Methods of Personal Selling in International Marketing

Q. Elaborate the different methods of personal selling in International Marketing.

Ans. Personal selling is more complex in international marketing in comparison to domestic marketing. The foreign customers may be of diverse background with regard to nationality, religion, culture, language, tastes, preferences, likings, dislikings etc. The various methods of personal selling adopted in international marketing are as follows:

● (1) Contacting Customers in Foreign Markets – In this method, sales representatives of business unit contact the customers in foreign nations. Sales representatives visit the target foreign markets and personally contact the potential foreign customers. Different ways of contacting customers in foreign markets are :

(i) Sending Domestic Salesmen to Foreign Markets (Expatriate Method): Domestic salesmen having good knowledge of foreign markets, their culture, language, buying motives, taste, preferences, buying pattern, etc. are sent to foreign markets to contact foreign customers personally and procure orders from them. This method is adopted by such business units as are in the initial stage of international marketing or their purpose is to sell surplus production in foreign market. 

(ii) Appointing Foreign Nationals as Salesmen in Foreign Markets: Large international business units set up their own distribution network in foreign markets. They set up their distribution outlets/branches/subsidiaries in foreign markets. In these branches, salesmen are hired from host nation (foreign nation). Search foreign salesmen have better knowledge of local culture, buying behaviour, geographical locations, language, etc. in comparison to salesmen sent abroad (Expatriates). When foreign national salesmen contact the potential foreign customers, the are not treated as strangers by the latter. They get more acceptance from foreign customers who may treat domestic salesmen of parent nation (expatriates) as strangers.

(iii) Hiring Foreign National Salesmen on Temporary Basis: The international marketers, who are not large enough to appoint full fledge salesmen in foreign markets, hire the services of foreign national salesmen on temporary basis. These salesmen may work for many business units which are generally complementary to each other and not competitive. Usually, when the international marketers undertake test marketing or conduct foreign market surveys then they adopted this method. Usually, such salesmen are appointed on commission basis.

● (2) Contacting Foreign Buyers Visting Home Nation – In this method, international marketers contact the foreign buyers visiting home nation. Some countries enjoy good image for certain products in the global markets. Buyers from various nations of the world visit such countries for buying some specific products. For example, Japan has good global image for electronic goods, India for gems and jewellery, Germany for engineering goods, etc. It creates good opportunity for international marketers to establish personal contacts with such foreign visiting buyers and procure good purchase orders. Different ways of contacting foreign visiting buyers are :

(i) Foreign Buyers Visting at their own: Some foreign buyers may visit other nation at their own for buying some specific products. These foreign buyers visit various markets at their own expense to explore good buying opportunity.  International marketer does not have to bear traveling expenses/boarding and lodging expenses of such visiting buyers. The international marketer may contact such visiting buyers at the place of their stay or at the prominent tourist destination. Further, such foreign visiting buyers may walk in the showrooms of business unit at their own. At this point also, effective personal contact can help procure order from such visiting buyers. This mode of personal selling is least expensive as the international marketer is neither sending expatriates nor bearing any travelling and lodging expense of foreign visiting buyers. 

(ii) Foreign Buyers Visting on the Invitation of International Marketer: The international marketer may invite its regular foreign buyers who purchase in large quantities to visit its outlet. The international marketer bears the travelling, boarding and lodging expenses of such visting buyers. Special salesmen may be hired who have knowledge of foreign language and culture to attend such visiting buyers. Such hired salesmen are given some initial training to acquaint them with the goods of international marketer. The international marketer may also already have regular/full time salesmen who have knowledge of foreign language and culture. Such salesmen attend visiting buyers through personal contact and procuure order from them. International marketer sends detailed product catalogue to such visiting foreign buyers along with the invitation letter.  It helps the visiting foreign buyers to have detailed knowledge of products, their features, price, etc. offered by international marketer. The international marketer keeps the goods in ready form so as to effectively demonstrate the goods to foreign buyers. 

(iii) Foreign Buyers Visting on the Invitation of Export Promotion Councils: Government of home nation may organise seminar, conference, meeting,  etc. of foreign buyers. Domestic producers of home nation are also invited by government to attend these seminars, conferences, meetings, etc. It creates opportunity for the domestic producer to establish personal contact with the potential foreign buyers. These conferences are arranged by Export Promotion Councils, Trade Associations, Ministry of Commerce, Commodity Boards, etc. These confidences help the international marketers to procure export orders. Increased exports also help the government in achieving its export targets and in earning foreign exchange for the country.  Cost of arranging such conferences are borne by the government/trade associations/commodity boards. 

