IMPACT OF ECONOMIC AND POLITICAL FACTORS ON MARKETING IN EMERGING COUNTRIES: A BRIEF ON MNES IN INDIA

1. Introduction

In the present business setting, globalization and internationalization are pivotal for sustainable business growth (Root, 1994). There are numerous benefits for companies to go global, such as the stagnant nature of the local market and the potential to enhance sales through global market penetration. As noted by Kotler, Armstrong, Wong, and Saunders (2008), when companies decide to remain within their local market and not go global, they fail to capitalize on chances of entering a foreign market and there are chances that they will end up losing their local markets. This is based on the understanding that while they remain local, other foreign companies can enter the market and compete with them—effectively leading to the loss of market share for these companies (Daniels, Radebaugh & Sullivan, 2007; Kotler et al., 2008).

Another reason companies internationalize is to help them reduce unit costs of production expenses (economies of scale) and also to provide more potential for them to grow (Adekola & Sergi, 2007; Czinkota, Ronkainen & Moffett, 2008). When companies internationalize, Bennett (1995) noted that such companies can acquire new approaches and ideas for problem solving. On their own, managers can also develop personal expertise, individual effectiveness, and become more innovative in areas of management implementation through cross-widened horizons (Bennett, 1995). For companies that decide not to internationalize, they will eventually discover that there are no more local markets as other foreign companies penetrate their local market (Root, 1994; Cullen, 2002).

As companies internationalize, so do their management activities (which include marketing) (Root, 1994). The way they run businesses in their local market might not be the same in foreign markets. For instance, nude (or half-naked) models are not allowed in marketing activities across the majority of the Arab world, although this might be permitted in Western nations.

In view of the above understanding, this paper is designed to understand how marketing activities in developing nations are influenced by economic and political factors. In order to present a better and comprehensive review of the context of this research, the focus will be on multinational enterprises (MNEs) in India (a developing country and member of the BRICS nations).

2. Impact of political factors on MNEs' marketing in India

A political system can be defined as a set of formal institutions that are used to constitute the government of a given state (Cavusgil, Knight, & Riesenberger, 2012). The political system is used to establish stability by creating a set of rules and offering necessary protection from external threats. In fact, political systems are used to allocate valued resources for the successful running and growth of a given state (Cavusgil, Knight, & Riesenberger, 2012). All countries have their own political systems that are created through history, culture, and economic settings (Cavusgil, Knight, & Riesenberger, 2012). It is also important to note that political systems are dynamic and continually evolve over time. The political system evolves in line with the constituents’ (populace and industries that provide support for the political system) demands and experiences evolution in the national and international spheres (Cavusgil, Knight, & Riesenberger, 2012).

The activities and decisions of a company can be influenced by the political environment in the market they operate in, which includes both local and international political forces (Doole & Lowe, 2004). Political organizations, parties, views, and ideology of those in power can all have an impact on the political environment (Bensoussan & Fleisher, 2008).This is also the case in international markets, as politics plays a vital role in a company’s decisions as it relates to market investments and the acquisition of necessary expertise necessary for the development of such a market (Doole & Lowe, 2004).

While some countries are relaxed with foreign corporations, others are not so complacent. Thus, companies that intend to internationalize must take into cognizance the bureaucracy of the country where they desire to penetrate (Kotler et al., 2008). How governments view freedom and business, which implies how companies undertake operations in their sphere, is completely influenced by the political nature of such a government (Czinkota & Ronkainen, 2007; Cavusgil, Knight, & Riesenberger, 2012). In the event that the political nature of the foreign market is not stable, the company internationalizing might be presented with a different and more complex kind of risk that it might never face in its local market. Foreign market risk can have equal or varying effects on internationalizing companies (as a result, it is always critical that all companies conduct an independent study of the nature of the effects that such political systems can have on them).Additionally, the country’s risk can be raised by a new government developing interests and initiatives that shift from existing political values (Cavusgil, Knight, & Riesenberger, 2012). Additionally, the tendency of the government to change existing regulations and rules can have an influence on international business approaches and offer both challenges and opportunities to companies that want to internationalize (Doole & Lowe, 2004).

From the above review of literature, it is evident that the marketing activities in India will be influenced by the level of political activity. That is to say, in the event that the political system is stable, more opportunities for growth will be presented to the company through its marketing activities than vice versa. In the case of India, however, it has been found that the political system is very stable with definitive rules and regulations that cannot easily be changed due to the highly democratic nature of the Indian political system. Thus, the political system of India presents more opportunities than threats to MNEs in the country.

