IGNOU : M.COM : IBO 2 : UNIT 1 : Q - 4. Why do firms go international? Explain with the help of examples from Indian context.

 

Ans. REASON FOR ENTERING INTERNATIONAL

There are several reasons for a business firm to go international. Important reasons for going international are described below:

1) Domestic market constraints

2) Government policies and regulations

3) Growth of overseas markets

4) Increased productivity

5) Relative profitability

6) Diversification to reduce business risk

7) Control inflation and price rise

8) Counter competition

9) Strategic vision

Let us now study each of them in details.

Domestic Market Constraints : Domestic demand constraints drive many companies to expand the market beyond the national boundaries. The following are the main constraints in the domestic market:

·         If the size of the domestic market is very small, companies look forward to foreign markets to achieve the economies of scale. For example, many Japanese companies in electronics and automobile sectors go global because the size of the domestic (Japan) market is small. Similarly, since most European nations are relatively small in size, without foreign markets, European firms would not have sufficient economies of scale to allow them to be competitive with US firms.

·         Due to recession in the domestic market, companies may not be able to utilize the full production capacity. Sometimes there is excess production capacity in the country where companies are not able to utilize the full production capacity, and unable to sell in the domestic market whatever produced.

·         The market for a number of producers tend to saturate or decline in the advanced countries. This often happens when the market potential has been almost fully tapped, and when the population in some of the advanced economies would saturate or decline. Such demographic trends have very adverse effects on certain lines of business.

·         Another type of domestic market constraint arises from the scale economies, The technological advances have increased the size of the optimum scale of operation 'substantially in many industries making it necessary to have foreign market, in addition to the domestic market, to take advantage of the scale economies. It is the thrust given to exports that enabled certain countries like South Korea to set up economic size plants. In the absence of foreign markets, domestic market constraints come in the way of benefitting from the economies of scale in some industries.

Government Policies and Regulations : Government policies and regulations also ' motivate the firms to internationalize. Government may impose certain restrictions on further growth and capacity expansion of some firms with the domestic market in order to achieve certain social objectives. But there may not be any such restrictions on making investments overseas or the restrictions may he relaxed even in the domestic market, provided the additional capacity envisaged by the company is utilized for exports. III such a situation, a firm may contemplate export operations, because it offers a way to achieve corporate growth which may otherwise not be possible. US producers of asbestos products found the domestic market legally closed to them. Since some overseas markets had more lenient consumer protection laws, US firms continued to produce asbestos for overseas markets. Here US banned the sale of the product domestically, but production in the country is allowed. Take a contrasting example, where the product consumption is allowed in the domestic market, but production is no1 permitted. Production of caustic soda and soda ash are banned in many developed countries as it was considered environmentally hazardous, but the use of these products is not banned. At the same time, developing countries like India have not imposed such ban on production. As a result, companies in the developing countries like India found attractive markets in developed countries.

Growth of Overseas Markets : The enormous growth potential of many foreign markets is a very strong attraction for companies to enter into foreign markets. In a number of developing countries, both the population and income are growing fast. It may be noted that several developing countries, the newly industrializing countries and the Peoples' Republic of China in particular, have been growing much faster than the developed countries. Growth rate of 1ndia has also been good and the liberalization seems to have accelerated the growth. Even if the market for several goods in these countries is .not very substantial at present, many companies 'are eager to establish a foothold there considering their future potential.

Increased Productivity : Increased productivity is necessary for the ultimate survival of a firm. This itself may lead a company to increase production and then seek export markets. Moreover, h these days of technological developments, bigger companies have spend a lot on research and development. To meet the cost of research and development, larger markets become necessary and exports become unavoidable.

Relative Profitability : One of the most important objectives of internationalization is the profit advantage. International business could be more profitable than the domestic. The price realized in export markets may be relatively higher than that realized in the, home market. This is so, for example, in the case of readymade garments and jewellery. Many other cases, export incentives provided by the Government may make exporting relatively more profitable than selling in the domestic market. Even when international business is less profitable than the domestic, it could increase the total profit. This is possible because by exporting you can utilize the idle production capacity. Thus by optimum utilization of production capacity, the overall profitability of domestic business call be improved.

Diversification to Reduce Business Risks : A diversified export business may help in mitigating sharp fluctuations in the overall activity of a firm. When ii firm is selling in a number of markets, the downward fluctuation in sales in one market which may be the domestic market may be fully or partially counterbalanced by a rise in the sales in other markets. Demand for most products is affected by such cyclical factors as recession and such seasonal factors as climate. The unfortunate consequence of these variables is sales fluctuations, which can frequently be substantial enough to cause losses. One way to overcome this risk is to consider foreign markets as a solution for variable demand, Such markets even out fluctuations by providing outlets for excess production capacity. For example, the US economy slowed down in 2001 while Chinese and Indian economies are doing well. If a business firm is operating in these three countries, the decline in sales in the US may be more than compensated by the increase in sales in China and India.

