CHAPTER ONE

AN OVERVIEW OF
INTERNATIONAL
MARKETING
 1.1 Definition of International Marketing

 International marketing has been defined by different

authors. For our purpose, we to look into four
definition by different authors.
 According to Czinkota and John, ‘International marketing is
the process of planning and conducting transactions across
national borders to create exchanges that satisfy the objectives
of individuals and organizations.’
 According to Wall and Rees, ‘International marketing can
simply be defined as involving marketing activities that cross
national borders.’
 Continued...

 According to Terpstra and Ravi, ‘International

marketing consists of finding and satisfying global
customer needs better than the competitors, both
domestic and international, and of coordinating
marketing activities within the constraints of the global
environment.’
 Continued …

 According to Czinkota and et.al, International

Marketing is the process of planning and executing
the conception, pricing, promotion and distribution
of goods, services and ideas to create exchanges
that satisfy individual and organisational objectives,
in more than one nation".
 The terms international marketing and foreign trade
are used interchangeably.
 Foreign trade is used when we want to talk about
trade between nations & it has a macro perspective.
 Continued...

 Activities of international marketing involve the

following:
 Import and export of commodities and manufactured goods
 Investment of capital in foreign countries. E.g agriculture,
extraction, manufacturing etc.
 Supervision of employees in different countries.
 Investment in international services. E,g Baking, advertising,
Hotels, etc.
 Other transactions involving copyright, patents, trademarks
etc.
 1.2 Evolution of International
Marketing

 Domestic Marketing vs International Marketing

 Marketing is a universal activity that is widely applicable,
regardless of the political, social, and economic systems of a
country.
 It does not mean that consumers in all parts of the world
must or should be satisfied in exactly the same way.
 Consumers from various countries are significantly different
due to varying culture, income, level of economic
development, and so on. For example, different kinds of food
are used in different countries to satisfy the same hunger
need.
 Continued...

 Domestic Marketing: Domestic marketing is restricted to the

geographical boundaries of a country.
 Domestic Markeying involves one set of uncontrollable
variable originating from the domestic market.
 A company marketing only within its national boundaries &
only has to consider domestic competition.
 Competition includes companies from foreign markets, it still
only has to focus on the competition that exists in its home
market.
 Continued...

 Products and services are developed for customers in the

home market without consideration of how the product or
service could be used in other markets.
 There are no language barriers in domestic marketing and
obtaining and interpreting data on local marketing trends and
consumer demand is easier and faster to do.
 It helps the company make decisions and develop marketing
strategies that are more effective and efficient.
 Continued...

 The risks are also lesser with domestic marketing

and it needs lesser financial resources.
 International Marketing: International marketing is the
export, franchising, licensing or full direct entry of a marketing
organization into another country.
 International Marketing is much more complex because a
marketer faces two or more sets of uncontrollable variables
originating from various countries.
 The marketer must cope up with different cultural, legal,
political, and monetary systems.
 Continued...

 The international marketer is subject to the risks of

doing business internationally because of:
o unexpected changes in regulatory requirements,
o Fluctuations in foreign currency exchange rates,
o Imposition of tariffs and other barriers and
restrictions,
o The burdens of complying with a variety of foreign
laws, and general economic and geopolitical
conditions, including inflation and trade r/ships.
 Continued...

 It is the promotion and sale of a company’s products

to consumers in different countries.
 It is very complex and requires a huge amount of
financial resources. Every country has its own laws
on business and a company that aims at entering
into business in another country must first know
about them.
 Continued...

 Consumers tastes and preferences may also differ

so marketing strategies must be formulated to cater
to the needs of different consumers.
 International marketing requires more time and
effort/ higher level of commitment.
 The international market is very uncertain and a
company must always be ready for changes that
may suddenly occur.
 Continued…

 Export marketing VS international Marketing

 International marketing is broader concepts than mere
exporting. Because:
 The exchange process, which is the basis of
international marketing, is different form that found in
domestic marketing and yet more than just exporting.
 Exporting would require the use of the 4P’s, where as in
international marketing requires the six of mega
marketing ( + political power and public opinion
information).
 Continued….

