Forces in International Business
International marketing has both a micro and macro dimension, so an international marketing organization has to pay attention to such issues and forces as cross-cultural forces, natural resources and environmental sustainability, economic and socioeconomic forces, political forces, intellectual property and other legal forces, the international monetary system and financial forces and labor forces. For some companies, international markets are the most profitable.
However, organizational problems are encountered, and varying arrangements from licensing to the development of wholly owned subsidiaries may be used to handle them. Better international information is helping companies answer questions of where to buy, what country to manufacture in, where to ship, and where to expand. Socio-cultural forces Socio-cultural forces influence marketing strategies and selection of advertising tools. As companies become multinational in perspective, the need for internationally oriented cultural managers gains urgency. New service bureaus, consulting facilities, and specialists are springing up with a multinational perspective.
Some may specialize in particular types of market areas, some in business opportunity assessment, and others in on-the-spot marketing research or the legal issues in international marketing. Socio-cultural forces influence the selection of the target group and buying potential of consumers. They influence income, demographic characteristics, age and ethnic composition of potential buyers (Buckleyand Ghauri, 1999). Natural resources and environmental sustainabilityNatural resources and environmental sustainability oblige an international company to follow standards and principles accepted by the nation-state. They influence production process, waste management and pollution.
Natural resources and environmental sustainability are reflected in standards and product quality issues. Environmental sustainability has been brought in at various stages of marketing’s evolution. ISO standards and CO2 emissions is a part of environmental sustainability (Thompson and Martin, 2005). Economic and Socio-economic Forces Economic and Socio-economic Forces determine and reflect a general economic climate inside the country, inflation rates and buying potential of customers. International companies rely on investigation of marketing management practice and marketing thought with a more rigorous and penetrating analysis of marketing and business has resulted from multidimensional approaches to the study of marketing.
Consider the use of economic theory. Demand, a core marketing concept, is now analyzed in terms of dimensions that extend well beyond those of the initial economic boundaries. It is viewed in terms of motivation, perception, status, imagery, symbolism, communications networks, conformity, resistance to change, levels of aspiration, life cycle, life style, mobility, search, and expectations (Tayeb, 2000). Political forcesPolitical forces influence the degree of political stability and democratic rights followed and valued by a potential international market. Typically, business growth is depicted by a pattern that shows an increase, reaches a limit, and then tends to decline.
Although products and markets for particular items will decline, businesses need not. Continued growth becomes possible by properly developing new products that fit assessed opportunities. In many cases, political instability leads to high inflation rates and high unemployment among native population (Wheelen and Hunger, 2008). Intellectual property and other legal forcesIntellectual Property and Other Legal Forces influence the structure of business relations with partners and consumers. A great difference exists between the law and ethics. Legal activities are not always ethical.
Laws are fairly constant (although interpretations need not be), while ethics change continuously. Also, ethical actions are based on individual conscience and not “legal conscience.” A major ethical problem for marketing executives is the lack of objective standards by which to judge actions. Intellectual property involves copyright protection, trademarks and patient laws. The International Monetary System and Financial ForcesUnderstanding the International Monetary System and Financial Forces influence price decisions and the market entry strategy.
The international company may adopt the general decision-theory format in which the decision maker is involved in a game against nature. Having chosen a strategy and committed company resources, he waits for nature to reveal its hand and the respective profits or losses. Much attention is directed to the selection of the logical or best strategy under conditions of risk. Use is made of probabilistic reasoning by applying payoff matrices and decision trees to arrive at marketing decisions (Wheelen and Hunger, 2008). Labor forces influence the staff composition and buyer behavior in a particular country. The key question from a macro perspective, in the relationship of population to market expansion, is whether real income and real productive capacity per person are growing rapidly.
If population increases create pressures on natural resources and real productivity cannot be improved to offset them, additional population will not result in expanding markets. The purpose of citing these statistics is to indicate the dynamic nature of demographic forces, and to suggest the kind of analysis that must be pursued on a comprehensive basis to gain better insights into markets for specific kinds of products (Wheelen and Hunger, 2008). Company’s AnalysisThe company selected for analysis is Starbucks. It is a leading coffee company established in the USA, thus it operates in 49 countries around the globe (Starbucks Home Page, 2010).
The United Kingdom is used as an example to illustrate the impact and importance of seven forces. In the UK, political and legal environment is favorable for food industry because of stable political situation and protective legal measures. Starbucks operates in high dynamic environment which requires continuous optimization of a product mix and new ways of doing business. Price competition, backed by improved efficiency, is the main feature of Food industry today (Wheelen and Hunger, 2008). Economic situation in the UK has an impact on Starbucks as it reduces purchasing power of such industry. Starbucks has to develop new marketing strategy.
