there can be betterment of social and cultural relations in the region. The member countries can improve their relations with each other through the exchange and social programmes. This will indirectly help for the peace and prosperity of the region.
9. Better utilization of resources
The economic integration would help to make better utilization of resources. Due to the growth of the region, there would be optimum use of physical resources, human resources and financial resources.
10. Consumer welfare
A trading bloc facilitates consumer welfare in the region. Due to economic growth, the employment opportunities increase, which in turn increase purchasing power, and the people can enjoy higher standard of living. Also, due to trading bloc, the consumers may have to pay lower prices, and at the same time enjoy higher quality products.
Negative implications
The trading blocs can negatively affect the non-members countries. This is due to the following:
- Common external barriers
The member countries of the trading bloc may impose common external barriers on non-members. The common external barriers may be in the form of tariff and non-tariff barriers. Due to such external barriers, the non-members stand at a disadvantage and as such their trade with trading member countries gets affected to a certain extent.
2. Collective bargaining by member nations
The members of the trading bloc collectively bargain with non-members in respect of trade related matters. Due to their collective bargaining power, the non-member nations stand at a disadvantage.
The world trade organization (WTO) started functioning from 1st January 1995. WTO is the result of Uruguay Round of negotiations. WTO is the successor to the General Agreement on Tariffs and Trade (GATT). GATT has ceased to exist as a separate institution and has become part of the WTO. WTO has larger membership that GATT. India is one of the founder members of WTO.
From GATT to WTO
- 1947- 23 countries including India signed GATT agreement. GATT was created to regulate and liberalise world trade by reducing tariff barriers.
- 1948 – GATT came into force to liberalise world trade.
- 1949 – Second Round was held as Annecy in France. Discussions were held to reduce tariff on number of goods. About 5000 tariff concessions on various products were agreed upon.
- 1950 – Third Round was held at Torquay (England). About 8700 Tariff concessions were agreed.
- 1956 – Fourth Round was held at Geneva. Tariff reduction at this round was worth 2.5 US $ Billion.
- 1960 – The Fifth Round called Dillion Round was held at Geneva. It was held in two phase. Phase I- to create a single schedule of concessions for the EC based on its common external tariffs. Phase II- for general round of tariff negotiations.
- 1964 – The Sixth Round, called Kennedy Round was held at Geneva. Tariff reductions and anti-dumping measures were discussed. The round took 3 years to complete.
- 1973 – The Seventh Round, called the Tokyo Round was launched at Tokyo and concluded at Geneva. It took six years to conclude. Negotiations were held to reduce tariffs as well as non-tariff barriers on goods.
- 1987 –The Eighth Round, called the Uruguay Round was Launched at Uruguay and concluded at Geneva after 8 years. Negotiations took place on various matters:-
1. Tariff and non-tariff measures.
2. Trade in services.
3. Trips agreement.
4. Trims agreement.
5. Trade in textiles.
6. Trade in agriculture.
7. Creation of WTO, etc.
The WTO came into existence, which is more of a permanent institution with its headquarters at Geneva.
WTO desires to achieve the objectives as decided by GATT. These are as follow-
1. Free trade i.e. trade without discrimination
2. Growth of less developed countries.
3. Protection and preservation of environment.
4. Optimum utilization of available world‟s resources.
5. Raising living standard of citizens of member counties.
6. Settlement of trade disputes among member countries through consultation and dispute settlement procedures.
7. Generating employment opportunities at global.
8. Enlargement of production and trade.
The functions performed by WTO are-
1. Administration of agreement-
It looks after the administration of the 29 agreements (signed at the conclusion of Uruguay round in 1994), plus a number of other agreements, entered into after the Uruguay round.
2. Implementation of reduction of trade barriers-
It checks the implementation of the tariff cuts and reduction of non-tariff measures agreed upon by the member nations at the conclusion of the Uruguay round.
3. Examination of Members’ Trade Policies-
It regularly examines the foreign trade policies of the member nations, to see that such policies are in line with WTO guidelines.
4. Collection of foreign trade information-
It collects information in respect of export-import trade, various trade measures and other trade statistics of member nations.
5. Settlement of disputes-
It provides conciliation mechanism for arriving at and amicable solution to trade conflicts among member nations. The WTO dispute settlement body adjudicates the trade disputes that cannot be solved through bilateral talks between member nations.
6. Consultancy services-
It keeps a watch on the development in the world economy and it provides consultancy services to its member nations.
