CHAPTER TWO: INTERNATIONAL MARKETING ENVIRONMENT

After completion of this lesson, you will be able to:

Ä Indicate the characteristics of socio-cultural factors in international marketing
Ä Describe economic environment international business/marketer face
Ä Describe the complex political environment and legal systems that MNCs have to face
while dealing with international marketing
Ä Discuss the technological factors affecting while dealing with international marketing
Ä Discuss the regional economic integration
INTRODUCTION
The marketing environment consists of all factors that can affect the organization’s marketing
activities. The macro environment refers to all forces that are part of the larger society and affect
the microenvironment. The macro dimensions of the environment are socio-cultural, economic,
political and legal, and technological environments.
2.1 Socio-Cultural Environment
The socio - cultural environment influences the behavior of customers who comprise markets,
the managers who plan and implement international marketing programs, and the marketing
intermediaries who participate in international marketing process. Culture should not be simply
considered as an obstacle to doing business across cultures. Culture can provide tangible
benefits and can be used as a competitive tool or as a basis of a competitive strategy. In short,
cultural differences can, and should be managed. It is when they are mismanaged that problems
arise and profits are adversely affected.
2.1.1 Basic Aspects of Society and Culture
Culture is that it is a set of traditional beliefs and values that are transmitted and shared in a
given society.
Anthropologists and sociologists define culture as “Ways of Living “, built up by a group of
human beings, which are transmitted from one generation to another. A culture acts out its ways
of living in the context of social institutions, including family, educational, religious,
governmental, and business institutions. Culture includes conscious and unconscious values,
ideas, attitudes, and symbols that shape human behavior and that are transmitted from one
generation to the next. In this sense, culture does not include one-time solutions to unique
problems, or passing fads and styles. As defined by organizational anthropologist Geert

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Hofstede, culture is “the collective programming of the mind that distinguishes the members of
one category of people from those of another”.
Subculture
Because of differing cultures, worldwide consumer homogeneity does not exist. Neither does it
exist in the United States. Differences in consumer groups are everywhere. There are white,
black, Jewish, Catholic, farmer, truck driver, young, old, eastern, and western consumers, among
other numerous groups. In order to understand these diverse groups of consumers, particular
cultures must be examined. As the focus is on a subgroup within a society, the more appropriate
area for investigation is not culture itself but rather subculture, culture on a smaller and more
specific level.
Subculture is:
Ä A distinct and identifiable cultural group that has values in common with the overall society
but also has certain characteristics that are unique to itself.
Ä Group of people within a larger society. Although the various subcultures share some basic
traits of the wider culture, they also preserve their own customs and lifestyles, making them
significantly different from other groups within the larger culture of which they are a part.
There are many different ways to classify subcultures. Although race or ethnic origin is one
obvious way, it is not the only one. Other demographic and social variables can be just as
suitable for establishing subcultures within a nation.
2.1.2 Culture and Its Characteristics
1. Culture is prescriptive. It prescribes the kinds of behavior considered acceptable in the
society. The prescriptive characteristic of culture simplifies a consumer’s decision making
process by limiting product choices to those which are socially acceptable.
2. Culture is socially shared. Culture, out of necessity, must be based on social interaction and
creation. It cannot exist by itself. It must be shared by members of a society, thus acting to
reinforce culture’s prescriptive nature.
3. Culture facilitates communication. One useful function provided by culture is to facilitate
communication. Culture usually imposes common habits of thought and feeling among
people. Thus, within a given group culture makes it easier for people to communicate with
one another.
4. Culture is learned. Culture is not inherited genetically-it must be learned and acquired.
Socialization or enculturation occurs when a person absorbs or learns the culture in which

