Chapter two

International Marketing environment

2.1.Framework for analyzing International Marketing
Environment
The marketing environment consists of all factors external to an organization that can affect the
organization’s marketing activities.The foreign environments constitute the principal elements of
uncertainty an international marketer must cope up with in designing a marketing program and
business decision. Following are the factors that act determinants of the international marketing
policies:
1. geographic environment
2. Political environment
3. socio-cultural environment
4. Economic environment
5. Technological environment
Identifying Market Opportunities and Threats
Environment can give both the opportunity and treats. Many firms use environmental scanning to
identify important trends and determine if they represent present or future market opportunities or
threats. This procedure consists of identifying relevant factors and assessing their potential impact on
the organization’s markets and marketing activities.
A. The geographical environment
How can geography influence the marketing decisions of a company?
Geography can be studied by looking at its elements and their possible influence over the company:
• Climate (temperatures, humidity)
• Physical terrain (altitudes, forms)
• Resources (raw materials, energy)
• Population (size, growth rates, structure)
1 Climate
Climate can affect on the one hand the type of products that can be sold or not in a specific market and
on the other hand it can affect the use and the function of the product and consequently to require the
product’s adaptation.
Climate can also influence the way the products are distributed in a country. High humidity requires
better packaging and cold weather requires too better packaging, while hot weather requires
refrigerators for food products.
Temperature
Influences the efficiency of people at work and the aspect becomes more important when the degree of
involvement in that market increases. Empirical research had showed that at a 260C temperature only
80% of the work capacity is used by individuals, at 330C, the work capacity is reduced at 50%
Andover 350C the work capacity is reduced at 20%. In case of intellectual work, if enough motivated,
people will work with similar efficiency up to 330C.
2. Physical terrain or the topography of the land

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 Physical terrain is important to be studied in a country because it can affect the distribution of the
product in that country. High mountains, tropical forests, deserts constitute natural barriers that make
transportation and communication more difficult in a country. For example, the tropical forest from the
Amazon basin is the largest rain forest in the world with a three million square meters surface. This is
inhabitable but also impenetrable. Such a landscape represents a strong natural barrier that inhibits
national growth, trade and communication. People live in large urban areas that are usually isolated
from one another. There are inadequate roads and poor communication between the major cities of
those countries. Because of the physical isolation, different cities have different lifestyles and different
population characteristics and therefore can be treated as different markets.
3. Natural resources another element of geography that will have an influence on the company’s
activity is represented by the natural resources, such as raw materials, sources of energy. These are
important to be studied in a foreign country, when the company intends to make production
investments in that country. The location of the earth’s resources is not equally distributed between
countries. In many cases a nation’s demand for a particular mineral or energy does not coincide with
domestic supply and the need of imports appears. Also countries that have been self-sufficient in
respect to the use of one mineral, run out of it and become net importers of that raw material. Is the
case of USA that up to 1942 was completely self sufficient as the petroleum is concerned and who
became a major importer by 1950, its degree of dependency on foreign resources increasing from 36%
in 1973, to more than 56% in 2000 4 .
Knowing the availability of natural resources in one country can be an indication of larger potential for
economic development in the future, therefore making that country more interesting for foreign
investors.
4. Population.
Population is a good indicator to estimate the market size in a country for most consumer goods. Even
when we talk about industrial goods, population is important given the fact that industrial demand is a
derived demand from the demand for other products, in many instances consumer products. Therefore,
the study of the population of a country is absolutely necessary when studying a foreign market. The
company should be interested in:
The size of the population, as it gives us an idea about the actual market potential for certain goods
(mainly consumer goods, but also industrial goods).
The growth rate of population is also of interest, as it gives us an idea about the future market
potential. The higher the future market potential, the higher the involvement.
The structure of population according to different criteria such as age, gender, education offers
information about potential market segments. The evolution of population on different structures gives
an indication about how different market segments will evolve in the future.
 The density of population and the urbanization degree.
The way the population is distributed between rural and urban areas in a country influences on the one
hand the market segments existent in the country, as consumers in urban areas have different
characteristics, education, incomes, lifestyles and consequently demands than those in rural areas. Also
the way the company will distribute the product and will communicate with people depends on their
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density. The more dispersed is the population the more difficult distribution and communication will
be. The more concentrated the population (usually in urban areas) the easier the distribution and
communication will be.
B. The cultural environment
Culture is pertinent to the study of marketing in general and to international marketing in particular.
What a marketer is constantly dealing with is the culture of the people (the market). In writing a
promotional message, symbols recognizable and meaningful to the market (to the culture) should be
used. When designing a product, the style, uses and other related marketing activities must be made
culturally acceptable to the present society, in order to be operative and meaningful. Culture is
usually pervasive in all marketing activities, i.e. in, pricing, promotion, channels of distribution,
product, packaging, and styling. The marketer’s efforts are judged in a cultural context for
acceptance, resistance or rejection.
Culture Defined:
For the purpose of this course, culture can be defined as follows: “Culture is an integrated system of
learned behavior patterns that are distinguishing characteristics of the member of any given
society.” It includes everything that a group thinks, says, does and makes.
The culture deals with the way a group lives and it contains the entire social heritage of a nation, it
deals with everyday life and refers to the language, values, attitudes, behaviors, knowledge a nation
has.
C. The economic environment
It shows us what is the degree of economic development of different regions and countries, what are
the relationships between them and consequently can help in identifying where is the greatest market
potential for the company.
It is the single most important characteristic of the global market environment, as without money many
things are impossible to the marketer. It includes factors and trends related to income levels and the
production of goods and services. Demographic and cultural trends generally affect the size and needs
of various markets.
The international economic environment is very important when studying foreign environments, as it
shows us what is the degree of economic development of different regions and countries, what are the
relationships between them and consequently can help in identifying where is the greatest market
potential for the company. There are authors who consider the economic dimension as being the single
most important characteristic of the global market environment, as without money many things are
impossible to the marketer.
The economic environment changed a lot after the Second World War and an analysis of its evolution
is of interest to any marketer.
The international economic environment can be looked at from two perspectives: as the international
economic environment, (namely the world economy), and; the economic environment within a nation,
(the characteristics of a country’s economy.)