 Global Marketing VS International Marketing

 Global marketing:- it is the latest phase of
international marketing where by companies
(global companies) treat the world including their
home markets as one market and then talk of the
need to have single strategy for a products or
service or companies which reflect the existing
commonalities of market needs among many
countries or which fits to many countries.
 Continued...

There are two important components of globalization.

These are:
1. Globalization of market:- it refer to the fact that in many
industries historically distinct and separate national markets
are merging into huge global marketplace. For example,
 Market for Levi Jeans
 Market for Coca-Cola
 Market for Sony walkman
 Market of oil,
 Market of aluminum, etc
 Continued...

2. Globalization of production:- it refers to tendency

among many firms to source goods and services
from different locations around the globe in an
attempt to take advantage of national differences in
cost and quality of factors of production (such as
labour, energy, land, and capital).
 Example, Boeing 777 contains 132,500 major
component parts that are produced around the world
by 545 different supplies.
 Continued...

 The orientation of global marketing in contrast with the view the

international marketing which holds that the world consists of
series of many countries markets with unique set of market
characteristics for which separate marketing strategies must be
developed.
 Participants in international marketing

The major participants in international marketing are:

 Multinational Corporations/ Companies: they are companies
that manufactured and market products in several countries.
They are direct investors in foreign countries.
 Continued....

 14 richest countries of the world today have more

than 24,000 multinational corporations that control
one third (1/3) of private sector asset and enjoy more
than $ 6 trillion sales.
 Example are Shell (Dutch), Buyer (Germany),
Toshiba (Japan), Daewoo (South Korea).
 The top five countries having the largest number of
multinational Corporations are: United States
America, Japan, France, Germany, and Britain
 Continued...
 Global Companies: they are companies that pursue
integrated strategies on world wide scale that
separate strategies on a country be country basis.
For example, General Electric Corporation, Texas
Instruments etc.
 Service Companies: are those companies which
are engaged in the provision or selling of services.
Examples are the following ones: Commercial banks,
Investment banks, International brokers, Int’l Hotels,
Airlines, Consulting firms, Advertising Agencies etc.
 Continued...

 Exporters: are those firms that market product

abroad but produce largely in their home country.
 Importers: are firms that buy products produced in
foreign countries.
 Why international marketing?

1. From companies’ point of view, there are various

reasons for entering into international marketing.
These are:
 Continued...

 Companies export their produce/products to

increase their profitability through increased sales
and reduced costs of production.
 To pursue growth in other countries after domestic
market has reached maturity.
 To follow foot step of customers when they move
overseas in order not to lose business. Example,
Banks, Advertising agency, consulting firms etc.
 Continued...

 To enjoy business stability- economics recession in

one market might be compensated by economic
boom in another thereby resulting in stability.
 To defend local product or check advance of
foreign competitors into own country or third
country. For example, Texas instrument and Kodak
launched business in Japan to weaken their
competitors there.
 Continued...

2. From national point of view:

 A nation must export in order to import.
 To develop good relationship with other nations.
 1.3 Companies’ Orientation towards
International Market Operations

 The world view of a company’s personnel can be described as

ethnocentric, polycentric, regiocentric, and geocentric. The
orientations are collectively known as the EPRG framework.

1.Ethnocentric Orientation:
 The ethnocentric orientation of a firm considers that the product,
marketing strategies and techniques applicable in the home market
are equally applicable in the overseas markets as well.
 Continued…

a) A person who assumes that his/her home country is

superior to the rest of the world.
b) Associated with national arrogance or feelings of
national superiority.
c) At some companies, the ethnocentric orientation means
that opportunities outside of the home country are
routinely ignored (domestic companies).
 Continued…

d) Ethnocentric companies that conduct business

outside their home country are known as international
companies - they believe products that succeed in the
home country are superior.
e) Leads to a standardized or extension approach - the
belief that products can be sold everywhere without
adaptation.
f
 Continued…

F) Foreign operations or markets are viewed as inferior or

subordinate to the home
market.
g) Foreign markets are mostly view as an opportunity to place
of surplus domestic production.
In such a firm all foreign marketing operations are planned
and carried out from the home base with little or no
difference in product formulation and specifications, pricing
strategy, distribution and promotional measures in the home
and overseas markets.
 Continued…