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 he or she is raised. In contrast, if a person learns the culture of a society other than the one in
which he or she was raised, the process of acculturation occurs. The ability to learn culture
makes it possible to absorb new cultural trends.
5. Culture is subjective. People in different cultures often have different ideas about the same
object. What is acceptable in one culture may not necessarily be so in another. In this regard,
culture is both unique and arbitrary.
6. Culture is enduring. Because culture is shared and passed along from generation to
generation, it is relatively stable and somewhat permanent. Old habits are hard to break, and
people tend to maintain its own heritage in spite of a continuously changing world.
7. Culture is cumulative. Culture is based on hundreds or even thousands of years of
accumulated circumstances. Each generation adds something of its own to the culture before
passing the heritage on to the next generation.
8. Culture is dynamic. Culture is passed along from generation to generation, but one should
not assume that culture is static and immune to change. Far from being the case, culture is
constantly changing-it adapts itself to new situations and new sources of knowledge.
2.1.3 Elements of Culture
Culture includes every part of life. The scope of the term culture to the anthropologist is
illustrated by the elements included within the meaning of the term. They are:
A. Material Culture : Technology, Economics
Material Culture is divided into two parts, technology and economics. Technology includes the
techniques used in the creation of material goods; it is the technical know-how possessed by the
people of a society. Material culture affects the level of demand, the quality and types of
products demanded, and their functional features, as well as the means of production of these
goods and their distribution.
Economics is the manner in which people employ their capabilities and the resulting benefits.
The subject of economics includes the production of goods and services, their distribution,
consumption, means of exchange, and the income derived from the creation of utilities.
B. Social Institutions : Social organizations, Education, Political Structures
Social Institutions include social organization, education, and political structures that are
concerned with the ways in which people relate to one another, organize their activities to live in
harmony with one another, teach acceptable behavior to succeeding generations, and govern
themselves. The positions of men and women in society, the family, social classes, group

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behavior, age groups and how societies define decency and civility are interpreted differently
within every culture. In cultures where the social organizations result in close-knit family units,
for example, it is more effective to aim a promotion campaign at the family unit than at
individual family members.
Education, one of the most important social institutions, affects all aspects of the culture from
economic development to consumer behavior. The literacy rate of a country is a potent force in
economic development.
C. Humans and the Universe-Belief Systems
Within this category are religion (belief systems), superstitions, and their related power
structures. The impact of religion on the value systems of a society and the effect of value
systems on marketing must not be underestimated. Religion impacts people’s habits, their
outlook on life, the products they buy, the way they buy them, even the newspapers they read.
Acceptance of certain types of food, clothing, and behavior are frequently affected by religion,
and such influence can extend to the acceptance or rejection of promotional messages as well. In
some countries, focusing too much attention on bodily functions in advertisements would be
judged immoral or improper and the products would be rejected.
D. Aesthetics : Graphic and Plastic Arts, Folklore, Music, Drama and Dance
Closely interwoven with the effect of people and the universe on a culture are its aesthetics, that
is, its arts, folklore, music, drama, and dance. Aesthetics are of particular interest to the marketer
because of their role in interpreting the symbolic meanings of various methods of artistic
expression, color, and standards of beauty in each culture. Customers everywhere respond to
images, myths, and metaphors that help them define their personal and national identities and
relationships within a context of culture and product benefits. The uniqueness of a culture can be
spotted quickly in symbols having distinct meanings.
Without a culturally correct interpretation of a country’s aesthetic values, a whole host of
marketing problems can arise. Product styling must be aesthetically pleasing to be successful, as
must advertisements and package designs. Insensitivity to aesthetic values can offend, create a
negative impression, and, in general, render marketing efforts ineffective. Strong symbolic
meanings may be overlooked if one is not familiar with a culture’s aesthetic values.
E. Language
The importance of understanding the language of a country cannot be overestimated. The
successful marketer must achieve expert communication, and this requires a thorough

