978-0077842161 Chapter 14 Solution Manual

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Chapter 14 – Products and Services for Businesses

Discussion Questions

1. Define the following terms and show the significance to international marketing:

2. What are the differences between consumer and industrial goods and what are the implications for

international marketing? Discuss.

The committee on definitions of the National Association of Marketing Teachers has broken down the

differences between consumer and industrial goods by four areas. They are:

a. Nature of the market or buyer – this typically means that consumer goods are used by the end

3. Discuss how the various stages of economic development affect the demand for industrial goods.

Perhaps the most significant environmental factor affecting the market for industrial products is the

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Chapter 14 – Products and Services for Businesses

A country in stage five has reached the point of complete industrialization which generally denotes

world leadership in the production of a large variety of goods. Even though these countries have

achieved the highest level of industrialization, there is still a market for industrial products because a

“Industrialization is typically a national issue, and industrial goods are the fodder for industrial

growth.” Comment.

The main points in the solution of this problem center around the desire of the underdeveloped

countries to industrialize. This industrialization is not a haphazard, natural growth, but a planned

growth, and as a consequence the sale or purchase of industrial goods both to help industrialize a

4. “. . . The adequacy of a product must be considered in relation to the general environment within

which it will be operated rather than solely on the basis of technical efficiency.” Discuss the

implications of this statement.

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Chapter 14 – Products and Services for Businesses

The statement really refers to a major problem faced by many U.S. marketers in that the industrial

goods they intend to sell abroad are the same ones which have a market in the United States. The

United States, being a highly industrialized nation, obviously has need for equipment of the highest

technical standards and technical efficiency. For example, highly technical automotive equipment that

Why hasn’t the United States been more helpful in setting universal standards for industrial

equipment? Do you feel that the argument is economically sound? Discuss.

It seems that the main reason why the United States has not been more helpful in setting universal

standards is that a rather large demand still exists for products or replacement parts which are based

5. What role do service, replacement parts, and standards play in competition in foreign marketing?

Illustrate.

Service, replacement parts, and standards are an important aspect of competition in foreign

marketing. These aspects all rate high with the foreign customer; and the company which can meet

these demands, and several others, is the company which will profit and will be more competitive. It

6. Discuss the part industrial trade fairs and trade centers play in international marketing of industrial

goods. What is the difference between industrial trade fairs and trade centers?

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Chapter 14 – Products and Services for Businesses

A trade fair is a government-sponsored attempt to facilitate foreign trade with the “host” country.

Foreign-based companies are invited to exhibit their goods within the “host” country at a particular

location. Trade fairs are scheduled periodically and any interested manufacturer can reserve space to

exhibit his goods.

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Chapter 14 – Products and Services for Businesses

7. Describe the reasons an MNC might seek an ISO 9000 certification.

One research report examining the purchase decision variables of importer managers found that

product quality, including dependability of suppliers and timely delivery, were the most important

variables influencing purchase decisions.

With quality becoming the cornerstone of global competition, companies are requiring assurance of

standard conformance from suppliers just as their customers are requiring the same from them.

Outside of regulated product areas, the importance of ISO 9000 registration as a competitive market

tool in the EC varies from sector to sector. In some sectors, European companies may require

suppliers to attest that they have an approved quality system in place as a condition for purchase. ISO

9000 may be used to serve as a means of differentiating different “classes” of suppliers (particularly

in high-tech areas) where high product reliability is crucial. In other words, if two suppliers are

competing for the same contract, the one with ISO 9000 registration may have a competitive edge.

If a company practices Total Quality Management (TQM), the system probably meets ISO 9000

standards but it would have to be audited and certified as such.

8. What ISO 9000 legal requirements are imposed on products sold in the EC? Discuss.

ISO 9000 is not a legal requirement for access to the EC market but ISO 9000 certification is required

under EC law for product certification on a few highly regulated, high-risk products such as medical

devices, telecommunications terminal equipment, gas appliances, and personal protective equipment.

Although ISO 9000 is voluntary, except for regulated products, the EC Product Liability Directive

puts pressure on all companies to become certified. The directive holds that a manufacturer, including

an exporter, will be liable, regardless of fault or negligence, if a person is harmed on an object that

has been damaged by a faulty product. Thus, customers in the EC need to be assured that the

components of their products are free of defects or deficiencies. A manufacturer with a

well-documented quality system will be better able to prove that products are defect-free and thus

minimize liability claims.

9. Discuss the competitive consequences of being ISO 9000 certified.

A strong level of interest in ISO 9000 is being driven more by “marketplace” requirements than by

government regulations and ISO 9000 is becoming an important competitive marketing tool in

Europe. As the market demands quality and more and more companies adopt some form of TQM

(total quality management), manufacturers are increasingly requiring ISO 9000 registration of their

suppliers. Although a legal requirement in only a small number of directives, ISO 9000 is becoming

increasingly important commercially for gaining access to EC markets. As of 1991, 42 countries had

adopted the ISO 9000 standards as national standards.

10. Discuss how the characteristics that define the uniqueness of industrial products lead naturally to

relationship marketing. Give some examples.

Two basic factors account for greater market similarities among industrial goods customers than

consumer goods customers. First is the inherent nature of the product: industrial goods are goods and

services used in the process of creating other goods and services. Consumer goods are in their final

form and are consumed by individuals. And second, the motive or intent of the user differs: industrial

consumers are seeking profit whereas the ultimate consumer is seeking satisfaction. These factors are

manifest in specific buying patterns, demand characteristics, and a special emphasis on relationship

marketing as a competitive tool.