2. Polycentric Orientation:
a) The opposite view of ethnocentrism and the belief that
each country in which you do business is unique.
b) This assumption allows each subsidiary to develop its own
unique marketing strategies in order to succeed.
c) The term multinational company is often used to describe
such a structure.
 Continued…

d) Leads to a localized or adaptation view that assumes

products MUST be adapted to succeed.
Unilever, the Anglo-Dutch consumer-products company,
once exhibited a polycentric orientation. For example, its
Rexona deodorant brand had 30 different package designs
and 48 different formulations. Advertising was also executed
on a local basis.
 Continued…

3. Regio-centric Orientation:
a) The region becomes the relevant geographic unit;
Management’s goal is to develop a regionally integrated
strategy.
b) A U.S. company that focuses on the countries included in
the North American Free Trade Agreement (NAFTA)—
namely, the United States, Canada, and Mexico—has a
regiocentric orientation.
 Continued…

c) For decades, a regio-centric orientation prevailed at General

Motors: Executives in different parts of the world—Asia-
Pacific and Europe, for example—were given considerable
autonomy when designing vehicles for their respective
regions.
4. Geocentric Orientation:
a) A company with a geocentric orientation views the entire
world as a potential market and strives to develop integrated
global strategies.
 Continued…

b) A company whose management has adopted a geocentric

orientation is sometimes known as a global or transnational
company.
c) Serves world markets from a single country or sources
globally for the purposes of focusing on select country
markets.
d) Tend to maintain their association with a particular
headquarters country.
 Continued…

 Maximizes efficiencies worldwide and provides

standardized product or service throughout the world.
E.g. McDonalds, Ford etc.
o Car manufacturers, led by Ford, are adopting just such an
approach on a worldwide basis.
o For example the name Ford is the same worldwide.
o The logo is the same.
o Ford's light blue color is the same.
 1.4 Theories of International Trade

Benefit related to International Trade:

 Better utilisation of national resources
 Increased production
 Production efficiencies
 Increased economic and technological development
 Improved global competitiveness
 Opportunities beyond local market
 Increased employment opportunities
 Better paying jobs
 Earning foreign currency
 Continued…

 Benefits to consumers
 Economic growth.
 Authorities use trade theories to develop and implement
industrial and trade policies. Trade theories are
generally divided into:
 Descriptive theories – dealing with the expected order of
trade between two countries
 Prescriptive theories – whether governments should get
involved in regulating trade.
 Continued…

 With the growth of materialism, every individual has

become interested in improving his/her standard of living
in terms of material comforts.
 This has forced the governments into foreign trade to
improve the standard of living of its people.
 Countries can benefit from trade by exchanging some of the
products that it can produce at a low cost for some products that it
cannot produce at all.
 Historically, nations have been trading with each other for
hundreds of years:
 Continued…

o For profit or
o Because they do not have enough resources (land, labor
and capital) to satisfy all the needs of consumers.
 For example, Japan has a highly skilled labor force that
use technologically advanced equipment to produce cars
and electrical equipment, however it does not have its own
oil fields.
 Saudi Arabia has large supplies of oil, but lacks the
resources to produce cars and electrical equipment.
 Continued…

 Trade between Saudi Arabia and Japan will allow both

countries to obtain goods and services that they cannot
produce themselves.
 Specialization and trade can then deliver higher living
standards to all countries as resources are being used more
efficiently.
 International Trade Theories are: Mercantile, Absolute
Advantage, Comparative Advantage, Factors Endowments
and International Product Life Cycle
 1.4.1. Mercantile Theory

 The first theory of international trade.

 Emerged in England in the mid-sixteenth century.
 Argues that the key objective of trade should be to promote a
favourable balance of trade where exports exceed imports,
 This results in a trade surplus and adds precious metals and treasure to
the country.
 The mercantilist view is based on a win–lose approach
 A zero-sum game is one in which a gain by one country results in a
loss by another country.
 1.4.2. Absolute Advantage Theory

 The Scottish economist Adam Smith in 1776.