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understanding of the language as well as the ability to speak it. Advertising copywriters should
be concerned less with obvious differences between languages and more with the idiomatic
meanings expressed. It is not sufficient to say you want to translate into Spanish, for instance,
because, in Spanish speaking Latin America the language vocabulary varies widely. Tambo, for
example, means a roadside inn in Bolivia, Colombia, Ecuador, and Peru; in Argentina and
Uruguay, it means a dairy farm; and in Chile, a Tambo is a brothel.
2.2 Economic Environment
Economic Environment: mean that all those macro-economic factors like income distribution,
level of savings, debt and credit available to consumers and stage of economic development in a
particular country of interest. Marketing is an economic activity affected by the economic
environment in which it is conducted. A major characteristic of the international marketer’s
world is the diversity of marketing environments in which business may be done. In particular,
the economic dimensions of the world market environment are of prime importance.
Economic variables relating to the various markets' characteristics are population, income,
consumption patterns, infrastructure, geography, and attitudes toward foreign involvement in
economy form a starting point for assessment of market potential for the international marketer.
2.2.1 Market Characteristics
The main dimensions of a market can be captured by considering variables such as those
relating to the population and its various characteristics, infrastructure, geographical features of
the environment, and foreign involvement in the economy.
Population
The number of people in a particular market provides one of the most basic indicators of market
size and the potential demand. Because market entry decisions may lie in the future, it is
worthwhile to analyze population projections in the areas of interest and focus on their possible
implications. Depending on the marketer's interest, population figures can be classified to show
specific characteristics of their respective markets. Age distribution and life expectancy correlate
heavily with the level of development of the market.
Income
Markets require not only people but also purchasing power, which is a function of income,
prices, savings, and credit availability. For the marketer to make use of information on gross
national products of various nations, further knowledge is needed on distribution of income. Per
capita GNP is often used as a primary indicator for evaluating purchasing power. In some

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markets, income distribution produces wide gaps between population groups. The more
developed the economy, the more income distribution tends to converge toward the middle
class.
In general, income figures are useful in the initial screening of markets. However, in product
specific cases, income may not play a major role, and startling scenarios may emerge. Some
products, such as motorcycles and television sets in China, are in demand regardless of their
high price in relation to wages because of their high prestige value.
Consumption Patterns
Depending on the sophistication of a country's data collection systems, economic data on
consumption patterns can be obtained and analyzed. The share of income spent on necessities
will provide an indication of the market's development level as well as an approximation of how
much money the consumer has left for other purchases. Engel's laws provide some
generalizations about consumers spending patterns. They state that as a family's income
increases, the percentage spent on food will decrease, the percentage spent on housing and
household operations will be roughly constant, and the amount saved or spent on other
purchases will increase.
Infrastructure
The availability and quality of an infrastructure is critically important in evaluating marketing
operations abroad. Each international marketer will rely heavily on services provided by the
local market for transportation, communication, and energy as well as on organizations
participating in the facilitating functions of marketing: marketing communications, distributing,
information, and financing.
Foreign Involvement in the Economy
For the international marketer interested in entering a foreign market, it is important to know the
extent to which such entry is accepted by a country. An economy's overall acceptance of foreign
involvement can be estimated by analyzing the degree of foreign direct investment by country
and by industry in a given market as well as by the rules governing such investment.
2.2.2 Economic System
There are three types of economic systems: capitalist, socialist and mixed. This classification is
based on the dominant method of resource allocation: market allocation, command or central
plan allocation, and mixed allocation, respectively.

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2.3. Political and Legal Environment
2.3.1. Political Environment
Global marketing activities take place within the political environment of governmental
institutions, political parties, and organizations through which a country’s people and rulers
exercise power. Any company doing business outside its home country should carefully study
the government structure in the target country and analyze salient issues arising from the
political environment. These include the governing party’s attitude toward sovereignty, political
risk, the threat of equity dilution, and expropriation.
A. National – States and Sovereignty
Sovereignty can be defined as supreme and independent political authority. Richard Stanley
offered the following concise description. A sovereign state was considered free and
independent. It regulated trade, managed the flow of people into and out of its boundaries, and
exercised undivided jurisdiction over all persons and property within its territory. It has the
right, authority, and ability to conduct its domestic affairs without outside interference and to use
it international power and influence with full discretion.
Government actions taken in the name of sovereignty occur in the context of two important
criteria a country’s state of development and the political and economic system in place in the
country.
B. Political risk
The risk of a change in government policy that would adversely impact a company’s ability to
operate effectively and profitably—can deter a company from investing abroad. When the
perceived level of political risk is lower, a country is more likely to attract investment. The level
of political risk is inversely proportional to a country’s stage of economic development all other
things being equal, the less developed a country, the greater the political risk.
C. Dilution of Equity Control
Political pressure for national control of foreign owned companies is a part of the environment
of global business in lower- income countries. The foremost goal of national governance is to
protect the right of national sovereignty, especially in all aspects of domestic business activity.
Host nation governments sometimes attempt to control ownership of foreign owned companies
operating within their borders. In underdeveloped countries, political pressures frequently cause
companies to take in local partners.