The implementation will require additional spending, but they are essential for the company, because without these facilities it will not be able to compete on the market and increase its sales rate. Demographic and cultural situation in the country do not have a great impact on the company and its performance. In terms of technology and environment, Starbucks relies chiefly on an efficient market system and product improvement. The traditional market for food is not in maturity one, and today it offers a limited opportunity for high profits, so it sets about developing products that are both distinctive and could be sold at a premium price. A specialized product range, based on two basic lines of business, necessitated a clear identification of target market. The original mission had made it clear that it was in the relatively unexploited sector that Starbucks saw its clearest opportunity for innovation in food industry.
As the most important, these basic lines of business allow Starbucks set out to create a range of high-quality products that are distinctive in quality and technology (Buckley and Ghauri, 1999). Political opportunities of Starbucks include: high potential to growth and profitability of the company; promotion to other segments; improvement of product range. The technological advances are aimed to maximize security of customers and fasten the process of informational interchange. Intranets allow industry to react faster delivering customer satisfaction. Technology replaces traditional methods of Food business, and causes growth of on-line operations.
Starbucks low cost approach helps the company to maintain long-run supplier relationships and ensure profitability. New technology and organizational management system open new opportunities for Starbucks (Buckley and Ghauri, 1999). Natural resources and environmental sustainability demands innovative technology and solutions in coffee production. Technological innovations and creativity in production can be regarded as business philosophy of Starbucks. Unique technology management employed by Starbucks is aimed to coordinate production process with all levels of the organizational structure including their interaction and performance. The balance of authority has undoubtedly shifted to traditional management who now has more selection over how it conducts relations with their workers and process.
Innovation in production technologies and computerized system of supply chain is the main opportunity for Starbucks. It needs innovative assembly lines in order to increase volumes of sales, and storage capacity. Internet is another toll which can help Starbucks to reach its potential buyers without additional spending on promotion and advertising. The strengths is a smoke free approach following by the restaurant for many years. Weaknesses involve economic problems and high unemployment affected European countries.
The International Monetary System and Financial Forces influence Starbucks international operations as the company operates in Euro zone and has to deal with dollar-pound exchange. Since the beginning of the 1990s, food industry decline was the main threat affected many companies. In spite of this threat, Starbucks sustains strong market position and leadership. Also, the threats involve decrease in sales of Food industry. The changes in the environment are changed the demand, but they do not have a significant influence on customers’ purchasing power. The threat is population shift which has a great impact on sales.
Increase in interest rates and non-compete clause are another problems for Starbucks during the last years. Increased competition on the international arena threatens profitability of such giants as Starbucks. The main problem was that imported Food accounted for 20 percent of the UK food consumption which limited price level and competition in the home market. The first group of competitors includes local companies; the second group involves international companies and international competition, and the third one is global competition:. In this case, Starbucks develops multidimensional strategy to cover three competitive segments: local (national), international and global.
Ethical and Moral IssuesAt Starbucks, the objectives of socially responsible marketing executives include not only profit responsibilities to shareholders, but also high levels of employment, economic and technical progress, economic stability, community development and improvement, improved living standards, and personal freedom. In some countries, including the UK, Starbucks is critics for high prices and low quality of its products sold to end consumers. Still, the company ejects these accusations and false messages sent by its competitors. This case shows that there is no concrete standard or test of social responsibility or public welfare — businessmen must define it for themselves. Ethics in marketing is concerned not with what marketing behavior is but with what it ought to be.
Its domain is standards of behavior in marketing decisions and actions — in the implementation of marketing policies and strategies. Starbucks does not follow Christian ethics and values in decision-making taking into account legal rules and ISO standards only. Moral and ethical principles’s and generalizations are fine as abstract guides and rules, but executives encounter difficulties in trying to apply them to specific situations, to the challenges of handling concrete problems of moral perplexity. A code of relative marketing ethics or situation ethics, ethics applicable to particular sets of circumstances and reflecting the individuals involved in a decision, may govern in certain decisions (Tayeb, 2000). The analysis of seven forces and the Starbucks case analysis prove that international business is influenced by and is depended upon different drivers and environmental problems. Constraints of global economic environment include legal barriers and European law.
Many European countries restrict access to those goods which do not meet their standards. This means that goods and materials can be barred access on the grounds that they break national rules on health, safety and environmental protection. Starbucks designed and developed all the products in order to meet international standards and local requirements of cuisine. Operating on a UK- basis involves Starbucks addressing the issue of cultural difference and consequently developing a balance between standardization and adaptation. In any case, marketers must be prepared to deal with different laws, customs, taxes, middlemen, and media-to adjust to different environments. International markets often involve greater corporate risks, especially the risks associated with nationalization.