Here is a compilation of exam questions and answers on ‘International Marketing’ for B.Com students.
1. Define Packing. What are the Features of Good Packing?
Packing refers to the external casing and material used to transport the product or products. Packing of the goods exported depends upon the method of transport, weight, size, shape, product life and its nature. If the cargo is too heavy and large in size can be transported by sea and packing may be done in a wooden case. Light weight and short lifespan product may be despatched by air and in such cases special care should be taken with fridge facility.
In international trade, packing should be given greater importance as goods have to reach a long distance, after travelling for a number of days and to be handled by many people at many places. To reach safely the goods and other packing materials are to be packed properly and with great care.
If goods are not properly packed or not according to the instructions of the importer, he may refuse to accept the goods and even the Shipping Company may refuse to accept the goods or may issue the bill of lading with a clause ‘Goods are not packed properly’. In such case, the insurance company is not responsible for any damage.
Features of Good Packing:
i. Packing Material:
Packing materials must be used according to the features of the goods, method of transportation, weather condition, travelling time and handling of goods etc. Most common materials are wooden boxes with straw packing, cardboard boxes, tin boxes, nylon bags, jute bags, polythene bags, thermocol boxes, iron hooks, wire etc. These packing materials have to suit the reason and nature of the product.
Packing must be done in such a way to protect the product against temperature, climate conditions and time involved in storage and transportation. For example, marine products such as fresh fish, turtles etc., be packed in thermocol with ice cubes, vegetables and fruits in wooden cases or cardboard boxes.
iii. Handling of Goods:
Goods to be exported must be packed in such a manner that it is easy to handle mechanically and manually and at all stages of transportation. The handling of goods may be through various means of transportation. For example, through carts, tempos, ships, rail, lorry etc. handling of goods may be very rough. Generally goods may be tilted, dropped, thrown, pulled, pushed or rolled etc.
iv. Weight, Shape and Size:
The shape, size and weight of the packed product should be convenient to handle manually and mechanically. Transportation charges depend upon the shape, size and weight. Generally shipping companies charge freight in accordance with the space occupied.
Container is large metal box used for transportation of goods throughout railway wagons, ships etc. Goods are put and packed in the container and sealed to avoid risk of loss, theft, damage and breakage till it reaches at buyer’s destination.
In this way, proper packing is necessary for safe and easy transportation. If the goods are not properly packed, it leads to a lot of problems. Many changes have taken place in the packing. Straw is replaced by wood wool, plastic, foam, plastic bubbled sheets etc. and is used to avoid rubbing, tossing, bumping, causing damage to products due to handling, vibration etc. during transit.
2. Define Accepting Houses with Its Working.
The exporter cannot possess full knowledge pertaining to the importer in International Marketing. Moreover it is very difficult to have knowledge regarding economic condition of the importer. Therefore it becomes necessary to have the acceptance of any reputed institution on bill of exchange. Such institutions which provide their approval on behalf of other institutions are known as Accepting Houses.
An Accepting House is a firm or company, an important part of whose business consists of accepting bills of exchange.
Accepting Houses play an important role in providing their acceptance for Bills of Exchange. Their contribution in the field of financial arrangement so as to promote foreign trade is very important. Besides, these houses also undertake functions like underwriting of shares, banking activities, foreign payments, insurance works and import-export functions. London is the only money market in the world which have specific institutions doing works as Accepting Houses for bill of exchange. These institutions get commission from their clients for their services.
These Accepting Houses have their offices in important industrial and commercial centres as well as at leading parts of the world. These offices extend their acceptance for bill of exchange on the basis of knowledge pertaining to credit worthiness and sound financial situation of commercial houses. Generally, a limit is fixed for an individual business unit, up to which the acceptance is offered for its Bills of Exchange.