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D. Expropriation
The ultimate threat a government can pose toward a company is expropriation. Expropriation
refers to governmental action to dispossess a company or investor. Compensation is generally
provided to foreign investors, although not often in the “prompt, effective, and adequate”
manner provided for by international standard. Nationalization occurs if ownership of the
property for by international standard. Nationalization occurs if ownership of the property or
assets in question is referred to as confiscation.
Political Risks
There are a number of political risks with which marketers must contend. Hazards based on a
host government’s actions include confiscation, expropriation, nationalization, domestication,
and creeping expropriation. Such actions are more likely to be levied against foreign
investments, though local firms’ properties are not totally immune.
1. Confiscation is the process of a government’s taking ownership of a property without
compensation.
2. Expropriation occurs when the government seizes an investment but makes some
reimbursement for the assets. That means, it is the act of a government taking ownership of a
firm’s plants. It differs somewhat from confiscation in that there is some compensation,
though not necessarily just compensation. More often than not, a company whose property is
being expropriated agrees to sell its operations-not by choice but rather because of some
explicit or implied coercion.
3. Nationalization- After property has been confiscated or expropriated, it can be either
nationalized or domesticated. Nationalization involves government ownership, and it is the
government that operates the business being taken over.
4. Domestication In the case of domestication, foreign companies relinquish control and
ownership, either completely or partially, to the nationals. The result is that private entities
are allowed to operate the confiscated or expropriated property. Domestication may
sometimes be a voluntary act that takes place in the absence of confiscation or
nationalization. Usually, the causes of this action are either poor economic performance or
social pressures.
MNCs have generally been concerned with coups, revolutions, and confiscation, but they now
have to pay attention to so-called creeping expropriation.

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 2.3.2. Legal Environment
Legal Environment: is the environment that frames the rules the game within which firms play
their business strategies. Government set rules and regulation to normalize the business
activities while safeguarding the societal well-being. Many of the rules set by the government
may have an adverse effect on the business. Hence forth, the business firm may be aware of the
government rules and regulation and accordingly abide by it. Every company's conduct is
influenced more and more by the legal process in the society. The legal forces on marketing can
be the following:-
Ä Monetary and fiscal policies- Government spending, tax legislation etc.
Ä Social legislation and regulation-Anti pollution law.
Ä Government relationship with industries- Tariffs and import quotas etc.
[Link] Legal Systems
To understand and appreciate the varying legal philosophies among countries, it is useful to
distinguish between the two major legal systems: common law and statute law.
i) A common law system
A common law system is a legal system that relies heavily on precedents and conventions.
Judges’ decisions are guided not so much by statutes as by previous court decisions and
interpretations of what certain laws are or should be.
ii) A statue law system
Countries employing a statute law system, also known as code or civil law, include most
continental European countries and Japan.. Most countries – over 70 – are guided by a statue law
legal system. As the name implies, the main rules of the law are embodied in legislative codes.
Every circumstance is clearly spelled at to indicate what is legal and what is not. There is also a
strict and literal interpretation of the law under this system. Therefore, the only major distinction
between the systems is the freedom of the judge in interpreting laws. A common law country,
the judge’s ability to interpret laws in a personal way gives the judges a great deal of power to
apply the laws as it fits the situation. In contrast, a judge in a civil law country has a lesser role
in using personal judgment to create or interpret laws because the judge must strictly follow the
“letter of the law”.
[Link] Multiplicity of the Legal Systems
Much like the political environment discussed, the multiplicity of legal environments includes:

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domestic, foreign, and international legal environments.
i. Domestic legal environment
In the domestic environment, a business person must abide by the laws of the home country.
Such laws can affect both imports and exports. Various countries design their legal system on
which one system differs with others. For instance, in the case of the United States, items that
are ‘restricted’ but not ‘prohibited’ include automobiles, cultural treasures, more than $5000 of
cash, firearms, wildlife and fish. Counterfeit products and illegal drugs cannot be imported, etc.
ii. Foreign legal environment
Once a product crosses a national border, it becomes subject to both an entirely different set of
laws and a new enforcement systems. E.g. France bans all imports of crawfish because of the
risk of disease, etc.
iii. International legal environment
In many cases, agreements between nations must be secured before marketers can enter a
particular market. The airline business provides a good illustration of such agreements. Treaties
among nations govern international air routes.
There is no international law perse that prescribes acceptable and legal behavior of international
business enterprises. There are only national laws – often in conflict with one another, especially
when national politics is involved. This complexity creates a special problem for those
companies that do business in various countries, where various laws may demand contradictory
actions. Because of the complexity of the international legal system, countries enter into an
agreement to overcome such barriers.
[Link] The Law and Marketing Mix
Government regulations are designed to serve societal interest by preserving business
competition on the one hand and protecting consumers on the other. Such regulations not only
increase a company’s cost of doing business, but also affect its marketing strategies.
i) Product
There are many products that cannot be legally imported into most countries. Examples include
counterfeit money, illicit drugs, pornographic materials, etc. it is usually also illegal to import
live animals and fresh fruits unless accompanied by the required certificates. Furthermore, many
products have to be modified to conform to local laws before these products are allowed to cross
the border. The modification may be quite technical from an engineering standpoint or may only
be cosmetic, as in the case of certain packaging change.

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ii) Place
In various countries the restriction in regards to distribution channels differs. As a result it
affects the firms marketing activities. For example, in the USA a manufacturer has a number of
distribution channels from which to choose as long as competition is not stifled in the process.
In most other countries, the manufacture does not have such freedom. In England and Wales, it
is legal to buy a pornographic book on Sunday but not a Bible; Whisky and Gin but no dried
milk in cows; post cards but not birthday cards etc.
iii) Promotion
There are virtually no limits on how much an advertiser can spend for promotion in the USA,
but free spending is usually regarded as improper elsewhere. Taking the view that advertising is
not necessary for doing business, many countries have direct tax on advertising billings,
agencies or media. Some governments use advertising tax to discourage advertising so that
demand and inflation can be cured. Other government use advertising restrictions as a non tariff
barrier to foreign exports. For instance, Japan does not allow foreign cigarettes to be advertised
in the Japanese language. Another problem that a company must be prepared to deal with is the
varying interpretations that occur with advertisement. What is acceptable to one country may be
‘misleading’ in another.
iii) Price
The general policy for using price control is to protect consumers’ interests or to control
inflation. Generally the company has no choice but to obey the wage and price control imposed
by the government.
[Link] Intellectual Property
Intellectual property is a general term that describes inventions or other discoveries that have
been registered with government authorities for the sale or use by their owner. Such terms as
patent, trademark, copyright or trade secret fall in to the category of intellectual property.
Individuals and firms have the freedom to own and control the rights to intellectual property (i.e.
inventions and creative works). The term patent, trademark, copyright, and trade secret are often
used interchangeably. In fact, they are four basic forms of intellectual property and hold
different meanings as illustrated below:
i) Trade mark
A trademark is a symbol, work or thing used to identify a product made or marketed by a
particular firm. It becomes a registered trademark when the mark is accepted for registration by

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the trademark office.
ii) Copy right
A copy right which is the responsibility of the copyright office in the library of congress, offers
protection against unauthorized copying by others to an author or artist for his/her literary,
musical, dramatic and artistic works. A copyright protects the form of expression rather than the
subject matter.
iii) Patent
A patent protects an invention of a scientific or technical nature, it is a statutory grant from the
government (the patent office) to an inventor in exchange for public disclosure giving the patent
holder exclusive right to the functional and design inventions patented and excluding other firm
using those inventions for a certain period of time.
iv) Trade secret
The term trade secret refers to know – how (i.e. manufacturing methods, formulas, plans and so
on) that is kept secret with in a particular business. This know – how, generally unknown in the
industry, may offer the firm a competitive advantages.
[Link] Unfair Competition
Even though, there are firms who would like to enjoy their sweats, there are also business who
would like to prosper via short cut. These firms are unfairly competing with their competitors.
The government role in the free market economy is to regulate unfair competition by preserving
of the intellectual properties. Some of the unfair competition takes the following forms:
a) Infringement
Infringement occurs when there is commercial use (i.e. recopying or imitating) without owner's
consent, with the intent of confusing or deceiving the public.
b) Counterfeiting
Counterfeiting is the practice of unauthorized and illegal copying of a product. In essence, it
involves infringement on a patent or trademark or both. I.e. according to the Us Lanham Act, a
counterfeit trademark is a “spurious trade mark, which is identical with, or substantially
indistinguishable from a registered trademark.”
There are several levels of counterfeiting;
1. The true counterfeit product, which uses the name of the original and looks like it.
2. A look – alike or knock off, which duplicates the organize design but does not use its name.
3. Reproduction or replica, a close but not exact copy and