● (3) Contacting Foreign Customers at International Trade Fairs and Exhibitions: Various international trade fairs and exhibitions are organised in different nations. These fairs and exhibitions may be organised in the home country of international marketer or in foreign countries.  These trade fairs and exhibitions provide good opportunity to international marketers to establish personal contact with visiting foreign buyers, to display and demonstrate their product effectively. These trade fairs and exhibitions may be of two types:

(i) Fairs and Exhibitions Organised in Home Nation of International Marketer: The international marketer does not have to spend much on attending these fairs as goods and sales staff are not to be sent abroad.  It saves travelling and transporting expenses. For example, in india, Indian government regularly organises international trade fair at Pragati Maidan in New Delhi every year. The Indian manufacturers/marketers, intending to establish contact with foreign buyers,  set up their stall here.

(ii) Fairs and Exhibitions Organised Abroad: With the increasing trend of globalisation, international trade fairs and exhibitions are organised across the world. The international marketers may set up their stall in such trade fairs to establish personal contact with visiting foreign buyers and procure orders from them. The international marketer attends such trade fair in such nation where it intends to take entry or strengthen its position. Participation in overseas trade fairs is costly as goods and sales staff have to be sent abroad. Further, it involves excessive formalities of custom clearance, foreign exchange, boarding and lodging, etc. 

Methods of International Payment.

 Q. Explain different methods of International Payment.

Ans. There are various methods of settling transactions in international marketing. These methods involve different degrees of risk for exporter and importer. These methods differ in degree of flexibility in terms of payment schedules. Main methods of payment in international marketing are:

1. Cash in Advance: In this method, exporter asks the importer to make payment in advance before the shipment of goods. The exporter is relieved of the task of collection of funds from importer. The exporter has no risk of bad-debts as he receives due amount in advance and can also use these funds in business. For importer, payment in advance involves cash flow problem and risk. It is possible that the exporter may not send the goods, may make excessive delay in delivery of goods or may supply low quality goods. So, this method of payment is beneficial for exporter and to the disadvantage of importer. If the exporter is in dominating position due to his unique innovative products or due to good demand of his products then he will insist on the importer for making payment in advance. Further, if credit-worthiness of importer is less or there is political or/and economic crisis in importer’s nation then exporter will ask the importer to make payment in advance.

2. Letter of Credit (L/C): Letter of credit is issued by the importer’s bank on the demand made by importer. When importer sends an order with the exporter, then exporter will ask importer to send letter of credit. It is a sort of guarantee give by importer’s bank to exporter or his bank to pay the specified amount. As L/C is issued and signed by the importer’s bank, it creates trust in the mind of exporter and he feels secure regarding his payment. Importer’s bank will issue letter of credit to importer only after getting itself satisfied about the credit-worthiness of importer. The issuing bank of L/C will ask the importer to make some cash deposit or to pledge something as security and/or also ask for collateral security. The issuing bank of L/C will also charge some commission depending upon the value of L/C from the importer. The letter of credit also facilitates the exporter in getting pre-export finance against it. L/C is an obligation of the issuing bank but it is also treated as financial responsibility of the importer. 

Importer will request his bank to issue letter to credit. In this letter, importer’s bank promises to make payment to exporter’s bank on behalf of importer, subject to fulfilment of certain terms and conditions. Letter of credit is valid up to the date of expiry. If importer’s bank is not well known in the exporter’s country or there is economic or political crisis in the importer’s nation then exporter may insist on confirmed letter of credit.

● Types of Letter of Credit 

1. Revocable Letter of Credit: This letter of credit can be revoked or terms of letter of credit can be changed without consulting the exporter. It provides no protection to exporter as terms of such letter can be changed to the disadvantage of exporter. It is not a popular form of letter of credit as it can be invalidated at any time.

2. Irrevocable Letter of Credit: In this type of letter of credit, the terms and conditions can not be changed unless both parties agree to such change. It cannot be revoked by importer nor can its terms be changed to the disadvantage of exporter without his consent. It provides sense of security to the exporter regarding recovery of payment. This type of L/C is widely used.

3. Transferable Letter of Credit: This type of letter can be transferred to third party by exporter or holder of such letter. It is a negotiable instrument.

4. Non-Transferable Letter of Credit: This type letter of credit cannot be transferred by exporter to third party. It is non-negotiable. If exporter transfers it to third party then issuing bank will not be responsible for its payment.

