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There is an intimate relationship between a firm's marketing strategy and the external environment. Threats and opportunities present in the external environment constrain and aid marketing efforts.
This makes environment scanning constantly an essential job for marketers - both domestic and international.
Exporting is among the three major forms of international marketing, the other two being direct manufacturing abroad and licensing or franchising. This article examines the way the global environment bears upon exporting.
The global environment affecting exports can further be divided into socio-cultural, economic, political, regulatory, demographic, competitive, and technological environments. A brief look at various components of the international environment will reveal the challenges and opportunities for exporters.
Cultural environment: Marketing is essentially a study of consumer behaviour, which itself is rooted in a given culture. Cultures are not static; they constantly evolve. It is difficult, if not impossible, for a firm to create or reverse socio-cultural changes.
However, firms need to anticipate and identify such changes and create a compatible marketing mix. Take an example. There is increasing urbanization in developing countries including Pakistan.
One of the consequences of urbanization is growing appetite for fast food. Sensing this opportunity, international fast food sellers like McDonald's and KFC have entered the markets of many a developing country. While studying the cultural environment, marketers have to take into account values, social organization and language(s) of the target market.
Economic environment: A market consists of people or organisations having the ability and the willingness to buy a product. Economy plays a leading role in determining customers' ability to buy.
As a rule, the higher the income level, the greater will be the demand for consumer goods and services. And the more vibrant an economy, the larger the demand for industrial products. Economic environment includes the level of economic development, particularly the state of physical and commercial infrastructure.
Political environment: Political stability or instability in both importing and exporting countries, relations between exporting and importing countries, the economic role of the importing country, the level of state trading and the political image of the exporting country are the constituents of the political environment.
For instance, trade between Pakistan and India is restricted, not because there is lack of demand for each other's goods, but because of strained political relations. Similarly, there is no official trade between Pakistan and Israel. Again, the reason is political.
Regulatory environment: The global regulatory environment for exports is represented by the aims, principles and agreements of the World Trade Organisation (WTO). The essential aim of the WTO is free trade across borders. Free trade however does not mean absence of all restrictions on importation and exportation.
Rather free trade means three things: liberalization of a trade regime, fair competition or competitiveness, and predictability and transparency of trade policies and regulations. Trade liberalization means progressively lowering tariff and non-tariff trade barriers and opening markets to foreign goods and services.
Fair competition or competitiveness is to be effected by various instruments including national treatment, most favoured nation (MFN) treatment, and anti-dumping and countervailing duties. The WTO also encourages competitiveness by discouraging measures which may distort trade, such as dumping and export subsidies.
Dumping takes place when export price of a product is less than its domestic price or cost of production and marketing. A subsidy is defined as a financial contribution made by a government body, which confers a benefit on one or more enterprise or industry. Subsidies artificially lower the product price and make its price competitive in an export market.
The third aspect of free trade, predictability, means that countries have to declare their schedules of commitments and trade regulations and that they cannot alter the same arbitrarily
As for the WTO agreements, they deal with trade in goods, services and intellectual property rights (IPRs). Parallel to the multilateral trading system exists regional trade agreements under which countries give favourable treatment to other member countries over and above their obligations under the WTO.
RTAs are becoming increasingly important in global trade. More than 45 per cent of the global merchandise trade takes place within RTAs, and there is hardly any WTO member which is not party to an RTA. Then there is national legislation like food and drug safety laws, and national product and environment standards.
Demographic environment: Such demographic characteristics as market size and growth, age and gender distribution, population density, the level of urbanization and climate variables may make an export market attractive or unattractive for the products of a particular firm.
For instance, the more concentrated a market, the easier and cheaper for a firm to distribute its products. The larger the market size, the greater its attractiveness. The greater the level of urbanization, the more open the market to foreign goods.
Competitive environment: A market, which is otherwise attractive because of its size or purchasing power, may become less attractive if it is characterized by intense competition. Export marketers have to consider both the level and kind of competition.
Competition is either price or non-price competition. In the former, the firm offering the lowest price captures the largest market share, whereas in the latter the firm offering better quality products or having access to more powerful distribution channels is the most successful.