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 4. Imitation or associative counterfeit, which is a cheap but poor copy of the original.
But, it is illegal use of the name and a product shape that differs little form the original that leads
consumers to associate an imitation with the original.
c) Gray market
A gray market exists when a manufacture ends up with unintended channel of distribution that
performs activities similar to the planned channel – hence the term parallel distribution. Through
this extra channel, gray market goods move, internationally as well as domestically. In an
international context, a gray market product is one imported by an unauthorized party. Products
notably affected by this method of operation include watches, cameras, automobiles, perfumes
and electronic goods.
d) Bribery
Bribery is both unethical and illegal. A closer look, however, reveals that bribery is not really
that straight forward an issue. There are many questions about what bribery is, how it is used,
and why it is used. The ethical and legal problems associated with bribery can also be quiet
complex. I.e. according to the foreign corrupt practices Act of 1997, bribery is “the use of
intensive commerce to offer, pay, promise to pay, or authorize giving anything of value to
influence an act or decision by a foreign government, politician or political party to assist in
obtaining, retaining, or directing business to any person. A bribe is also known as a “pay off”
“grease money” “lubricant” “little envelop” or “bite”, and under – the – table – payment as well
as by other terms. A bribe may take the form of cash, gifts, jobs and free trips.
2.4. Technological Environment
Pervasive are diversified in scope, technological changes affect many parts of societies. These
effects occur primarily through new products, processes, and materials. The technological
segment includes the institutions and activities involved with creating new knowledge and
translating that knowledge into new outputs, products, processes and materials. Given the rapid
pace of technological change, it is vital that firms carefully study different elements in the
technological segment.
For example, research has shown that early adopters of new technology often achieve higher
market shares and earn higher returns. Thus, executives must continuously scan the environment
to identify potential substitutes for their firm's technology as well newly emerging technologies
from which their firm could benefit.
2.4.1 Speed

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They need to identify the speed with which substitute technologies are likely to emerge and the
timing of any major technological changes.
2.4.2 Internet
A technology with important implications for business in the Internet sometimes referred to as
"the information superhighway." The Internet is a global web of more than 25,000 computer
networks. It provides a quick, inexpensive means of global communication (i.e. with strategic
alliance partners) and access to information. Internet offers international marketers a platter full of
promises. It can be leveraged to save costs and time and to generate revenues. Customers previously

outside the marketer’s reach now become easily accessible. The medium can be used to build up brand

equity or to showcase new products or services. For scores of business around the world, it has proven to

be a cost-efficient distribution channel. The internet also offers great potential as a global interactive

advertising channel.

Global Internet strategies according to nature of good or service being sold

High
Local Responsiveness

Cultural or Regulated Goods and

Low

Look and Feel Goods and Services

Services (Transitional cost-adaptive (Nationally differentiated strategy)
strategy) Examples: Wines, Examples: Clothing, used cars,
financial products, information collectible art, auctions

