Market Decision and Reasons Wider Market Escape from Competition – SS3 Marketing Lesson Note (First Term)

International marketing is the marketing of goods and services to customers in other countries, and it is shaped by social, cultural, economic, competition, political, legal, logistics and risk factors in those countries. A firm studies these factors before it decides its international marketing mix, which covers product, price, place and promotion.

Behavioural objectives

By the end of the lesson, students should be able to:

1. state the reasons why a firm moves into a wider market;
2. list the factors that affect international marketing;
3. explain how social and cultural factors affect international marketing;
4. list the economic factors that determine the economic environment of a country;
5. explain the effects of competition, political factors, the legal environment, logistics and risks on the international marketing mix.

Why does a firm move into a wider market?

A firm moves into a wider market to sell more, spread its risks and escape pressure from competitors in its home market.

• Escape from competition: a firm that faces many rivals at home can find less crowded markets abroad.
• Saturated home market: when most home customers already own the product, sales stop growing.
• Higher sales and profit: more customers in more countries means more income.
• Spreading risk: a fall in sales in one country is covered by sales in others.
• Economies of scale: producing in larger quantities lowers the cost of each unit.
• Use of spare capacity: a factory that is not fully used can produce more for export.
• Longer product life: a product that is declining at home may still sell well in another country.

What factors affect international marketing?

There are eight main factors: social, cultural, economic, competition, political, legal, logistics and risk factors.

Social factors

Social factors are the features of a society that decide its value system, and they affect the international marketing mix.

• Culture: the shared beliefs and ways of life of a people.
• Caste: the social class a person belongs to, which can affect what the person buys.
• Customs: accepted habits and practices, such as how people greet or celebrate.
• Languages: they affect product labels, packaging and advertising.
• Lifestyle: the way people live and spend money.
• Standard of living: it decides what customers can afford.
• Climate: it affects the type of goods needed, such as clothing and food.
• Marketing infrastructure: the shops, roads, media and banks that support selling.

The demand for goods and services is affected by all of these.

• Change in lifestyle: people now buy consumer durables such as television sets, fridges and computers, even when they cannot afford to pay at once.
• Hire purchase: this payment by instalments made such buying possible.

Cultural factors

Cultural factors are the beliefs, values and habits that influence what customers want and how they behave.

• Customer needs and wants: international marketing decisions are based on recognising them.
• Behaviour patterns: culture helps the marketer to understand how people in a society behave and live.
• Perception: the culture in which a person grew up shapes and influences how the person sees a product.

Economic factors

Economic factors are the conditions of a country’s economy that determine the success of a business there.

They are the most significant determinants of international marketing and affect the survival and success of a business organisation. They can be studied under these categories:

• Exim policy: the government’s rules on exports and imports.
• Commercial policy: the government’s rules on trade, such as import duties.
• Financial system: the banks and other institutions that supply funds.
• Monetary system: the country’s currency and how the government controls money.
• Currency restrictions: limits on the exchange or movement of money across borders.
• Inflation and deflation: inflation is a general rise in prices, and deflation is a general fall in prices.

These factors determine the economic environment of a country. Before going into an export business, a firm must examine the economic environment of the country concerned.

Competition

Competition is the rivalry between firms selling similar products, and it is an important determinant of the international marketing mix.

• Home market: a firm faces competition at home.
• International market: a firm also faces competition abroad.
• Marketing mix: the firm studies competitors’ strategies for product, price, place and promotion before deciding its own.

Political factors

Political factors are the conditions and actions of a country’s government that affect how businesses operate there.

• A marketer must carry out business activities within the political environment of that country.
• Political constraints at different levels greatly affect business operations.
• A change in the political situation leads to changes in government policies.

A firm that has decided to operate in a country must study and analyse its political environment.

Legal environment

The legal environment is the set of laws a firm must obey when it does business in a country.

• Competition laws: they control unfair trading practices.
• Price-setting laws: they may limit how a firm fixes its prices.
• Tax laws: they affect the final cost and profit of the product.

The legal system of a country should be studied well before doing business with that country.

Logistics

Logistics is the movement and storage of goods from the producer to the customer.

• Mode of transportation: road, rail, air or sea.
• Cost of transportation: it affects the price of the product.
• Inventory management: keeping the right amount of stock.
• Material handling: loading, unloading and moving goods safely.
• Warehousing: storing goods until they are sold.

All these must be studied before a decision on the international marketing mix.

Risks

Risk is the chance of loss when a firm does business in a foreign market.

• Importance: risk analysis is an important task before making decisions on the international marketing mix.
• Political risk: loss caused by a change of government or its policies.
• Currency risk: loss caused by a change in the value of money.
• Payment risk: the foreign buyer may pay late or not at all.
• Transport risk: goods may be lost or damaged on the way.

Evaluation

1. State four reasons why a firm may move into a wider market.
2. List the factors that affect international marketing.
3. Explain how culture affects an international marketer’s decisions.
4. List the economic factors that determine the economic environment of a country.
5. Explain the effect of a frequently changing government on business policies.

Assignment

A Nigerian firm wants to sell its products in another country. Explain five factors it should study before it decides its international marketing mix.