 He argued that a country has an absolute advantage in the
production of a good when it can produce more of that good with a
given amount of resources than another country.
 A country has an absolute advantage over its trading partners if it is
able to produce more of a good or service with the same amount of
resources or the same amount of a good or service with fewer
Absolute Advantage without trade
Example

Units of
Resources produced in
Country Cost /Sack Available each country
Ethiopia
Coffee 50 500 10
Rice 60 750 12.5
Thailand
Coffee 80 640 8
Rice 40 800 20
 Continued…

 Ethiopia has absolute cost advantage in the

production of coffee while Thailand has
absolute cost advantage in the production of
rice.
 Total of production coffee = 10 + 8 = 18
 Total of production of Rice = 12.5 + 20 = 32.5
Absolute Advantage with trade
Example

Quantity
Resource produced
Country Costs /Sack Available each Country
Ethiopia
Coffee 50 1250 25
Thailand
Rice 40 1440 36
 Continued…

 According to the above illustration, if each country

specializes in the area of its absolute cost advantage,
there follows gains of 7 sacks of coffee and 3.5 sacks
of rice.
 Specialisation in production means that a surplus of
products is produced, i.e. more goods are produced
than what the producer requires for his or her own
use.
 The surplus is sold and the income used to purchase goods
that the producer needs but does not produce.
 1.4.3. Comparative Advantage

 David Ricardo with his book principles of political

Economy and Taxation in 1817 pointed out that cost
advantage to both the trade partners was not a necessary
condition for trade to occur.
 What happens when a country can produce all products
more efficiently than its trading partner?
 It would still be beneficial to both the trading countries
even if one country can produce all the goods with less
labor cost than the other country.
 Continued…

A country has a comparative advantage in the production

of goods and services that it produces at a lower
opportunity cost than its trading partners
 The theory argues that it is better for a country that is
inefficient at producing a good or service to specialise in
the production of that good it is least inefficient at
producing compared with other goods.
 Illustration 1: Comparative
Advantage without trade

Country Cost/Unit Resources Units produced in each

Available Country
Ethiopia
Jeans Trousers 30 90 3
TV sets 120 1200 10
Japan
Jeans Trousers 15 750 50
TV sets 40 3200 80
Continued…

 Total Jeans Trouser = 50 + 3 = 53

 Total TV Sets = 80 + 10 = 90 without trade
Illustration- Comparative advantage with trade

Country Cost/unit Available Units

Resources produced in
each Country
Ethiopia
Jeans Trouser 30 1290 43
Japan
TV Sets 40 3950 98.75
 Continued…

 Ethiopia Total Jeans costs = 43

 Japan total TV sets costs = 99 with trade
 In accordance with this illustration, Japan has
absolute cost advantage in both products but is most
advantageous in the production TV set.
 Thus, Japan should specialize in the production of
TV set and trade it with Ethiopia according to
comparative cost advantage vice versa.
 1.4.4. Factor Endowment Theory

 This is a theory which was originally put forwarded by Swedish

Economists Eli Heckscher (1919) and Berti Ohline (1933)
and further reinforced by Michael Porter of Harvard
Business School in 1990.
 They argue that the pattern of international trade is determined by
differences in factor endowment such as Land, Labor, and capital – basic
factors.
 Other very important factors determining international trade are proposed by
Michael:
 Communication infrastructure,
 Sophisticated and skilled labour,
 Research facilities, and
 Technological know-how
 1.4.5. International Product Life Cycle

 This theory was proposed by Raymond Vernon

during mid 1960’s and it suggests that trade patterns
are influenced by where a new product is introduced.
 New product Stage: - new products mostly
developed in highly advanced countries and put in use
initially in the local market before they gradually sell to
other countries. At this stage, it is the innovating
countries which enjoy the advantage of monopoly
rights both locally and internationally.
 Continued…

 Growth stage: - at this stage, demand for the product

particularly from other advanced countries tends to
increase. Thus, justify the production of the product
within those countries. As these countries begin
manufacturing the product, export of innovating
country gradually drops thus change the pattern of
trade.
 Maturity Stage: - at a maturity stage of a product,
production technology becomes perfect and result in
to highly standardized product.
 Continued…

 With high degree of standardization and the use of

highly improved technology, developing countries can
start manufacturing the product more cheaply by using
their lower skilled labor.
 At latter stage of this stage, export of the product
gradually shifts from advanced to developing
countries.
Continued…
 1.5 Opportunities and Challenges of
International Marketing

 The growth of global business activities offers

increased opportunities:
 International activities can be crucial to a firm’s growth and
survival
 By transferring knowledge around the globe, an international
firm can build and strengthen its competitive position.
 Market saturated can be avoided by lengthening product
lifecycles in other countries
 International marketing enables consumer all over the world to
find greater varieties of products at lower prices and to improve
their lifestyles and comfort.
 Continued…..