3. What are the Steps Taken before an Export Transaction Begins?
Two important preliminary steps are taken before an export transaction begins:
I. Registration of Exporter/Importer:
The very first step in processing of an export order is to get export license from Licensing Authorities. An export license is a permission which allows an exporter to export goods. It is needed for all kinds of exports. The preliminary step is to get membership of certain export promoting bodies. Members of these bodies get assistance and support for export business. Registration with any of the following bodies will provide guidelines to the exporters and issue them license for carrying out the exports and imports of goods.
1. Export Promotion Councils
2. Commodity Board
3. Federation of Indian Export Organisations
4. Export Development Authority
5. State Director of Industries
6. Export processing zones, and
7. Indian Trade Promotion Organization.
II. Importer/Exporter Code (IEC):
Every person/organization has to get the Importer/Exporter code number from Regional Licensing Authorities. This code number is required to be incorporated in various export documents submitted to authorities for export purpose. Following papers are to be submitted to Regional Licensing Authorities for this purpose.
(i) Application form in duplicate
(ii) Profile of organization is duplicate
(iii) Permanent Account Number (PAN issued by Income Tax Department)
(iv) Copy of VAT (Sales Tax Certificate) if any
(v) Full address of organization along with branches in India and abroad
(vi) Account Verification Certificate from Bank
(vii) SSI Registration copy if any
(viii) Three Passport Size Photographs, duly signed on reverse
(ix) Fees, and
(x) Declaration in duplicate.
IEC Number is permanently allotted by Regional Licensing Authority to the person or organisation. No export or import shall be made by any person without an IEC number unless specifically exempted.
An export order has to be processed to meet the requirements of the goods required by the importers. The export order must be processed and executed as soon as possible taking into account the delivery schedule, the rising trend of the prices of materials and wages etc.
4. How are the World Markets Classified?
The world markets can be classified on following different bases:
I. Industrial Development of the Countries:
This basis is very frequently used in segmenting the world markets by the international agencies.
On this basis, markets can be divided into four distinct segments:
(i) Industrially Developed Economies:
Industrially developed countries provide a large world market as they have either no restriction or very little import restrictions. These countries lay more emphasis on the production of more sophisticated products and therefore insist more and more on research and development. Therefore, they like to import goods of simpler technology and simpler manufacturers.
They provide ample opportunities for the marketing of the following types of products:
(a) Labour intensive products like electronics and light engineering goods because these countries have an acute shortage of labour.
(b) Spares and components and raw materials to feed their industries as they are not rich in agricultural raw materials.
(c) Decorative articles and craft articles because of their affluence.
(d) Anti-pollution equipment and those articles whose production has been banned for risks of pollution because they are very particular about preventing pollution. Since these countries have modern technology, they are willing to provide technology to set up production and processing facilities in developing countries.
(ii) More Developed Countries, Developing Economies:
This category would include like India, Brazil, Mexico, China etc. These countries are striving to update these technologies for current range of manufactures and, therefore, have much scope for absorbing modern technology in their efforts to set up new manufacturing units. They are also interested in setting up joint ventures in other less developed countries.
(iii) Raw Materials Exporting Economies:
This category includes countries like those in Gulf area and many countries in Africa and Latin America. Such countries export raw materials and purchase everything like food, consumer durables, transport equipment, service facilities etc. Their foreign earnings are quite uncertain because of large fluctuations in their export prices.
They are not able to produce much for their requirement and import almost everything. Changes in these countries take place rather slowly and, therefore, the level of sophistication in products required by these countries is much less than that required by developed countries.
(iv) Subsistence Economies:
This type of economy is found in the least developed countries. They almost produce nothing and depend very much on the imports. They need equipment to exploit their untapped resources, infrastructural facilities like railways, roads, building, transport equipments, power generation equipments, transmission line tower etc., turnkey projects like housing, schools, hospitals etc.
As these countries lack infrastructures, the most developed countries do not offer latest technology and, therefore, there is much scope for the developing countries to export their products in these countries.