Control Inflation and Price Rise : On several occasions, Governments permit imports to increase Ule supply and control prices, thus control the inflationary pressures on the economy. Whenever domestic prices increase, normally imports are allowed to increase the supply and control the prices, When imported products are available at lower price, domestic producers also reduce their prices. Without imports, there is no pressure on domestic producers to reduce their prices, The lack of imported product alternatives forces consumers to pay more, resulting in inflation and excessive profits for local firms. . This development usually acts as a prelude to workers' demand for higher wages, further exaggerating the problem of inflation.

Counter competition : Many companies also take an offensive international competitive strategy by way, of counter-competition. The strategy of counter-competition is to penetrate the home market of the potential foreign competitor so as to diminish its competitive strength and to protect the domestic market share from foreign penetration. Effective counter-competition has a destabilizing impact on the foreign company's cash flows, product related competitiveness and decision making about integration, Direct market penetration can drain vital cash flows from the foreign company's domestic operations.

Strategic Vision : The systematic and growing internationalization of many companies is essentially part of their business policy or strategic management. The stimulus for internationalization come from the urge to grow, the need to become more competitive, the need to diversify and to get strategic advantages of internationalization. Many companies in India, like several pharmaceutical firms, have realized that a major part of their future growth will be in the foreign markets. There are a number of corporations which are truly global. Planning of manufacturing facilities, logistical systems, financial flows and marketing policies in such corporations is done considering the entire world as its single market. In short, it is a borderless world.

IGNOU : M.COM : IBO 2 : UNIT 1 : Q - 3. What is marketing mix? Explain the components of marketing mix.

 

Ans.  Marketing Mix

Marketing requires several activities to be done. To begin with, a company may choose to enter one or more segments of a market - since it may not be possible to cover the entire market. The manufacturer a bathing soap, for example, may aim at the working class in the middle or lower income groups as his target consumers. Once the target market is decided, the product is positioned in that market by providing the appropriate product qualities, price, distribution and advertising efforts. These and other relevant marketing functions are to be combined or mixed in an effective proportion so as to achieve the marketing goal. In order to appreciate this process, it is easier to divide the marketing activities into four basic elements which are together referred to as the marketing mix. These four basic elements are: (i) product, (ii) price, (iii) promotion, and (iv) physical distribution. As all these four start with the letter 'P', they are referred to as the four Ps of the marketing mix or the four Ps in marketing, Thus, marketing mix may be defined as the set of controllable marketing variables/activities that the firm blends to produce the response it wants in the target markets. Let us study the four Ps in detail.

The word Product stands for the goods or services offered by the organization. Once the needs are identified, it is necessary to plan the product and after Lhat keep on analysing whether the product still satisfies the needs which were originally planned for and if not, to determine the necessary changes.

Price is the money that the consumer has to pay. Price must be considered as worthy the value of the product to become an effective marketing tool. The product has to be appropriately priced. The manufacturer has to Lake into account cost factors, profit margin, the possibility of sales at different price levels and the concept of the right price.

Promotion is the aspect of selling and advertising or communicating the benefits of the product or service to the target customers in order to persuade them to purchase such products or services. It includes selling through advertising as well as the sales force. Besides, a certain amount of promotion is also done through special seasonal discounts, competitions, special price reductions, etc.

Place (Distribution) refers to the aspect of the channels of distribution through which the product has to move before it reaches the consumer. It also includes the logistic aspects of distribution such as warehousing, transportation, etc., needed for geographical distribution of products. It is also concerned with the selection of distribution channels. The organizational must decide whether it should sell through wholesalers and then to retailers, or whether directly to the consumers, There are many ways in which a product can be moved from the producer to the consumer. The optimum method has to be determined in terms of both consumer satisfaction and profitability to the organization, or optimum use of the organization's resources.

The manufacturer must design the most effective combination of these four basic factors as well the expenditure he would like to incur on them. The variables that are relevant in the marketing mix vary from company to company. These variables are not independent in their effect on the marketing effort. One variable may influence the other. Apart from the expenditure involved, these decisions are influenced by the company's market positioning decision.

IGNOU : M.COM : IBO 2 : UNIT 1 : Q - 2. What are the marketing concepts? Explain the process of evolution of these concepts.

Ans. Marketing Philosophies

There are five different marketing philosophies under which business enterprises conduct their marketing activity:

1) Production concept

2) Product concept

3) Selling concept

4) Marketing concept

5) Societal concept

Production Concept

This is probably the oldest concept. Some businessmen believe that the consumers are interested only in low priced, easily and extensively available goods, and finer points of the product are not very important to them. So the producers believe they must concentrate only on efficient (economical) and extensive (large scale) production, A company which believes in this approach concentrates on achieving high production efficiency and wide distribution coverage. Organizations may adopt this concept in two type of situations.