 Firms that heavily depend on long production run

can expand their activities far beyond their domestic
markets and benefit from reaching many more
customers.
 Cooperative agreements can be formed that enable
all parties to bring their major strengths to the table
and merge with better products, services, and ideas
than they could produce on their own.
 Cont.…

 International marketing presents challenge to those

who practice it. These are:
 To proper in a world of abrupt changes and
discontinuities, of newly emerging forces and
dangers, of unforeseen influences from abroad, firm
need to prepare themselves and develop active
responses.
 New strategies need to be envisioned, new plans
need to be made, and the way doing business needs
to be changed.
 Cont.….

 The way to obtain and retain leadership

economically, politically, or morally is not through
passivity but rather through a continuous, alert
adaptation to the changing world environment.
 To help a country remain a player in the world
economically, government, firms, and individuals
need to respond aggressively with innovation,
process improvements, and creativity.
 1.6 Exchange Rate and Balance of
Payments

 A businessman operating in the international environment is faced

with a two price system i.e., the price of the product and the price
of the currency.
 Foreign exchange is a financial asset involving a cash claim by
residents of one country against the residents of other countries.
 Foreign exchange can be held in different forms such as:
 Currency (paper money and coin)
 Cheques (e.g., travelers cheque)
 Letter of credit
 Bill of exchange.
 Continued…

 Foreign Exchange transactions involve the purchase or

sale of one national currency against another currency.
 Like other products, money can be considered as branded,
bought & sold and the Ethiopian Birr, the U.S. dollars,
Euro, Japanese yen, and so on are simply some of the
brand names for a money “product.”
 Some of these brand names carry more prestige and are
more desirable than others, much like brand names of
consumer products.
 Ethiopian Foreign Exchange,
20/10/2023

Currency Buying Selling

 US Dollar 55.4237 56.5322
 Pound Sterling 64.2354 65.5201
Swiss Franc 59.0337 60.2144
UAE Dirham 13.6556 13.9287
Chinese Yuan 6.8563 6.9934
Kuwaiti Dinar 171.0844 174.5061
EURO 58.5884 59.7602
 Continued…

 Exchange Rate: The rate at which one currency is converted into

another, or a ratio that measures the value of one currency
in terms of another currency.
 Purchase of foreign goods and services can be thought of
as involving two sequential transactions: purchase of
foreign currency and purchase of foreign goods.
 Purchase of foreign currency is made through the foreign
exchange rate.
 Continued…

 The exchange rate (also called the foreign exchange rate,

forex or FX rate) between two currencies specifies how
much one currency is worth in terms of the other.
 The foreign exchange rate is simply the price of one
national currency as expressed by the value of another.
 This exchange price, once established, allows currencies to
be exchanged one for another.
 Continued…

 It affects the cost of imported goods and exported goods;

the country’s rate of inflation; and a firm’s profit, output,
and employment.
 Much like the price of any other product, the price of a
currency is determined by the demand and supply of that
currency.
 When the currency is in demand, its price will increase.
 Continued…

 But if a currency’s supply increases without any

corresponding increase in demand, its value declines.
 The demand of a currency is determined by several
factors. Some of these :
1. Domestic and foreign prices of goods and service
2. Trading opportunities within a country
3. The country’s export and import performance.
 Continued…

 Foreign exchange market: - it is a market for

converting the currency of one country into that of
another country. Participants in the foreign exchange
market are the following ones:
• Tourists- they are minor participants in the foreign
exchange market. They participate in the market
when they exchange their home currency in to
another.
• Companies engaged in international trade and
investment- they are the major ones.
 Continued…

 They are four main uses of foreign exchange market

to international businesses:
 First, the payments a company receives for its
exports, the income it receives from foreign
investment, or the income it receives from licensing
agreements with foreign firms may be in foreign
currencies. To use these funds in its home country,
the company must convert them into its home
country’s currency.
 Continued…