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The interdependence of these economies is manifested mostly through international trade. Therefore,
we can say that the international economic environment is also the international trade environment.
Then the company should look at the market characteristics of each specific country in order to be
able to appreciate market potential. Among the aspects of interest should be:
a. Population
b. GNP, GNP/capita; PPP
c. Household size and income
d. Consumption patterns
e. Inflation
f. Infrastructure
Population is the indicator that gives a close idea about the market potential for a large variety of
goods, especially consumer goods, but not only includes size, growth, and structure on different
criteria, density and the degree of urbanization.
E.g. In many cases developing countries are less urbanized and they are less attractive markets, as
customers are difficult to reach and greater promotional effort is required to reach a dispersed
population that in many cases has a high level of illiteracy.
Population is a good indicator for market potential, but besides the existence of consumers companies
also need consumers with money. Therefore, the income has to be studied in a foreign country in order
to appreciate market potential. Among the best indicators to evaluate the income of a country (and of
consumers), as well as its degree of economic development are the Gross National Product (GNP), the
Gross National Product/capita (GNP/capita), the Purchasing Power Parity (PPP).
The Gross National Product (GDP) is a country’s output of goods and services in a year and reflects
the income that a country has. The GDP generally shows what the degree of development of a country
is.
The GNP/capita shows how much each person would have if the GDP would be divided equally.
Knowing a country’s GNP/capita is the first step in understanding the general standard of living that
the average citizen has in a country.
One indicator that evaluates closer the purchasing power of consumers in a country is the Purchasing
Power Parity (PPP). It shows what the money can buy in a country by measuring the purchasing
power of different countries over the same type of goods and services. In this way it allows for
comparisons of standards of living across countries.
Infrastructure
-Transportation- how the company can distribute its products.
-Communications - indication over how the company can communicate with its consumers, how it
can reach them both to research them and to promote its products.
-Commercial infrastructure - refers to advertising agencies, market research companies, distributing
organizations that can influence both the promotion and distribution strategies in that country.
Financial infrastructure - refers to the financial institutions (banks, insurance) from a country that
can facilitate the financial transactions of the company within that country and in relationship with
other countries.
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 D. Political / Legal Environment
Political and legal factors play a critical role in international marketing activities. Even the best
business plans can go wrong as a result of unexpected political or legal influence. The international
marketing managers need to concentrate on three political / legal areas:

1. the political and legal circumstances of the home country;

2. the political and legal circumstances of the host country; and
3. the bilateral and multilateral agreements, treaties, and laws governing the relations between host
and home countries.
1. Home Country Political and Legal Environment
Wherever a firm is located, it will be affected by government policies. As a result, international
marketing managers are required to be familiar with the policies and regulations of the country from
which he/she conducts international marketing transactions. Many of these laws and regulations may
not be designed to specifically address international marketing issues; but they can have a major
impact on a firm’s opportunities abroad. For example, minimum wage legislation affects the
international competitiveness of firms using production processes that are highly labour intensive. The
cost of domestic safety regulations may also significantly affect the pricing policies of firms in their
international marketing efforts.

Political environment in most countries also tends to provide general support for the international
marketing efforts of the country’s firms. For example, a government may work to reduce trade barriers
or to increase trade opportunities. Such actions will affect individual firms to the extent that they
affect the international climate for free trade.

Governments also have specific rules and regulations restricting international marketing. Such
regulations are usually political in nature. Four main areas of governmental activities are of major
concern to the international marketing manager here. These include: embargoes or trade sanctions,
export control, import controls and the regulation of international business behavior.
2. The host country political environment
We are interested to study its political stability, the political risk encountered there.
The study and assessment of the political environment include the following
a. Political System: The type of government i.e. whether it is Socialistic, Capitalistic, Democratic
etc. must be analyzed,
b. Philosophy of the Government
c. Permanency and Stability of the Policy of the Government:
One way to classify governments is to consider them as either parliamentary (open) or absolutist
(closed).
Parliamentary governments consult with citizens from time to time for the purpose of learning
about opinions and preferences. Government policies are thus intended to reflect the desire of the
majority segment of a society.

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 Absolutist governments include monarchies and dictatorships. In an absolutist system, the ruling
regime dictates government policy without considering citizens’ needs or opinion.
Another way to classify governments is by number of political parties.
This classification results in four types of governments:
1. Two-party: In a two-party system, there are typically two strong parties that take turns controlling
the government, although other parties are allowed.
In the United States, the Republican Party is often viewed as representing business interests,
whereas the Democratic Party is often viewed as representing labor interests, as well as the poor and
disaffected.
2. Multiparty system: there are several political parties, none of which is strong enough to gain
control of the government.
A government must then be formed through coalitions between the various parties, each of which
wants to protect its own interests.
If the government does not have the support of the majority of the representatives, the government is
disbanded and a new election is called.
3. Single-party system: there may be several parties, but one party is so dominant that there is little-
opportunity for others to elect representatives to govern the country.
4. Dominated one-party system: the dominant party does not allow any opposition, resulting in no
alternative for the people. In contrast, a single-party system does allow some opposition party
The party, to maintain its power, is prepared to use force or any necessary means to eliminate the
introduction and growth of other parties.

E. Technological Environment
The type of technology in use, the level of technological developments, the speed with which
new technologies are adopted and diffused, the type of technologies that are appropriate, the
technology policy etc. are important to business.
Advances in technology may also cause relocation of production. For example, several
companies in the advanced countries had shifted the T.V. production to developing countries to
take advantage of the cheap labor. However, when further technological developments reduced
the labor content of the T.V. some firms relocated their production back to the developed
countries.
Some labor abundant countries have a preference for labor intensive technology. Mechanization
and automation may be opposed in such countries. Such a situation may adversely affect the
business.
Particularly, in the past, several countries, like India, did not have a favorable attitude towards
foreign technology. The overemphasis on the development of technology indigenously had led to
high costs and distorted developments.
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 Again; the policy bias in favor of small business has resulted in production units of uneconomic
size in a number of industries. The reservation of products for the small-scale sector some times
comes in the way of adoption of modern technology if it involves capital investment higher than
the specified limit.
The time lags in the introduction of technologies may even result in some products not being
able to reap the market. The electronic typewriter became popular in India before the electric
typewriter could penetrate the market. The electronic typewriter could not achieve growth
because of the advent of the computer.