Product Concept

As against the production concept, some organizations believe in product concept. The product concept implies that consumers favour those products that offer the most quality, performance and features. They also believe that consumers appreciate quality features and will be willing to pay 'higher' price for the 'extra' quality in the product or service made available. Hence, those companies which believe in this concept concentrate on product and its improvement. But, while improving the product they rarely take into consideration the consumers' satisfaction and their multifarious needs. Even when new products are planned, the producer is concerned more with the product and less with its uses or the consumer needs. For example, a biscuit manufacturer produced a new brand of biscuits with good ingredients, color, packaging, etc,, without taking into account consumer tastes and preferences. This may fail in the market if the biscuit does not taste good to the ultimate consumer.

Selling Concept

Sometimes the man problem of the enterprise is not more production, but to sell the output. Similarly, a better product may not assure success in the market. Hence selling assumes greater importance. So some producers believe that aggressive persuasion and selling is the crux of their business success, and without such aggressive methods they cannot sell and survive. Therefore, attention is paid to find ways and means to sell. They also believe that consumers left to themselves, will not buy enough of organization's products and services, and hence considerable promotional effort is justified. Thus, the selling concept assumes that consumers on their own will not buy enough of organization's products, unless the organization undertakes aggressive sales and promotional efforts. Many insurance agents, sales persons of certain electrical gadgets, health drinks, soft drinks, and fund raisers for social or religious causes come under this category.

Marketing Concept

In an evolutionary process, many organizations have come to change their focus and to see their marketing tasks in a broader perspective. Marketing concept is considered a business philosophy wider in its implications. Under the marketing concept, the organization considers the needs and wants of consumers as the guiding spirit and the delivery of such goods and services which can satisfy the consumer needs more efficiently and effectively than the competitors. It is also said that the marketing concept is consumer orientation with the objective of achieving long run profits. It is a modern marketing philosophy for dynamic business growth, In other words, under this concept the task of marketing begins with finding what the consumer wants, and produce a product which will meet that want and provide maximum satisfaction. Implicitly, the consumer is the boss or king who dictates. The focus which moved from the product to selling , now rests with the consumer.

Societal Concept

With the growing awareness of the social relevance of business, there is an attempt to make marketing also relevant to the society. In a sense, marketing is not a business activity alone but must take into account the social needs. Excessive exploitation of resources, environmental deterioration and the customer movements in particular have necessitated the recognition of the relevance of marketing to the society. Marketing then must be a socially responsible or accountable activity. The societal concept holds that the business organization must take into account he needs and wants of the consumers and deliver the goods and services efficiently so as to enhance consumer's satisfaction as well as the society's well being. The societal concept is an extension of the marketing concept to cover the society in addition to the consumers.

IGNOU : M.COM : IBO 2 : UNIT 1 : Q - 1. Define marketing and explain its implications. Explain how marketing is different from selling.

Ans. According to the American Marketing Association "marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives. This definition is undoubtedly an improvement on the description of marketing as selling. According to this definition, marketing is also encompasses other activities along with selling. If you are an entrepreneur who wants to start a new business, you do not have a product. In fact you will have to decide what product you should manufacture and sell. How do you decide his? This you Can do only when you identify the needs which require satisfaction among human beings. Once you identify the need of a group of human beings, you can determine the product which can satisfy that need. This is a part of the modern philosophy of marketing.

Difference between Selling and Marketing

Many people use the terms marketing and selling as synonyms. In fact, these two terms have different meanings in marketing management. An understanding of the differences between them is necessary for you to be a successful marketing manager.

Selling is an action which converts the product into cash but marketing is the whole process of meeting and satisfying the needs of the consumer. Marketing consists of all those activities that are associated with product planning, pricing, promoting and distributing the product or service. Selling focuses on the needs of the seller whereas marketing concentrates on the needs of the buyer.

Selling is the modern version of the exchange under barter system. When the focus is on selling, the businessman thinks that after production has been completed the task of the sales force starts. It is also the task of the sales department to sell whatever the production department has manufactured. Aggressive sales methods are justified to meet this goal and customer's actual needs and satisfaction are taken for granted.

But marketing is a wider and all pervasive activity to a business firm. The task commences with identifying consumer needs and does not end till feedback on consumer satisfaction from the consumption of the product is received. It is a long chain of activities which comprises production, packaging, promotion, pricing, distribution and then the selling. Consumer needs become the guiding force behind all these activities, Profits are not ignored but they are built up on a long run basis. Distinction between selling and marketing are summarized in the following Table:

                

Selling	Marketing
1.  Emphasis is on the product	Emphasis is on customers wants
2.  Company first makes the product and then figures out how to sell it	Company first determines customers wants and then figures out how to make and deliver a product to satisfy these wants.
3.   Management in sales volume oriented	Management is profit oriented
4.   Planning is short-run-oriented, terms of today" products and markets	planning is long-run-oriented in terms of new products,
5.   Stresses needs of seller	Stresses wants of buyers