 Second, international businesses use foreign exchange

markets when they must pay a foreign company for its products
or services in its country’s currency.
 Third, international business use foreign exchange markets
when they have spare cash that they wish to invest for short
term in money markets.
 Finally, currency speculation is another use of foreign
exchange markets. Currency speculation typically involves the
short term movement of funds form one currency to another in
the hopes of profiting from shifts in exchange rate.
  Balance of payment

 The balance of payments of a country is a systematic

record of all economic transactions between the residents of
a country and the rest of the world during a given period of
time usually one year.
 The record contains a constant flow of money in to and out
of a country such as the following ones:
 Money inflow from the export of goods and services;
 Money outflow for all imports;
 Continued….

 Monetary gift exchange between individuals, governments,

groups etc. ;
 Money outflow and inflow for investment;
 Cash payment for foreign travel- for business, educational
trip, tourism, medical etc.; and
 Different cash receipts from foreign residents or travellers
from foreign countries etc.
 Continued…

 Balance of payment is the difference between receipts

from foreign countries on one side and payments to them
on the other.
 It is an overall view of nation’s international economics
position and is an important economic measure used by
governmental agencies such as treasuries, central bank,
and other authorities whose responsibility is to maintain
internal & external economic stability.
 Continued…

A balance of payment statement includes three major

accounts:
1. The current account: - it is the record of the following
transaction:
o All merchandise exports and imports;
o Value of wide variety of service related transactions. For
example, transportation, consulting etc;
o Unilateral transfer of funds. For example, private
remittance (transfers), personal gift, philanthropic donation.
 Continued…..

2. The capital account: - it refers to the record of the

following transaction:
Short term investment- both domestic and foreign
investment such as treasury bills, certificate of deposit etc.
Long term investment- for example, Bonds, capital
investment (purchase share/stock), building of factory, farm,
commercial banks etc.
 Continued…

3. The official reserve account: - it refers to the record of

exports and imports of gold, increase or decrease in foreign
exchange and increases or decreases in liabilities to foreign
central banks.
 This account is the balancing item in response to current
and capital accounts transactions.
 The balance on current account plus the balance on capital
account must always be offset by the balance on official
reserves asset account.
 Continued…

 If the balance on current and capital accounts is negative,

it would represent balance of payments “deficit”.
 But if the balance on current and capital accounts is
positive, it would be called a balance of payments
“surplus”.
 To offset the negative balance, countries use Central
Bank holdings of official monetary reserves.
 Such reserves consist of gold, convertible foreign
currencies (such as US dollar and British pounds) and
Special Drawing Rights.
 Continued…

 The Balance of Payment (BOP) is the measure of all

economic transactions between one nation and others.
 The balance of payments account helps marketers select
the location of supply for foreign markets and the
selection of markets.
 1.7 Barriers to International Trade

Marketing barriers can be divided into two categories: tariff

and nontariff barriers.
1.Tariff Marketing Barriers
Tariff, derived from a French word meaning rate, price, or list of
charges, is a customs duty or a tax on products that move across
borders.
A tariff is a tax levied on imports (or exports).
 Tariffs can be classified in several ways: The classification is based
on direction, purpose, and rate.
 Continued…

A) Import and Export Tariffs/Direction: Tariffs are often

imposed on the basis of the direction of product movement
that is, on imports or exports, with the latter being the less
common one.
B)Protective and Revenue Tariffs/ Purpose
The distinction between protective and revenue tariff is
based on purpose.
The purpose of a protective tariff is to protect home
industry, agriculture, and labor against foreign competitors by
 Continued…

 The purpose of a revenue tariff, in contrast is to generate

tax revenues for the government.
 Compared to a protective tariff, a revenue tariff is
relatively low.
C)Rates: Three kinds of tax rates must be distinguished:
specific, advalorem, and combined.
i)Specific duties/Fixed
 Are fixed or specified amount of money per unit of
weight, gauge, or other measure of quantity.
 Continued…