II. On the Basis of Population:
The population can be another criterion for division of markets. The higher the population of a country, the bigger is the market. It is, therefore, worthwhile to assess the potentiality of the market keeping in view the size of the market. When analysing the population, it is necessary to look at— (i) age groups and sex, (ii) social class, (iii) educational background, (iv) number of households, (v) geographic concentration and differences.
III. On the Basis of Gross National Product:
Gross National Product (GNP) and its rate of growth as also the standard of living of its population may provide another basis for classification of countries. The big industrialised nations having larger GNP like the USA, Japan, Australia and Canada are the best markets for consumer goods. Even though these countries produce them the rich prefer to purchase the imported items. This classification, however, is not much different from the classification done on the basis of economies given earlier because the industrially-developed countries occupy top positions in GNP as well.
IV. Other Characteristics:
Markets can be classified on some other basis also, as under:
(a) The size of population related to the income per head of a country’s inhabitants.
(b) Big countries may have different market characteristics in different parts of the country.
(c) Some other variables like socio-economic variables, cultural groupings and other behavioural patterns as reflected in usage rate, consumer motive and the adoption process.
However, before a firm determines whether a particular segmentation strategy is worthwhile, it must also consider the following points:
The size of each segment under consideration must be measurable. In other words market segment must be measurable in terms of size, purchasing power and consumer behaviour.
As the main object of the firm is to earn profit, it must make sure that the identified segments are profitable. The firm must ensure that the size of the identified segment should be large enough to recover all costs.
The firm must make sure that the segment selected must be accessible in an effective manner.
The segments should be conceptually distinguishable from each other.
It should be possible to make effective marketing mix strategies for different segments. Every identified segmentation should be capable of being captured by proper and effective marketing programmes.
Thus, a firm that wants to make entry in the world market should first classify the market taking the product characteristics in mind on either of the basis given above considering the profitability of the product, accessibility to the market and the availability of information relating to the segment.
5. What is Labelling? What are the Types of Labels?
Labelling is done before marketing a product. Labelling provides information about product and seller. It is mandatory to give information concerning its manufacturing date, expiry date, MRP, weight etc. on the labels of some products. In reality, this is the part of packaging. Sometimes, separate chits are affixed for this purpose.
According to William J. Stanton, “The label is the part of a product which carries verbal information about the product or the sellers (manufacturers or middlemen). A label may be part of a package or it may be a tag attached directly to the product.”
According to Mason and Rath, “The label is an informative tag, wrapper or seal attached to a product or product’s package.”
According to Lipson and Darling. “The information that is put on a physical product or its package and which tells about the characteristics of the product is called a label.”
Thus a label identifies:
(i) Name of the producer,
(ii) Price of the product,
(iii) Manufacturing and expiry date of the product,
(iv) Brand name, and
(v) Weight of the product.
On the basis of analytical study of above definitions, it may be concluded that a label is a chit attached with the product or with its package which provides necessary information about the product and its producer. A label may be in the form of a wrapper or a seal or a tag attached directly to the product.
Types of Labels:
Labels may be of the following types:
i. Brand Labels:
This label contains the brand name of the product like writing “Double Bull” on the label attached on a shirt. This is fixed on the product or its package. No separate chit is attached. Such labels do not provide enough information about the product to the buyers.
ii. Grade Labels:
Letter, number or word is used in this type of label to convey information regarding the quality of the product. When a company produces different kinds of a product, it uses different labels for different kinds of the product like Nirma or Super Nirma.
iii. Descriptive Labels:
These labels provide printed information about the features of the product. Such labels are also called “Informative labels”. Informative labels provide specific data pertaining to products. Manufacturers of medicines ordinarily use descriptive or informative labels.
iv. Combination Labels:
Such labels contain elements of all the above three labels. Nowadays labels of such type are widely used.
6. What is the Impact of Contract Conditions on Export Price Quotations?
The base price determines the expense and the risks which are to be borne by the exporter. Besides, there are certain other specific conditions which the buyer would like to include in the contract to be fulfilled by the exporter. Such contract conditions relating to any export transaction may substantially affect the price calculation of an exporter or manufacturer. Implications of contract conditions tend to be stronger in case the merchandise in question is the capital goods involving installation, performance, guarantees, supply of spare parts etc.
