Professional Documents
Culture Documents
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INTERNATIONAL BUSINESS THEORIES:
The impetus for the trade theories stems from the knowledge that although
most nations may have a sufficient variety of productive factors to produce
almost everything every kind of good and product, they are unable to
produce some kind of good or service with same level of effectiveness.
Theories….
May not be definitely conclusive
However do have effect on formulation of trade policies by the national
government
1) Theory of Mercantalism:
Disadvantages:
Winner and loser concept
Accumulation of gold synonymous with accumulation of wealth.
DISADVANTAGES / CRITICISM:
Suppose a country did not have absolute advantage in any product
?
Suppose a country had absolute advantage in producing all goods ?
Argues that if a country could produce all goods more efficiently than
another, it should specialize in export that product in which it was
comparatively more efficient.
Disadvantages:
Loss to industry / nation which produces goods with comparative
disadvantage and comparative higher costs.
Simplistic assumptions regarding the distribution of loss / gain in
producing / trading.
5) Leontief Paradox:
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GOING GLOBAL
Seth uses the measure that he calls as share holder value to determine
the success of the global - organization.
Economic
POLITICAL
Socio Cultural
Technological and
Legal Considerations.
different groups,
representing different interests,
Conflict over different preferred outcomes.
( conflicts like groups that favor free trade , lower tariff barriers and those
that advocate protectionism. )
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conducted consists of three important elements that are generally complex
and intertwined.
EXAMPLE 1991- case where the directors of the British Company MATRIX
CHURCHILL ENGG in ENGLAND were Prosecuted by the British
Government for exporting heavy steel pipes to IRAQ bcos they were
suspected to have possible military applications there.
best described as the combined politics of the home, host and the 3rd
countries.
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Major impact in ways that may not be immediately apparent. -- eg
multilateral agreements between int’l organizations like GATT, the U.N.
and the common wealth may constitute an impediment to free trade as well
as to the nature and the scope of the operation of the int’l firm.
Case in point – Mazda automobile smooth ride , low pollution, ran into
bumpy curves – 11 miles / gallon – environmental protection agency.
Fuel efficiency vis-a-vis reduced air pollution – sales dropped by 39%
Bharat II , Euro II
-TRANSITION FROM:
What does the consumer want ?
To
What can the consumer have ????
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Political risk is the likelihood that the political forces will cause unexpected
and drastic changes in a country’s environment that significantly affect the
opportunities and operations of a business enterprise.
OR
Political risks are the likelihood that political factors will cause drastic
changes in a country’s business envrnmt that adversely affect the political
and other goals of a particular business enterprise.
CASE IN POINT I : -
In the after math of the 1979 Islamic revolution in IRAN, the Iranian govt.
assets of numerous US companies were seized by the new govt. without
compensation.
THUS,
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PARTIAL – may refer particularly to certain sectors of industry and
commerce and not others with regard to investment, local / national
pricing, local content laws , taxation.
Eg. The US imposition of embargo on export of all equipment of US origin
to the FSU, even if made overseas under license. – political boycott of the
SOVIET PIPE LINE- led to problems for the British company – John Brown
Engineering ( license for turbine blades from G.E.) found itself in the
impossible predicament of being threatened with repercussions from US
administrations from one side and that of the British Govt.on the other.
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Or a change in the minimum wages laws may induce a company to
farm out some production work to contractors in countries with more
competitive wage rates. ( contract manufacturing )
Import restrictions
Price control
Exchange control
Forced equity transfer
Confiscation
Domestication
Nationalization
Boycotts
Economic nationalization – tariff / non tariff barriers , subsidies ,
quotas , compulsions.
MANDATING DOMESTICATION:
a)Joint Ventures:
d) Licensing:
A strategy that practically eliminates almost all risks is to license
technology for a fee. Most effective for high end technology applications.
e) Planned Domestication:
Is not preferred business practice but the alternative of a (host)
government-initiated domestication can be disastrous and possibly lead to
confiscation…
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a)The bargaining power tends to be greater, the larger the size of the
required fixed investment.
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INTERNATIONAL MARKETING – THE MNC WAY
RELATIONSHIP MARKETING:
- IN brief – the focus shifts from product to process , with process defined
as a group of activities with a common purpose and expectations of
results.
- The basic rationale for this relationship is that the two industries –
washing machines and detergent are co-dependent. - They cant be
designing detergents for 10 years out for washing machines that cant
use them and Whirlpool cannot design washing machines without the
knowledge of the detergents that will be available.