 Based on a standard physical unit of a product, they are

specific rates of so many birr, dollars or cents for a given
unit of measure (e.g., Birr10/gallon, $2/ton, etc.)
 Because the duties are constant for low-and high-priced
products of the same kind, this method is discriminatory and
effective for protection against cheap products because of
their lower unit value.
 There is a reverse relationship between product value and
duty percentage.
 Continued…

ii) Advalorem duties

 Duties based on value.
They are stated as a fixed percentage of the invoice value and are
applied as a percentage of the dutiable value of the imported goods.
Eg. Japan’s advalorem tariffs on beef and processed cheese are 25%
and 35% respectively.
 These are the opposite of specific duties since the percentage is
fixed but the total duty is not.
There is a direct relationship between the total duties collected and
the prices of products.
 Continued…

That is the absolute amount of total duties collected will

increase or decrease with the prices of imported products.
iii)Combined Rates
Are also called compound duties
Combined rates are combinations of the specific and
advalorem duties on a single product.
Based on both the specific rate and the advalorem rate that are
applied on important product.
 For example, the tariff may be 10 cents per pound plus 5%
advalorem.
 Continued…

2.Non-tariff Marketing Barriers

Tariff, though generally undesirable, are at least
straightforward and obvious.
 Non-tariff barriers, in comparison, are more elusive or
non-transparent.
Tariffs have declined in importance, while non-tariff
barriers have become more prominent.
 Continued…

i)License or permit: Not all products can be freely imported;

controlled imports require license or permits. It is not always
easy to obtain an import license.
ii)Inspection: Inspection is an integral part of product
clearance. Goods must be examined to determine quality and
quantity.
 Continued…

iii)Product Requirements: For goods to enter a country,

product requirements set by that country must be met. These
are: Product standards,Product specifications, Packaging,
labeling, and marking.
iv)Quotas: Quotas are a quantity control on imported goods.
They are specific provisions limiting the amount of foreign
products imported in order to protect local firms and to
conserve foreign currency. Quotas can be used for export
control as well. Only some companies are allowed.
 Continued…

Important types of import quotas are described below:

 Unilateral quota- it is a quota adopted by a single
country without prior negotiation with the other country
or the other trading partner.
 Negotiated/ Bilateral quota- it is a quota established
on the basis of negotiation made between trading
partners of two countries.
 Tariff quota- it combines the feature of the tariff as
well as of the quota.
Continued…

 Mixing quota- under the mixing quota, the

producers are obliged to utilize domestic raw
materials up to certain proportion in the
production of finished product.
v)Exchange Control: An exchange control is a
technique that limits the amount of the currency
that can be taken abroad.
 1.8 Argument of government
intervention in international trade

A. Political Argument- political arguments for

government intervention cover a range of issues
which include the following:
Protecting job and industries against unfair foreign
competition. For example, dumping which requires anti-
dumping policy. Dumping the practice of selling products
overseas at an amount much less than cost of production than
home market.
Protecting industries that are believed to be important for
national security. For example, defense related industries
(production of weapons).
 Cont.…

 Retaliating to unfair foreign competition: some argue

that governments should use threat to intervene in
trade policy as a bargaining tool to on foreign market
and force trading partner to play by rules. For
example, using trade sanction to get a nation to
enforce its intellectual property law.
 Protecting consumers: some people argue that it is
necessary that a government should put in place
regulation that limit or ban the importation of products that are
considered unsafe for the health and safety of consumers.
 Continued.…

 Furthering the goal of foreign policy: some says that

government should involve in international trade to
support foreign policy goals such as building good
relationship through issuing or granting preferential
trade term. Example, AGOA (African Growth
Opportunities Act).
 Protecting the human right of individuals in the
exporting and/or importing country. Example,
economic Sanction imposed on China because of
human right by USA.
 Continued.….

B. Economic Argument
Infant Industry Argument:The infant industry
argument for government intervention promotes the idea
that government should temporarily support new
industries to let them stand on their own. In practice
however, by doing so, government often end up with
protecting inefficiency. For example, Ethiopian
government protects its Bank and insurance industry
against foreign band and insurance.
 Cont.…..

 Strategic Trade Policy Argument: This is an

argument which promotes the idea that through
subsidies government can help domestic firms gain
first mover advantage in global industries where
economics of scale are important.
 Governments’ subsidies may also help domestic
firms overcome barriers to entry in to such industries.
For example, American government subsidies to
Boeing Company to enable the company dominate
aircraft industry across the world.