One of the most striking business trends of the past 40 years has been the increase in internationalization; that is, the growing number of firms that participate in international trade. Of course international trade is not new; after all, nations have traded ever since the start of commerce.
However, the 1990s was really the first decade when companies around the world started to think globally. It was during the 1990s that time and distance, dimensions which have been shrinking for centuries between countries, began to become really compressed. The advent of ever faster transport and communication systems which in turn have led to vastly increased travel and more cosmopolitan consumers, have served to ‘shrink’ the world even further, so much so that writers now refer to the so-called ‘global village’. Needless to say, in this millennium this shrinking will continue, aided principally by the Internet. Although companies such as Nestlé, IBM, Shell, Toshiba and others have been conducting international marketing for decades, global competition has now intensified to the extent that even purely ‘domestic companies’ that have hitherto never thought about international marketing are affected in their marketing by global competitors.
In addition, the importance of international trade to governments and their economies has meant that more and more firms are being urged to internationalize thereby selling more of their products abroad and as a consequence adding positively to balance of payments. This ‘urging’ has resulted in many governments offering material encouragement to companies to become involved more in international marketing through, for example, grants and loans and offers of expert advice.
Finally, global markets themselves have changed, and are changing with developments such as the enlarged and more co-ordinated European Union, with the majority of the member states having adopted a single currency. The development of the so-called ‘tiger economies’ of the Pacific rim, and the collapse of Communism and ensuing growth of more liberal economies in Eastern Europe, many now having joined the EU, have given rise to significant new opportunities for companies that have been willing and able to take advantage of them and threats for those who have not. These and other developments largely explain the increased activity and importance of international marketing, but do not, of themselves, explain basic reasons and motives for companies becoming involved in international markets. It is useful in our understanding of international markets management to identify some of these key underpinning reasons and motives.
The prime motive for a company becoming involved in international trade and marketing is essentially profit. This is a very simplistic view and we shall return to some of the added complexities and considerations in making this decision later in this chapter. However, related to the profitability issue, economists have long known some of the prime reasons for international trade.
Adam Smith was the first major writer on international trade. He produced the theory of ‘absolute advantage’ in which a country exported products over which it had an absolute cost advantage compared to foreign competition, and imported products over which it had an absolute cost disadvantage. This, he argued was not only common sense, but through specialization in production and trade which it gave rise to, would actually increase the wealth and wellbeing of each participating nation.
Other economists developed Adam Smith’s basic thesis to include considerations of comparative rather than absolute costs, or the notion that trade was largely explained by relative factor endowments such as land, labour, capital and entrepreneurial skills possessed by a nation. These legacies concerning the notions of absolute, comparative, and factor endowment considerations to explain international trade are still to be found in more recent explanations of international marketing and trade. The major conclusions of these theories are that an examination of price, cost structures and factor endowments between countries will indicate which products and services they are likely to export and import.
Other contributors have amended these economic theories. Some, for example, have highlighted the fact that many of the more traditional economists’ theories of trade are essentially only ‘supply side’ theories. They point out that demand patterns may reverse or at least affect trading flows that we might otherwise predict on the basis of classical economics alone.
For example, we may find that the demand for a product in a country may be so high that despite the country possessing a comparative advantage, demand exceeds supply. Instead of being a net exporter, the country then becomes a net importer, often from higher cost foreign suppliers. Similarly, we know as marketers that markets are not homogeneous as the classical economists assumed. They are often segmented, which means a nation can be both an exporter and importer within the same product group.
Brand image reinforces this phenomenon. For example, the UK exports cars, but imports more than it exports.Much of this trading flow results from the plant location strategies of US, Far Eastern, and European multinational vehicle manufacturers, complicating the more simplistic notions to explain production and trade suggested by the classical economists. Another example is Sweden which has a comparative advantage in luxury cars such as Volvo and Saab, but has a comparative disadvantage in small, medium and budget cars.
Perhaps one of the most interesting alternative trade theories to explain international trade and marketing is that developed by Wells.1 He suggested that international trading in products and services follows a pattern that was broadly similar in nature to that of the product life cycle with which we are already so familiar. Essentially he suggested that many products and services follow a pattern that can be divided into four stages as follows:
Many empirical studies have in fact confirmed this ‘pecking order’ over time. Lancaster and Wesenlund2 have modified and extended Wells’s basic theory to suggest that as the cycle of trade from one group of countries to another progresses, sales of the product or service in question gradually increase. However, Lancaster and Wesenlund’s evidence still supports the basic notion of a product life cycle at work for international trade.
Notwithstanding the insights which these various theories of international trade provide about the reasons and motives for international marketing, as mentioned earlier, the prime motive for the individual company to become involved in this area of marketing is the potential for increased profits. It is this potential which largely explains why a company might move from purely domestic marketing to some involvement in international markets. However, the term ‘international marketing’ can mean very different levels of involvement in international markets and very different issues for the participating company with regard to, for example, strategic marketing planning. Before we consider these issues in more detail, and to continue the development of our understanding as to the reasons and motives for international marketing, we need to explore further this notion of different levels of involvement in international marketing.
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