5. Confirmed Letter of Credit: In some cases, issuing bank of importer may not be well known or political/economic situation of importing country may not be stable then exporter may require that the letter of credit should be confirmed by the designated bank in the exporter’s country. The exporter’s bank will despatch this L/C to the designated bank for its confirmation. On receiving confirmation from designated bank, the exporter is relieved and gets assurance about credit-worthiness of importer’s bank. Confirmed and irrevocable letter provides maximum security to the exporter.

6. Unconfirmed Letter of Credit: If letter of credit is not confirmed by designated bank of exporter’s natuon or exporter/exporter’s bank do not send L/C for confirmation, it is called unconfirmed L/C. If exporter and importer have long business relations or importer’s issuing bank is well known, then letter of credit is not sent for confirmation.

7. Ancillary/Back to Back Letter of Credit: It is a type of assisting L/C based on original L/C. The exporter in whose favour L/C has been issued, may request his bank, to issue another L/C, (on the security of original L/C) in favour of his supplier of raw material/components, etc. This type of L/C helps the exporter to get pre-shipment finance against the L/C received from the importer. If exporter has to purchase raw material/components from any supplier on credit then exporter can request his bank to issue L/C against the security of original L/C. This newly L/C helps the exporter in procuring raw material/components on credit.

8. With Recourse Letter of Credit: This letter of credit is issued with a condition that if exporter’s bank is not able to recover the amount from importer’s bank, but has already made payment to exporter, then exporter’s bank can demand the refund of already paid amount alongwith interest from exporter. The exporter’s bank, instead of taking action against importer’s bank, claims refund from exporter. So exporter does not feel secured in such case. Due to this reason, such letter of credit is not much popular.

9. Without Recourse Letter of Credit: In this type of letter of credit, if the exporter’s bank is not able to recover the amount from importer’s bank, but has already paid to the exporter then exporter’s bank cannot claim refund of money from exporter. The exporter’s bank can take legal action against importer’s bank for the recovery of amount already paid to exporter. In this type of L/C, exporter feels safe. 

10. Revolving letter of Credit: This type of L/C is popular among such exporters and importers who indulge in regular and continuous foreign trade transactions. Instead of providing letter of credit for each business transaction separately, importer provides a single letter of credit of large amount and of long duration. This large amount is like ceiling limit. With each business transaction, a separate L/C is not sent. Exporter bank makes payment to exporter for every business transaction till the ceiling or time period of L/C is exhausted. It makes payment in foreign trade transactions very convenient. If the individual trade transactions are of small amount but are very frequent then revolving L/C is very suitable.

● Advantages of Letter of Credit

(i) The exporter is relieved of risk of bad-debts.

(ii) The exporter gets the payment immediately after handing over shipment documents to his bank.

(iii) The exporter can arrange pre-shipment funds against the security of letter of credit.

(iv) It is more beneficial to importer in comparison to the method of advance payment.

(v) All terms and conditions are written in letter of credit. Exporter’s bank and importer’s bank also become party to this letter. So this document becomes more authentic and clear. Hence, chances of dispute are minimized.

(vi) Importer feels assured about timely delivery of goods as exporter is under obligation to despatch the goods for shipment before the expiry of validity period of letter of credit, otherwise the exporter cannot get amount against L/C.

(vii) Importer can get better terms by sending letter of credit.

(viii) The clearance from exchange control authorities becomes easier due to involvement of exporter’s bank and importer’s bank. The authorities feel that provisions of foreign exchange regulations have been duly compiled.

● Limitations of Letter of Credit 

(i) Validity period of letter of credit is very short.

(ii) It is complicated method of payment as it involves excessive formalities. The terms and conditions of trade have to be written in L/C in the initial stage only, which may be difficult for exporter and importer.

(iii) If there is any discrepancy in documents presented by exporter, i.e., these documents are not in confirmity with terms and conditions then importer’s bank can withhold the payment although goods have already been shipped by exporter.

(iv) Revocable letter of credit offers little security to exporter as it can be revoked anytime.

(v) Importer’s bank, exporter’s bank and confirmating bank (Designated Bank) make huge charges which inflates the transaction cost of foreign trade.

3. Bill of Exchange (Draft): It is an important instrument used in international trade to make or receive payment. In export-import transactions, exporter writes the bill instructing the importer or his agent (importer’s bank) to make specified payment on specified date. The exporter is drawer of the bill and importer/importer’s bank is drawee of the bill. The importer/importer’s bank accepts this bill by signing it and returns the accepted bill to the drawer of the bill. This bill is treated as Bill Receivable (B/R) for the exporter and Bill Payable (B/P) for the importer. The bill of exchange can be of two types — sight bill and time bill. Sight bill is different from time bill.