7. Forum for negotiation-
WTO is a forum where member nations continuously negotiate the exchange of trade concessions. The member nations also discuss trade restrictions in areas of goods, services, intellectual property etc.
8. Assistance of IMF and IBRD-
It assists IMF and IBRD for establishing coherence in universal economic policy administration.
Implications of WTO agreement
Figure: Implications of WTO agreement
a) Negative Implications-
1. Impact of TRIPS-
The TRIPS agreement of WTO favours the developed countries as compared to the developing countries. Under the TRIPs agreement protection is given to intellectual property rights such as patents, trade-marks, layout designs, etc. The TRIPs agreement favours the developed nations as they hold a large number of patents. The agreement on TRIPS extends to agriculture through the patenting of plant varieties. This may have serious implications for developing countries agriculture including India. Patenting of plant varieties may transfer all gains in the hands of MNCs which will be in a position to develop almost all new varieties with the help of their huge financial resources and expertise. The agreement on TRIPs also extends to micro-organisms as well. Research in micro-organisms is closely linked with the development of agriculture, pharmaceuticals and industrial biotechnology. Patenting of micro-organisms will again benefit large MNCs as they already have patents in several areas and will acquire more at a much faster rate.
2. Impact of TRIMS-
Agreement on TRIMs requires the treatment of foreign investment on par with domestic investment. Due to TRIMs agreement, developing countries including India have withdrawn a number of measures that restricts foreign investment. This agreement also favours the developed nations. Due to huge financial and technological resources at their disposal, the MNCs from developed countries would play a dominant role in developing countries. Besides foreign firms are free to remit profits, dividends, and royalties to the parent company, thereby causing foreign exchange drain on developing nations.
3. Impact of GATS-
The Uruguay round included trade in services under WTO. Under the GATs agreement, the member nations have to open up the services sector for foreign companies. The developing countries including India have opened up the services sector in respect of banking, insurance, communication, telecom, transport, etc. to foreign firms. The domestic firms of developing countries may find it difficult to compete with giant foreign firms due to lack of resources and professional skills.
4. Impact of reduction of tariffs-
As per the WTO agreement, the developing countries have to reduce the tariff barriers. As on result of this, the developing countries have resorted to reduce tariff years in a phased manner. For example, India has reduced the peak customs duty on non-agricultural goods to 10% . As the protection to domestic industry gradually disappears, the firms in developing nations have to face increasing competition from foreign goods.
5. Impact on small sector-
WTO does not discriminate industries on the basis of size. Small sector has to compete with large sector. Therefore, as per WTO agreement, India has greed to withdraw reservation of items of small scale sector in a phased manner since 2000. By February 2008, India has withdrawn reservation for small sector of over 700 items. Only 35 items are reserved for small scale sector as on 5th Feb., 2008. Due to dereservation, the small units have to compete with large industries and also from cheaper imports. As a result, several small firms have become weak or sick during the past couple of years.
6. Impact on agriculture-
The developing countries India and China are among the largest producers of agricultural items like vegetables, fruits, food grains, etc. However, the agricultural productivity is low as compared to other countries. Due to low productivity, the farmers from developing counties stand to lose in the world markets. The WTO agreement on agriculture has only in theory favoured the developing countries, but in practice, its implication have seriously affected agricultural exports to world markets, as the developed countries provide lot of subsidies to their farmers.
b) Positive Implications
The positive impact of WTO on developing countries can be viewed from the following aspects.
1. Growth in merchandise exports-
The exports of developing countries like India, China, Brazil, etc. have increased since the setting up of WTO. The increase in exports of developing countries is due to reduction in trade barriers – Tariff and Non-Tariff. For example, India’s merchandise exports have increased by 4 times since 1995 as shown below. India’s merchandise exports in 1995 35 US $ billion and 2006-07 it is 126 US $ billion.
2. Growth in services exports-
The WTO has also introduced an agreement on services called GATS. Under this agreement, the member nations have to liberalise the services sector. Certain developing countries like India would benefit from such an agreement. For example India’s services exports have increased from about 5 billion US $ in 1995 to 76 billion US $ in 2006-07. The software services accounted for about 40% of the services exports of India.
3. Foreign Investment-
As per the TRIMs agreement, restrictions on foreign investment have been withdrawn by member nations of WTO including developing countries. Therefore, the developing countries like Brazil, India, China etc, have been benefited by way of foreign direct investment as well as by euro equities and portfolio investment. In 2006-07 foreign investment in India was 15.5 US $ billion, out of which FDI was 8.5 US $ billion.