Technology: Last but not the least is the level of technology in the target export market. Technology affects lifestyles and consumption patterns as well as dictates new ways of doing business. For example, e-business is an application of the latest strides in information technology (IT).
The marketing environment outlined in the preceding paragraphs necessitates the following strategy with regard to the four components of the marketing mix: product, price, distribution and promotion. We take product first.
A product is a collection of benefits, perceived or real, offered to the customer. These include strength, speed, durability, high social image, prestige, elegance, economy, reliability and performance. It is difficult for the firm to sell the same benefits to different markets because of different ways consumers behave.
For low and middle income customers, economy of purchase and maintenance may be a real benefit, whereas for high-income consumers, performance or prestige associated with using an expensive elegant product may be the benefit that counts.
Of course, purchasing power is not the only factor in determining consumer behaviour. Consumer tastes and preferences needs and wants also matter. For example, in Pakistan and India spicy food is preferred, whereas in the USA preference is for non-spicy food.
Then there are government regulations. For instance, in some countries there is left hand driving and in others right hand driving. Another important factor is the conditions in which a product is used. For example, in Pakistan houses are larger than in Japan, therefore, furniture used in Pakistan tends to be larger than that used in Japan.
It means for different markets the firm has to modify its products with regard to size, colour, taste or performance. This is called product adaptation. Take another example. Since liquor and pork are forbidden in Islam, it is not advisable for food companies to market hamburger and liquor in Muslim countries. Instead, there can be chicken or beef burger and soft drink.
Price affects a firm's profits and competitive position as well as indicates product quality to the customer. Therefore, setting suitable prices is a crucial and often a difficult decision. Besides, it is difficult for the exporter to charge the same price in all markets.
While setting price, the exporter has to take into account several factors in the target market. These include the product's estimated demand, the level of competition, prevailing prices, marketing and transportation costs, the length of the distribution channel as well as middlemen's mark-ups, and the tariff and other taxes on the product.
For instance, if the target market, such as Japan, has long distribution channels, each channel member will add his own mark-up to the price with the result that the final price is likely to be high. Therefore, the exporter will set a low price if he wants to be price competitive.
However, while trying to be price competitive, the exporter must avoid dumping, because in case of dumping, the importing country is authorized to levy anti-dumping duty on dumped exports to offset injury caused to its domestic industry.
A firm competes on the basis of price or some other factor like product quality or service. In case a firm competes on the basis of price, before entering a market it must check the level of tariffs and other taxes levied by the importing country on its products.
In case the exports have to face high taxes such that the exporting firm may lose its price competitiveness, it will not be advisable for the firm to enter that market. However, in case, tariffs are low, particularly when the importing and exporting countries are members of an RTA, the market will become attractive.
The purpose of distribution is to make the product available to the final consumer or customer at the right place and time. With regard to export markets, there are in the main two distribution channel variables: retail concentration or fragmentation and channel length.
In a concentrated retail channel, only a few channels supply most of the market, whereas channels are fragmented when there are a number of retailers none of which has a big market share. By channel length is meant the number of intermediaries between the producer and the final customer.
Generally, countries having retail fragmentation have long distribution channels, because it is difficult as well as expensive for the producer to reach retailers directly. The producer has to seek the help of wholesalers in reaching retailers, which makes for long channels.
There is a crucial connection between channel length and final price. The longer the channel, the higher the aggregate mark-up by middlemen and the higher the final price. If the exporter's core competence is low price, he should go for the shortest possible channel. However, in case of a fragmented retail system, the use of a short channel may raise costs.
Finally we have promotion, the fourth element of the marketing mix, which aims at informing and persuading target customers to buy the products of a particular firm. Since this is the age of information, promotion may become a strategic weapon in the hands of a firm.
Different markets call for a different promotion mix. For instance, in countries where literacy is low, press advertising has a narrow scope. On-line selling or e-commerce is fast gaining currency as a device to reach the target market. Its most obvious advantage is that it enables even a small firm to globalise.