Sight bill is payable by the drawee on its presentation, while the time bill is payable after a specified time period. In case of time bill, it is payable on due date. Due date/maturity date of bill is computed by adding the specified time period and 3 grace days to the date of issue of bill. The drawer of bill (in case it is a time bill) can get it discounted from his bank. In this case, after deducting discount charges, bank will make immediate payment to the holder of the bill. If the bill is discounted from the bank, then the bank (holder of the bill on due date) will receive the payment of the bill from the drawee on its due date.

In case of sight bill, documents of title are handed over to importer only after receiving the payment, so exporter is secure in case of sight bill. Here, no credit period is allowed to importer. In case of time bill, documents of title are handed over to importer before receiving the payment. So, time bill is risky for exporter, but it is to the advantage of importer. Here, credit period is allowed by exporter to importer. If the bill is accepted by the importer, then it is called trade acceptance, and if the bill is accepted by the importer’s bank, then it is called banker’s acceptance. In international trade, generally exporters insist the importers for bank’s acceptance to generate more trust and to get secure about its payment.

4. Open Account: In case of open account method, exporter makes the shipment of goods, sends all documents to importer and allows credit for a specified period to importer. In the method, letter of credit or banker’s acceptance are not required. Title of goods is transferred from exporter to importer without receiving any assurance from importer. This method is used when importer enjoys good credit-worthiness, there is long trade relationship between exporter and importer, exporter is financially sound, and there is no economic/political crisis in importer’s nation. But this method is very risky for exporter, as in the absence of banking channel (Lack of L/C, banker’s acceptance) and trade acceptance (Bill of exchange), it is very difficult for exporter to recover the amount in the situation of default in payment. Exporter has no other way to recover his amount except to take legal action, which is generally costly, lengthy and cumbersome. When there is excessive competition in foreign market, the exporter has to sell goods through open account due to risk of losing the client.

5. Consignment Method: In this method, exporter makes shipment of goods to foreign consignee. These goods are shipped at the cost of consignor. The exporter retains the title of goods until these are sold and bear the whole risk. The consignee acts as agent of exporter and sells goods on behalf of exporter. The foreign consignee will make payment only when he has sold the goods and has recovered the amount. The foreign consignee will make payment only when he has sold the goods and has recovered the amount. The foreign consignee will remit the amount after deducting his expenses and commission. If goods remain unsold then foreign consignee may send the goods back to exporter at the exporter’s expense. So the exporter has to wait for payment for long time and further he may not get any payment if goods remain unsold. So this method involves huge risk to the exporter. The exporter sends goods on consignment only when the foreign consignee is very trustworthy and there is good demand for exporter’s products in foreign market.

6. Counter-trade: Counter-trade is a trade agreement that has a requirement to import as a condition to export. Counter-trade is a bilateral trade agreement between two nations, under which a nation imports from another country on the condition that other country will also imports products of same value from the first country. This type of trade agreement does not require foreign exchange, hence it does not put any burden on balance of payments of a country. It is a type of barter trade. 

Counter trade is a trade practice which is based on barter trade and is used by trading partners who lack in foreign exchange. In counter trade, exporter accepts goods or services from the importer in partial or full payment of his products. If the exchanged goods are not of equivalent value then balance is carried forward in the books of both parties and will be settled in future counter trade transactions. The payment in future trade transactions may involve some conflict between exporter and importer due to various reasons viz. fluctuations in exchange rate, delay in delivery, defective packaging, discrepancy in documents, change in regulations of exchange control, economic or political crisis, etc. The legal remedy for settlement of disputes is very complicated, costly and time consuming as both parties belong to different nations and have different legal set-up. Counter-trade does not involve any such problem. 

● Types of Counter-trade

(1) Barter Trade: It is the simplest form of counter-trade. In barter trade, direct exchange of goods/services takes place between two nations without cash. It can be at the same point of time or the two transactions can be at different points of time but within a specified time period.

(2) Counter-purchase: In this agreement, a firm agrees to purchase specific goods from the country to which sales are made. Suppose a US firm sells goods to Indian company. Indian company has to make payment in US dollars, but US firm instead of receiving the export proceeds in cash, agrees to spend the export proceeds on import of some specific commodity from Indian company in a specified time period. Money exchange takes place in accounting books only. In reality, money does not change hands.