4. Textiles and clothing-
It is estimated that the textiles sector would be one of the major beneficiaries of the impact of Uruguay Round. At the Uruguay Round, it was agreed upon by member countries to phase out most favourable area. Under most favourable area, the developed countries used to import quotas on textile exporting countries. Now it would benefit the developing countries including India by way of increase in export of textiles and clothing.
Key takeaways-
- Economic groupings/economic integration is a group countries which join together for enhancing trade and development. The member countries try to encourage trade within the group by removing or reducing tariff and non-tariff barriers.
- The world trade organization (WTO) started functioning from 1st January 1995. WTO is the result of Uruguay Round of negotiations. WTO is the successor to the General Agreement on Tariffs and Trade (GATT).
Overseas market research is a must for successful and profitable export marketing. This is the most promising way of making company’s marketing operations sensitive to the changing requirements of international markets. Published data on different aspects of global marketing are now available easily for the conduct of overseas market research. Field research is required when published data are not available as per the need of the research project. The popularity of overseas market research is fast growing along with the globalization of business.
The objective of marketing research is to facilitate decision making in a number of marketing areas. Oversees market research is needed for taking decisions on the following:
Figure: Need for oversees market research
(a) Consumer needs and wants-
One of the main objectives of marketing research is to identify consumer needs and wants. Accordingly, the company can manufacture and deliver the goods to the consumers to meet their satisfaction. A company which has already launched its products will try to find out as to what extent the company’s products has satisfied the needs and wants of its consumers.
(b) Promotional campaigns-
Promotional campaigns are needed in overseas market for large scale marketing of the product. Details of such campaigns can be finalized with the help of market research.
(c) Competitive advantage-
Marketing research is conducted to find out the strength of the competitors. An attempt is made to find out why some consumers prefer competitors brands, the special features that appeal to them. Accordingly, the company may incorporate and improve on such features in its products to gain competitive advantage.
(d) Appropriate pricing decisions-
Appropriate pricing decisions in overseas marketing are possible through detailed study of overseas market in regard to market competition, consumer psychology, Product demand, substitutes available and so on.
(e) Effectiveness of channels of distribution-
Marketing research also conducted to find out the effectiveness of the present and potential channels of distribution. The existing channels may be studied in light of channel objectives. If the present channels are not cost effective and are not in a position to deliver the goods effectively, then the company may select alternative channels.
(f) Determine the positioning of the product-
Market research is needed in order to determine the positioning of the product, taking into consideration the socio-cultural factor of overseas market. (g) Packaging design-
Marketing research may be conducted to design better and appropriate packaging for the consumers. Different customers may prefer the package design differently. Through packaging design research a company may identify the right design required by its target customers.
(h) Forecasting sales-
Marketing research can be conducted to judge whether there would be demand for a new product in the market. Also, the demand for existing products can be forecasted. Accordingly, sales programmers can be designed.
Market research process
An exporter must go for research market before entering into any market or launching any product in the market. The market research process involves the following steps-
Figure: Market selection process
(a) Determine export marketing objectives
The exporter must first determine export marketing objectives in terms of product development, profit, sales, share of market etc. both form short term and long term point of view. The objectives are set taking into account the financial and managerial resources of the firm.
(b) Collection of information
The exporter must collect relevant information from the overseas markets. The information may be in respect of demand for the product, competition, nature of consumers, political situation, import regulations, infrastructure facilities etc.
(c) Analysis of information
The exporter has to analyze the collected information in respect of overseas markets. Such analysis is required to shortlist the overseas markets. For example, the exporter has to analyze the like and dislikes of the buyers, the purchasing power, buying pattern etc.
(d) Short listing of markets
A detailed investigation of the markets will help the exporter to short list the countries which may be considered for export purpose. The main objective of short listing is to arrive at a list of few counties which are likely to influence the selection decision.
(e) Detailed investigation
The exporter may conduct a detailed analysis of certain markets. He may collect necessary information in respect of various factors such as the nature of the customers, the nature and degree of competition, the present and potential demand for the product the trade policies of the government and soil. The information can be collected from primary sources as well as form secondary sources.
(f) Evaluation and selection of markets
The company has to eliminate countries where trade or investment barriers prohibit probable market entry. These barriers would include Tariffs Quotas, Foreign Exchange Regulations etc. The exporter may select only those countries or markets, which would provide a good rate of return for its investment.
(g) Entry in overseas markets
The exporter then makes necessary arrangements to enter in the overseas markets. He may appoint the required sales people, and intermediaries. He should complete all other formalities regarding the entry in overseas markets. He would then produce the goods as per the requirements of overseas buyers.