 

3. Impact of economic factors on MNEs' marketing in India

The economic environment comprises the nature of the economic system, the economic policies developed by the government, business cycles, the rate of inflation and interest rates (Bensoussan & Fleisher, 2008). Before companies internationalize into any country, they need to be vividly informed by the country’s economic policies and the market that is developing in that country. When they have access to this information, the company will be better positioned to decide whether it can compete with other companies in the market and ensure a profitable business process. Indeed, if the company desires to attain maximum benefit, they must know the situation in the market and ensure that the market is ready for their products (Doole & Lowe, 2004).

It is considered a necessity that international marketers have a clear understanding and estimation of the economic development of a given market (Kotler et al., 2008). In fact, such understanding is important at the regional level as it relates to how trade is integrated in the region, at the country level, market level, and global level as it relates to infrastructure for global trade and the development of trade agreements (Doole & Lowe, 2004).

In a country, there are two economic factors that define the extent of that country’s attractiveness for business, and they are: the industrial structure of the country—which determines the products and services needed; and the income distribution (Kotler et al., 2008).

In the case of industrial structures, there are four kinds that need to be considered. The first such is the subsistence economy, which implies that the majority of people in the economy are engaged in agricultural activities. This economy consumes the majority of its products and only has a few market opportunities. The second is raw-material-exporting economies, and it represents an economy that is very productive in a given natural resource or resources but impecunious in other resources. These markets present great opportunities for heavy equipment products, trucks, and tools. Additionally, if the level of the wealthy upper class and foreign residents is high, the economy can also present numerous benefits for luxury products (Kotler et al., 2008). Industrializing economies are the third type, and 10 to 20 percent of the country’s economy is covered by manufacturing output. It is normal for new rich classes to be created by industrializing economies, and they also create a growing but limited middle class, with both classes demanding imported products. The final type is the industrial economy. This kind of economy represents large exporters of investments and manufactured goods. They are found to export raw materials, semi-finished products, and finished products to other countries. This kind of market presents numerous opportunities due to its numerous manufacturing activities and large middle class (Kotler et al., 2008).

From the above analysis, India can be described as an industrializing market with a few rich and middle classes compared to its low-class residents. Thus, it does present a huge issue in terms of setting the price for products (a marketing activity). For instance, setting the price too low to ensure the wealth of the lower classes (who make up the vast majority of the population) could lead to the rich and middle class residents considering the products to be of lower quality (reducing their purchase intention in the process). Being an industrializing nation, the management of companies might not have the necessary expertise required for executing complex and sophisticated marketing activities, which will lead to the need to import such and further increase the cost of marketing for MNEs in this country.

4. Conclusion

The rise in globalization is, without a doubt, presenting numerous opportunities for businesses. This is based on the understanding that when companies internationalize, they will be better positioned to generate more sales and profits as a result. Basically, businesses fight for growth from various angles, but opportunities for such growth are better enhanced in the event that they maintain a presence in various markets. For instance, a business that has operations in India and Nigeria can be able to leverage losses in Nigeria with high performance in India. Thus, internationalization is important for the success of any given business.

However, marketing activities are influenced in international markets by a number of factors, of which economic and political factors are some of them. The political factor determines the level of risks that businesses will have to face, while economic factors determine the kind of products and services they will offer as well as opportunities for growth. In essence, it can be concluded from this research that businesses should expand into markets with stable political systems and economies that provide higher opportunities for business success (with industrialized and industrializing economies considered to be the best of such).

5. References

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Bennett, R. (1995), International Marketing—Strategy, Planning, Market Entry, and Implementation. London: Kogan Page Limited. pp. 18, 97, 179-180, 182.

Bensoussan, B. E., and Fleisher, C. S. (2008). Analysis Without Paralysis: 10 Tools to Make Better Strategic Decisions, New Jersey: Pearson Education Inc., pp. 169, 171, 180, and 181.

Cavusgil, S. T., Knight, G., & Riesenberger, J. R. (2012). International Business, The New Realities, Pearson Education Inc., New Jersey, pp. 125, 127, 129, 211, 212, 289.

Cullen, J. B. (2002), Multinational Management: A Strategic Approach, 2nd ed., SouthWestern College Publishing, Cincinnati, OH.

Czinkota, M. R., Ronkainen, I.A., & Moffett, M. H. (2008). Fundamentals of International Business A Wessex publication, pp. 1.

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Kotler, P., Armstrong, G., Wong, V., & Saunders, J. (2008). Principles of Marketing. Edinbugh Gate: Pearson Education Limited. pp. 941, 945-950, 953, 956-959.

Root, F. (1994). Entry Strategies for International Markets. San Francisco, USA: Jossey-Bass, pp. 1-3.