(3) Switch Trading: In this type of counter-purchase agreement, exporter is given counter-purchase credits in consideration of goods sold by him. These counter-purchase credits can be sold/transferred to any third party. Suppose, exporter does not want to import any product against these counter-purchase credits, then he can sell these counter-purchase credits to any trading house, that wants to import goods from that nation. 

General Agreement on Tarrifs and Trade (GATT) and later World Trade Organisation (WTO) has criticised counter-trade as it restricts the free flow of goods from one country to another country. Under counter-trade, benefits of competition do not reach the ultimate consumers. 

7. Gold: In the past, payments in international trade transactions were made mainly through gold. But now gold as a mode of payment has only theoretical importance.

What do you mean by international advertising ? How international advertising is different from domestic advertising ?

 Q. What do you mean by international advertising ? How international advertising is different from domestic advertising ?

Ans. MEANING OF INTERNATIONAL ADVERTISING: The advertising activities undertaken in different nations constitute international advertising. It aims to inform, persuade and remind target audience of multiple nations about the advertiser’s products and services offered. 

International advertising is a communication process of dissemination of advertising message to the target audience in more than one nation. Sometimes, these advertisements differ from country to country depending upon the domestic environment of different nations. The domestic environment of various nations differs in terms of culture, language, literacy rate, level of economic development, government regulations, consumption pattern, fashion, taste, value system, religion etc. Due to these differences, global companies design different ad-copies for different nations. In short, international advertising is a communication process for disseminating ad-message in different nations which may differ in terms of communication, style, culture, consumption pattern, literacy level, language, value system, level of economic development etc. 

INTERNATIONAL ADVERTISING Vs. LOCAL ADVERTISING: International advertising refers to communication of marketing message to target customers in more than one country. Local advertising here refers to advertising within a country. International advertising is different from local advertising in following ways: 

(1) Coverage: It refers to market area. In local advertising, the coverage area is maximum up to one nation or it can be a few states within a nation, or a few regions with in a nation. But the coverage of international advertising is very wide. International advertising campaign may be undertaken for many nations. Some MNCs like Coca Cola advertise their products in more than 150 nations, so the coverage of international advertising is wider than that of local advertising.

(2) Cultural Diversity: As local advertising is confined to a nation or a part of it, so the problem of cultural diversity is not very serious because within a nation the culture may be same or cultural diversity may not be very significant. But in case of international advertising, the problem of cultural diversity is very serious as advertising campaign is undertaken in many nations which may have altogether different culture. There may be different interpretation and perception of colours, symbols, ad-appeals, body gestures, etc. in case of international advertising due to cultural diversity.

(3) Language Problem: In case of local advertising, the problem of language diversity is not very serious as every nation has its national language/mother tongue. But in case of international advertising, different ad-copies have to be prepared as the language spoken in different nations may be entirely different. For example, although India and China are neighbouring countries, yet their spoken languages are entirely different.

(4) Government Regulations: The problem of inconsistency in government regulations related to advertising arises in case of international advertising. Different nations have different code of conduct for T.V. advertising, print media advertising, etc. Similarly, there are different types of regulations for tobacco-advertisements, alcohol-advertisements, etc But this problem is not very serious in case of local advertising.

(5) Media of Advertising: In local advertising, media with local circulation is selected. It can be cable TV, local newspaper, local radio channels, local T.V. channels. The media with global circulation is not selected for local advertising. But in case of global advertising, media with national or international circulation is selected. Online media is very popular in international advertising because it has global circulation. But at the same time, local media may also be used along with global media for intensive market coverage of global advertising.

(6) Selection of Ad-Message Source: In international advertising, such persons are selected as ad-message source for communicating the message as have global popularity. But in case of local advertising, local persons are selected as ad-message source persons.

(7) Selection of Advertising Agency: In case of international advertising, marketing message is to be communicated in many nations, so such ad-agencies are selected for undertaking advertising campaigns as have global network. In case of local advertising, local ad-agencies are selected for executing ad-campaigns.

(8) Advertising Budget: In case of international advertising, commercial message is communicated to target audience in more than one country. Some MNCs undertake ad-campaigns in many nations which may be even more than 150 nations. So ad-budget in case of international advertising may run in million or billion dollars. But in case of local advertising, the ad-message is communicated within one nation only, so ad-budget involves lesser funds.

(9) Mutual Dependence: The international advertiser may undertake local advertising campaigns along with global ad campaigns so as to meet local market requirements of each nation. But local advertiser never undertakes global ad-campaigns. 

What do you mean by international advertising ? How international advertising is different from domestic advertising ?