(h) Follow-up
The exporter should undertake a review of the performance in the overseas markets. Such review would enable the exporter to know which markets are performing well, and which one are not. He would then find out the reasons for the same, and if there are problem, he would try to resolve such problems, or exit from such markets that do not provide good potential.
The exporter must consider certain factors to select the appropriate foreign markets. The factors that influence the selection of foreign markets include the following:
Figure: Determinants of foreign market selection
(a) Competition
The exporter must consider the degree of competition in the overseas markets. Nowadays, due to globalization, there is high degree of competition in the overseas markets. In the ultimate analysis the price factor is very important. The selling price as related to competition and quality is a very important factor. It is not only the existing competition but the potential new competition has also to be assessed properly.
(b) Demand
One has to determine the demand of the product in the foreign market. Based on the present demand and the suppliers already there, whether one more competitors would be able to get a reasonable market share is the crucial point to be decided. The perceived durability how long will be the demand persists, and whether there are any patent laws or public laws of the country present or imminent has also to be looked in to.
(c) Import Regulations
The exporter must consider the import regulations including custom formalities while considering the selection of overseas markets. If there are too many formalities and regulations, the exporter may avoid such markets. This is because; lot of money, effort and time is wasted in following the formalities and regulations in the importing country.
(d) Size of the Market
Selection of a product also depends on the markets which have been identified for sales abroad. All products may not have equally good markets everywhere; therefore, selection of the product depends upon the market requirements. It is always better to concentrate on one or two markets as least to start with. One should study the target markets closely, with regard to market requirements in terms of product specification continuity of demand, change in fashion, credit requirement etc.
(e) Distribution Network
There is need for efficient distribution network in the overseas markets. The distribution network includes agents and dealers and other agencies that support the distribution such as transportation services, banking facilities, insurance services, warehousing facilities etc. markets that offer good distribution network reduces the burden on the exporter and therefore, the exporter may select such markets for exporting.
(f) After-Sale-Service
If the product selected for export is such that it requires servicing after sales, then the exporter should see to it that he can avail such facilities to the overseas buyers. It is not always easy and within one’s means to open servicing centers abroad. At the same time, it is difficult to find a distributor or agent having servicing facilities. If it is not possible for the exporters to provide such servicing facilities then the exporter should not venture to export such products.
(g) Higher Productivity
An export firm can benefit from the economies of large scale operations. Higher productivity is a must in the competitive market. Export firms spend a lot on research and development in order to absorb the increased production. As the domestic markets have limited capacity the exports become unavailable.
(h) Social Responsibility
Some business houses are committed to exports. They have build up their image in domestic as well as in overseas markets. They take up export activity to meet social responsibility of strengthening foreign exchange reserve of the nation.
(i) Political Stability
Exporters need to look into the political stability factor before selection of overseas markets. Exporters may ignore those markets, where there is lot of political instability. Due to political instability, there is change of governments or the government may find it difficult to adopt stable foreign trade policies. This creates risks and uncertainties for the exporters. Exporters may select those markets, where there good degree of political stability.
(j) Reducing Business Risk
A diversified business helps the export firm in spreading the risk in several export markets. When a firm is selling its product in a number of markets, a downward trend in a market may be counter balanced by a rise in sales in the overseas markets.
(k) Location
The exporters may consider the location factor in selection of overseas markets. Normally distant location markets need to be avoided as there are high transportation, and delays in deliveries, and other problems.
Key takeaways-
- Overseas market research is a must for successful and profitable export marketing. This is the most promising way of making company’s marketing operations sensitive to the changing requirements of international markets. Published data on different aspects of global marketing are now available easily for the conduct of overseas market research.
References-
- International marketing and Foreign Trade Pankaj Mehra, Alfa Publication, New Delhi.
- International marketing – P. K. Vasudeva – Excel books, New Delhi.
- India‟s Export policy – Trends and prospects Pushpa Tarafdar, Deep & Deep Publications Pvt. Ltd. New Delhi.
- International marketing management – An Indian Perspective – R. L. Varshney & B. Bhattacharya, Sultan Chand & Son‟s New Delhi.
- International Marketing – P. Saravanavel, Himalaya Publishing House, Delhi.
- International Marketing – S. Yuvaraj, Vrinda Publications Pvt. Ltd. Delhi
- Foreign Trade Policy 2009-14, Government of India, Ministry of Commerce and industry. Internet Marketing – Carolyn F. Siegel Houghten Mifflin company Boston, New York.