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Chapter 14 – Products and Services for Businesses

The characteristics that define the uniqueness of industrial products discussed above lead naturally to

relationship marketing. The long-term relationship with customers which is at the core of relationship

marketing fits the characteristics inherent in industrial products and is a viable strategy for industrial

goods marketing. The first and foremost characteristic of industrial goods markets is the motive of the

buyer—to make a profit. Industrial products fit into a business or manufacturing process and its

contributions will be judged on how well it contributes to that process. In order for an industrial

marketer to fulfill the needs of its customer, the marketer must understand those needs as they exist

today and how they will change as the buyer strives to compete in global markets that call for long-

term relationships.

Relationship marketing ranges all the way from gathering information on customer needs to

designing products and services, channeling products to customers in a timely and convenient

manner, and following up to make sure the customer is satisfied.

The industrial customer’s needs in global markets are continuously changing and suppliers’ offerings

must also continue to change. The need for the latest technology means that it is not a matter of

selling the right product the first time but one of continuously changing the product to keep it right

over time. The objective of relationship marketing is to make the relationship an important attribute

of the transaction thus differentiating oneself from competitors. It shifts the focus away from price to

service and long-term benefits. The reward is loyal customers that translate into substantial profits.

Relationship marketing can often give a company the competitive edge when a customer’s ultimate

success depends on more than technical expertise.

11. Discuss some of the more pertinent problems in pricing industrial goods.

Pricing industrial goods in a foreign market is a problem which domestic manufacturers find to be

shaded oftentimes with political overtones. That is, political rather than economic reasons may often

be the backbone of a country’s pricing policy with respect to certain goods. Such is the case in many

of the underdeveloped, yet industrializing, nations. Russia is able to undercut American prices by as

much as 50 percent because of the degree of government control over industry and the desire to build

goodwill in these countries.

Another area where pricing policies led to a problem is that many American manufacturers insist on

payment in cash. Credit terms are often lacking for other countries, especially the underdeveloped

ones. Thus, those manufacturers in competition with American manufacturers oftentimes have a

competitive advantage when they extend more liberal credit terms to various countries.

12. What is the price-quality relationship? How does this affect a U.S. firm’s comparative position in

world markets?

The price-quality relationship is a factor related to standards of various products a country will

produce. Typically, the higher the quality of a product, the higher the ensuing price. This relationship

oftentimes has an adverse effect on the marketability of American products in their competitive stand

against products of another country. That is, the standards for American products are too often

domestic standards and are not commensurate with the needs of a foreign country whose standards

are not as high as ours. Hence, our high-quality products are more costly and less needed than lower-

quality, lower-priced products.

13. Select several countries each at a different stage of economic development and illustrate how the

stage affects demand for industrial goods.

Library project.

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Chapter 14 – Products and Services for Businesses

14. England has started the process of shifting from the inch-pound system to the metric system. What

effect do you think this will have on the traditional U.S. reluctance to such a change? Discuss the

economic implications of such a move.

With England’s recent indication of changing from the inch-pound system to the metric system, the

American reluctance to such a change will probably be softened to a certain extent. That is, with

pressures from competing countries and the search for new markets for U.S. products, the inch-pound

system is slowly but surely being pushed out of competition with the metric system. England realized

that the demands for products measured by the metric system in foreign countries is greater than

demands for inch-pound measured products. America, to a large extent, is not following the basic

marketing concept; we insist on making a product and then looking for the market instead of the

reverse. Even though such a change is one of a large scale, American industry will probably have to

make it eventually if it expects to grow by marketing industrial products to foreign countries,

especially since England’s move will leave the United States virtually alone with the inch-pound

system. This should put added force behind those in the United States who have advocated that the

United States shift to the metric system. If the decision is made to adopt a metric system, the period

of changeover will be at least a decade, and the cost will be very high. In the long run, the United

States cannot afford not to convert.

15. Discuss the importance of international business services to total U.S. export trade. How do most U.S.

service companies become international?

International trade in services is becoming more important in the economies of both the United States

and other countries. It is the fastest growing sector of international trade. It is estimated that services

account for about 1/4 of the value of all international trade. Currently international trade and services

are estimated to be 650 billion dollars compared to $1,870 billion in global merchandise exports. The

United States portion of services and merchandise export is 35–40 percent of overall trade. These

figures, however, may be underestimated since such services as advertising, accounting, management,

consulting, legal services, most insurance, and most of the new computer and communications

services are omitted from the balance of payments figures from which the service portion of trade is

determined.

Most U.S. service companies’ initial entry into the international market is to follow their American

customers to overseas markets. However, as they became established in these countries, they began to

expand their services to local companies. Many firms established branches and acquired local

affiliations to serve both U.S. as well as local clients.

16. Discuss the international market environment for international business services.

Service firms face most of the same environmental constraints and problems confronting merchandise

traders. Protectionism, controls on transborder data flows, competition, and the protection trademarks

processes and patents are probably the most important problems confronting multinationals in today’s

international service market. Protectionism looms because U.S. business service firms are threatening

local companies. Many local companies have developed as a result of foreign service companies

operating in their countries and are now seeking direct and indirect trade barriers to restrict foreign

companies from domestic business service markets. A study of U.S. service firms reported that

ownership restrictions or prepaid royalties, discriminatory tax policies, and barriers to transborder

data flow were the most frequently encountered barriers to trade.

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Chapter 14 – Products and Services for Businesses

Restrictions, however, are not generated only by foreign firms. The U.S. government also creates

problems for service firms. The biggest domestic headache is U.S. export controls. Getting a U.S.

export license is the greatest domestic barrier foreign selling services abroad face. Not only is it time

consuming but it is frequently not clear which of the many U.S. agencies are involved in approving

the request. A last issue of importance facing the business services is protection of property rights.

Since most business services can be duplicated with ease, there is a major problem in protecting

services from piracy. In many cases, laws are not clear and as a result, it is difficult to enforce laws to

protect processes, trademarks, etc.

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