The implications of such conditions and their effect on price calculations are:
i. Exchange Rate Variation:
There is always a risk of rate variations of different currencies. It may cause a sharp decline in the realisation of export proceeds in terms of rupees.
There are three possible ways to cover the risk of exchange rate variation:
(i) The first possible solution to the problem is to quote the prices in Indian rupees. In such cases, the realisation to the exporter will not, in any way, be affected by the fluctuation in exchange rate.
(ii) The second solution is, if the buyer insists on quoting the price in his country’s currency, to add a clause to the effect that the quotation is based on present exchange parity or current exchange rate and any change will be on buyer’s account.
(iii) The third alternative is to take insurance policy to cover the exchange risk from the insurance company.
ii. Packing of Export Consignment:
Packing is the absolute responsibility of the exporter. It has been repeatedly ruled by different courts that packing is an integral part of the ‘description of the goods’. Marine insurance also does not provide any cover against loss due to bad packing. Sometimes, importers specify the packing requirements either as an element of marketing mix or under the law of the country.
Therefore, to avoid any subsequent problem the exporter should provide adequate packing in order to protect the goods from any loss during transit and if necessary according to the specifications of the importer. In both these cases, the necessary cost of packing should be included while preparing the export price quotations.
The manufacturer on the basis of his experience, extends guarantee/warranty to the customers and includes a guarantee clause in the contract itself. This is generally a part of marketing strategy, in durable consumer goods such as T.V., refrigerator etc. The importer may ask for stricter guarantee/warranty provisions which may result in anticipatory costs of exporter. Therefore, the exporter takes into account the probable cost of such guarantee which he has offered voluntarily in quoting the price.
iv. Spare Parts:
In contracts for export of machinery and equipment or capital goods, provision regarding supply of spare parts requires special consideration. It is a common practice in such cases to undercharge on the main equipment and overcharge on the supply of spare parts. Whether this practice is feasible or not depends upon the market conditions and the technical characteristics of the product.
v. Change in Specifications:
In some cases importer requires some changes in the characteristics of the product and its specifications. If so, cost of changes must be considered. In other words, any change in specification of the product will be at the buyer’s cost. This becomes necessary when the buyer reserves the right of change in specifications at a later date. The exporter or supplier should, therefore, quote the price subject to change, in case the buyer requests change in the scope and quality of the goods contracted for.
vi. Penalty/Damages Provision:
Almost all contracts incorporate such a clause essentially to bind the supplier to the terms of contract. The big contracts generally provide penalty on a fixed percentage basis of either the total value of the contract or that part of the contract which is delayed or remains incomplete that is more favourable to the supplier. If the exporter is not fully convinced of his capability of satisfying the contract conditions and can anticipate as to his being subject to the penalty clauses, reasonable provisions, if possible, should be made in the price quotation.
vii. Price Variation Formula:
For long-term supply contracts or project exports, the total time involved between the offer made and the total execution of the contract is very long. In such case, there may be an escalation of price between these two points of time. The escalation is very difficult to estimate at the time of making a contract. Secondly, too conservative an estimate may push up the prices so much that there may hardly be any chance of winning the contract.
There are two alternatives of the problem:
(i) It is advisable on the part of the exporter to insist on incorporating an escalation clause, and
(ii) On the other hand, the importer may be reluctant to accept the price escalation clause and insist on a fixed price throughout the contract.
Whether the formula will be agreed upon or not, depends upon the bargaining strength of the parties. If the buyer does not agree to such a clause, the only alternative is to accept the contract without an escalation clause and the necessary provision should be made in the price quotation itself.
Thus, the exporter/seller should take into account the above factors which really affect the price to be quoted, while preparing an export price quotation so that he may be fully protected.