4 1
Global Integration Low
High 3 2
Global Commodities (Global low- Local Commodities
cost strategy) Examples: Books, (Pure local adaptation strategy)
Barriers CDs, videos, used records, industrial Examples: Produce, Internet access
goods and components
to Global
Internet
marketing
Although most forecasts about the future of global e-commerce are rosy, there are several
structural barriers that might slowdown its expansion. In particular, the following hurdles might
interfere: (1) language barriers, (2) cultural barriers, (3) infrastructure (e.g., penetration of
personal computers, broadband, or 3G), (4) knowledge barriers, (5) access charges, and (6)
government regulations.
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Not only is the Internet an excellent source of data on a firm's external environment, there are a
number of firms that provide Internet software that pushes data into customers' computers or
other communication devices as soon as it happens. Tibco and Point-cast are two firms that
specialize in products that keep their clients informed continuously about noteworthy news that
is customized to the customers' interests. A number of firms have benefited from the popularity
and use of the Internet. U.S. Robotics is one example; U.S. Robotics makes modems and other
communications devices for computers and its sales are booming.
2.4.3 Modems
Modems are important for connecting personal computers to phone lines that help gain access to
the Internet. The technology in the manufacture of modems has advanced rapidly. Their speed
may only be curtailed by the limits of conventional phone lines. Encyclopedia Britannica Inc. is
using the Internet to revive its business.
For example, the firms now offer a free search engine with sites screened by its editors. As
Encyclopedia Britannica's actions demonstrate, the Internet can allow a firm to be both flexible
and innovative with its product introductions. Microsoft is now changing its strategy not only to
provide software for the Internet, but also to make sure that a new operating system does not
displace its Windows business for PCs when a "Web lifestyle" emerges. As a result, Microsoft is
working with phone companies and investing in cable companies Comcast and TCI. Similarly,
Bill Gates has invested in WebTV Networks Ics.
2.4.4 High Speed Digital Stream
To obtain technology to deliver a high-speed digital stream that can be viewed as movies, Web
sites or advertising on televisions with its equipment. Oracle Corporation, through its unit
Network Computer, Inc., is developing a rival design for a cable box, which was given a
significant boost by support from Intel.
2.4.5 Satellite Imaging
Another new technology that is gaining rapid popularity is satellite imaging. Several aerospace
companies have invested up to $1 billion in corporate earth imaging systems. For example,
Space Imaging, Inc., a joint venture for Lockheed Martin, E-Systems, Mitsubishi Corporation,
and Eastman Kodak Company, is a $500 million venture that provides from an advanced
satellite. Many expect this technology to compete in the global information trade industry and
some anticipate that it will create a revolution.
There are a number of uses for this technology.

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For example, Coldwell Banker Corporation uses it to offer real estate shoppers photographs
from space of homes, neighborhoods, and traffic patterns. Television networks, such as ABC,
use the technology to provide detailed images of battle zones for evening news broadcasts. Even
urban planners are using the technology to update property tax rolls, while other firms may use
it to plot new phone line without using crews to study the terrain beforehand.
Many firms are making significant revenues in the space-related businesses with demand for
satellites the key driving factor. For instance, the military now has a backpack-sized
communicator called Manpack that gives the soldier on any battlefield in the world a direct
satellite voice-and data-ling.
2.5 Regional Economic Integration
Regional economic integration creates opportunities and potential problems for the international
marketer. It may have an impact on a company's entry mode by favoring direct investment
because one of the basic rationales of integration is to generate favorable conditions for local
production and intraregional trade. By design, larger markets are created with potentially more
opportunity. Because of harmonization efforts, regulations may be standardized, thus positively
affecting the international marketer.
There are four degrees of economic cooperation and integration, as illustrated in table below.
Stage of Elimination of Common Elimination of Harmonization and

Integration Tariffs and External Restrictions on Unification of Economic

Quotas Among Tariff (CET) and Factor Movements and Social Policies and

Members Quota System Institutions

Free Trade Area Yes No No No

Customs Union Yes Yes No No
Common Market Yes Yes Yes No
Economic Union Yes Yes Yes Yes
Table 2.1 Forms of Economic Integration in Regional Markets
Levels of Economic Integration
i. Free Trade Area
A free trade area (FTA) is formed when two or more countries agree to eliminate tariffs and
other barriers that restrict trade. When trading partners successfully negotiate a free trade
agreement (also abbreviated as FTA), the ultimate goal is to have zero duties on goods that
cross borders between the partners, it creates a free trade area. In some instances, duties are

