SCOPE AND CHALLENGES OF INTERNATIONAL MARKETING Marketing decision factors The marketing environment Domestic Foreign Trade policy

The International Marketing Task Marketing Decision Factors Price Promotion Product Distribution The Domestic Environment The Foreign Environment

Domestic Environment Political/legal forces Competitive structure Economic climate

Foreign Environment Political/legal Economic Culture Geography/infrastructure Distribution Competition Technology

Some Obstacles Ethnocentrism Self-reference criterion Solutions Explicit Implicit Solutions

Some Stages in International Marketing No direct foreign marketing Infrequent Regular International Marketing Global Marketing No firm boundaries between stages Note time issue Opportunities Resources Planning No one approach is best for all companies

Obstacles to Trade: Protectionism Differing interests of consumers and manufacturers Benefits of trade tend to be more diffused than benefits to specific groups of protectionism Although a large number of consumers would tend to benefit by from more global trade, powerful interests would prefer that the supply be limited as much as possible to domestic products. In Japan, for example, farmers are, politically speaking, a very powerful group who appear to have a greater influence on government policy than the much larger group of consumers. Since these groups have much more at stake, they are much more likely to lobby the government. The fact that a family could save the equivalent of several hundred, if not thousands, of dollars each year does not provide the same incentive as farmers whose whole businesses depend on protection. In the United States, various groups, such as sugar growers, the auto industry, and certain labor unions, have a great deal to gain on restricting foreign supply and invest quite heavily in lobbying.

Approaches to Protectionism Tariffs Quotas “Voluntary” export restrictions Subsidies to domestic producers/exporters Non-tariff barriers legal obstacles differential treatment

U.S. Protectionism--justified or not... Defense industry Agricultural products--e.g., beef, sugar Textiles Automobiles (“voluntary” import restrictions) Steel

Justifications for Protectionism Protect infant industry Resist “unfair” or inappropriate competition Protect home market (ensure that product can be produced domestically)--defense Intervene into temporary imbalance Maintain domestic living standards Preserve jobs Bargaining power/retaliation (Super-301 provision in U.S.) There are several defenses offered by countries that practice protectionism. Understandably, countries are reluctant to be dependent on foreign suppliers for vital industries such as defense. Also, there is often an interest in protecting “infant” industries which have not yet advanced against the experience curve. In some cases, domestic manufacturers or interest groups may raise concerns about “unfair” foreign competition, as foreign employees may receive very low salaries. Thus, some U.S. manufacturers and politicians will object to U.S. firms having to compete with foreign firms which can employ people at a fraction of the cost of U.S. firms. Also, a number of people object to the practice of certain foreign firms of using child labor. By far the most common calls for protectionism, however, tend to come from special interest groups--typically affected industries and organized labor. Automobiles, for example, could hardly be said to be an “infant” industry in the late seventies and early eighties, but they lobbied effectively that free trade would entail the loss of a great deal of jobs. Note that protectionism can come back to haunt you in the long run. Many people have speculated that American firms have become complacent as foreign competition has been artificially held back. Also notice that we cannot in any way protect our products outside our home markets. That is, no matter how effective we are at protecting our home markets, this complacency may lead to loss of foreign competitive ability.

Effects of Protectionism Reduced competition ---> inflation More tariffs Weaken balance of payments (have to pay more in own currency) Reduce choice to consumers May induce global trade wars (vicious cycle) As mentioned, a significant problem with protectionism is that it tends to increase prices consumers pay, and thus increases inflationary pressure. With reduced competition, consumers also have less choice, and there is less incentive to improve product quality. Protectionism frequently provokes retaliation, which can result in a viscous cycle where each sequential tariff encourages another.