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eliminated on the day the agreement takes effect; in other cases, duties are phased out over a set
period of time. Countries that belong to an FTA can maintain independent trade policies with
respect to third countries. Rules of origin discourage the importation of goods into the member
country with the lowest external tariff for transshipment to one or more FTA members with
higher external tariffs; customs inspectors police the borders between members.
ii. Customs Union
A customs union represents the logical evolution of a free trade area. In addition to eliminating
internal barriers to trade, members of a customs union agree to the establishment of common
external tariffs (CETs). In 1996, for example, the EU and Turkey initiated a customs union in
an effort to boost two-way trade above the average annual level of $20 billion. The arrangement
called for the elimination of tariffs averaging 14 percent that added $1.5 billion each year to the
cost of European goods imported by Turkey. Other customs unions are the Andean Community,
the Central American Integration System (SICA), Mercosur, and CARICOM.
iii. Common Market
A common market is the next level of economic integration. In addition to the removal of
internal barriers to trade and the establishment of common external tariffs, the common market
allows for free movement of factors of production, including labor and capital. The Andean
Community, the SICA, and CARICOM, which currently function as customs unions, may
ultimately evolve into true common markets.
iv. Economic Union
An economic union builds upon the elimination of the internal tariff barriers, the establishment
of common external barriers, and the free flow of factors. It seeks to coordinate and harmonize
economic and social policy within the union to facilitate the free flow of capital, labor, and
goods and services from country to country. An economic union is a common marketplace not
only for goods but also for services and capital. For example, if professionals are going to be
able to work anywhere in the EU, the members must harmonize their practice licensing so that a
doctor or lawyer qualified in one country may practice in any other.

Regional Economic Organizations

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AFTA (ASEAN Free Trade Area): ASEAN members Andean Group (the Cartagena Agreement): Bolivia,

Colombia, Ecuador, Peru, and Venezuela.

ANZCERTA (Australia-New Zealand Closer Economic Relations Trade Agreement): Australia and New

Zealand

APEC (Asia Pacific Economic Cooperation): Australia, Brunei, Canada, Chile, China, Hong Kong,

Indonesia, Japan, Korea, Malaysia; Mexico, New Zealand, Papua New Guinea, the Philippines,

Singapore, Chinese Taipei (Taiwan), Thailand, and the United States Arab Middle

ASEAN (Association of Southeast Asian Nations): Brunei, Indonesia, Malaysia, the Philippines,

Singapore, Thailand, and Vietnam. Benelux Customs Union: Belgium, the Netherlands, and

Luxembourg

CAEMC (Central African Economic and Monetary Community): Cameroon, the Central African

Republic, Chad, the Congo, Equatorial Guinea, and Gabon

CARICOM (Caribbean Common Market): Antigua and Barbuda, Bahamas, Barbados, Belize,

Dominica, Grenada, Guyana, Jamaica, Montserrat, Saint Christopher-Nevis, Saint Lucia, Saint

Vincent and the Grenadines, and Trinidad and Tobago

CACM (Central American Common Market): Costa Rica, EI Salvador, Guatemala, Honduras,

Nicaragua, and Panama.

CFA Franc Zone: the Comoros, members of the WAEMU, and members of the CAEMC

CIS (Commonwealth of Independent States): Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan,

Kirgizstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan

East Africa Customs Union: Ethiopia, Kenya, Zimbabwe, Sudan, Tanzania, and Uganda

East Arab Common Market: UAR, Iraq, Jordan, Sudan, Syria, and Yemen

ECOWAS (Economic Community of West African States): Benin, Cape Verde, Da-homey, Gambia, Ghana,

Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra

Leone, Togo, and Upper Volta

EU (European Union): Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,

Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom

EEA (European Economic Area): Iceland, Norway, and EU members

EFTA (European Free Trade Association): Austria, Finland, Iceland, Liechtenstein, Nor-way, Sweden,

and Switzerland Group of Three: Colombia, Mexico, and Venezuela

LAIA (Latin American Integration Association): Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador,

Mexico, Paraguay, Peru, Uruguay, and Venezuela

Mahgreb Economic Community: Algeria, Libya, Tunisia, and Morocco

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Mercosur (Southern Common Market): Argentina, Brazil, Paraguay, and Uruguay

NAFTA (North American Free Trade Agreement): Canada, Mexico, and the United States

OECD (Organization for Economic Cooperation and Development): EU members, Australia, Canada,

Iceland, Japan, New Zealand, Norway, Switzerland, Turkey, and the United States.

RCD (Regional Cooperation for Development): Iran, Pakistan, and Turkey

WAEMU (West African Economic and Monetary Union): Benin, Burkina Faso, Ivory Coast, Mali, Niger,

Senegal, and Togo.

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