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STRATEGIC INTERNATIONAL ALLIANCES:
- A SIA implies:
(a) that there is a common objective
(b) one partners weakness is offset by another ones strength
(c) that reaching the objective alone would be too costly, take too much
time or be too risky.
(d) that together their respective strengths make possible what otherwise
would be unattainable.
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STRATEGIC THINKING IN INTERNATIONAL MARKETING:
S: dividing into distinct groups who might require separate product / market
mixes. – generate SPECIALIZATION
Segment Evaluation:
MEASURABILITY: The degree to which segments can be identified and
their size /purchasing power be measured.
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If costs are high (product conditional factors, patent rights) the markets can
be approached thru investments or strategic alliance.
SEGMENTATION VARIABLES:
a) General Market
those that do not vary across purchase situations.
d) Develop Products:
- objective is to increase market by improving product performance by
using new technologies.
- Approach requires planned research, development and marketing
programs for specific untouched niches.
- Eg: Nintendo.
e) Extend Markets:
- Enter new market segments with core product offerings.
- Changes include higher degree of sophistication, changes in the promo
mix.
Eg Cadbury’s , Nintendo A- Version
f) Widen Activities:
- Here the company looks for new product and market opportunities.
- Strategy often requires the largest amount of investment and is most
successful when synergies can be found with current operations.
Eg: Kellogs developing new frozen foods for the dual working family, lever
group into Genomics.
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MAJOR DECISIONS IN INTERNATIONAL MARKETING
DECISION VARIABLE:-
- Index points on the MARKET ATTRACTIVENESS vis-à-vis
COMPETITIVE ADVANTAGE grid.
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Market selection could involve proactive / reactive / expansive / Nearest
neighbor approaches.
REACTIVE:
- selection process is informal, unsystematic and purchase oriented.
- However in a survey of manufacturers of the USA it cane out to be that
41% of the regular exporters and 62.5% of the sporadic
exporters began by reacting to an unsolicited inquiry.
PROACTIVE:
- formal process wherein the exporter is active in initiating the selection
of foreign markets and also in the further segmentation of these
markets.
- Is a formal well defined process.- result of systematic market research.
- Involves expansive and contractible methods.
CONTRACTIBLE APPROACH:
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The procedure involves 3 stages:
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DECIDING HOW TO ENTER:
Direct Exporting
Indirect Exporting
Licensing
Joint Ventures
Franchising
Consortia
Contract Manufacturing
Direct Investments
Flexibility Required:
Appointment of agent / distributor required only where it is deemed
unlikely that there will be much future expansion by the company
directly into that market.
Risk Factors:
Risk may be diminished by minimizing the investment stake in the
company by accepting local joint venture partner etc. Also important
are third country risks – boycotts (Arab world for Israel )
FEATURE CHARACTERISTIC
Ethnocentric Perceived as being closely related to its
country of origin
Polycentric Based in a few countries with no conspicuous
image
Regiocentric Overall image identifiable not with a country
but a region.P&G in Europe
Geocentric Globally coordinated with their own complex
global sourcing, management reporting
systems etc Pepsi, IBM, Coca-Cola
National Unilever in India
Responsiveness
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DIRECT EXPORTING
This means is the easiest and most common. Risks and financial losses
can be minimized ( over indirect exporting ). The early motives are to skim
the cream form the market or gain business to absorb overheads. Potential
of return is also relatively higher
Forms:
A) export department
B) overseas sales branch or subsidiary
C) Traveling representative
D) Foreign based distributors / agents – who would buy the goods and own
it – might be given exclusive rights to represent the manufacturer.
LICENSING
Advantages
Advantageous when capital is scarce, import restrictions forbid other
means of entry, a country is sensitive to foreign ownership or when it is
necessary to protect patents and trademarks against cancellation or non
use.
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Licensing is a viable option where manufacture near to the customers base
is required.
Disadvantages
Potential Disadvantage:
the firm has less control over the licensee than if they were to set up their
own facility.
The fact that there is often a ceiling to licensing income per product,
sometimes about 5% on the selling price, innovating products at least
could rate higher rewards if marketed in other ways.
Negotiations with licensee and or the local govt are costly and often
protracted.
JOINT VENTURES
Provide less risky way to enter markets that pose legal and cultural
barriers than would be the case in an acquisition of an existing company.
( eg – in mid 90’s – USA acquired 225 Eu firms and entered into 67 JV’s ,
however in Asia, they acquired only 27 existing companies but formed 97
JV’s )
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JV’s are of TWO TYPES:
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POSSIBLE DRAWBACKS:
Conflict in tax interests between the partners particularly where one may
represent the local government interests.
FRANCHISING
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Types of Franchise Agreement
A) MASTER franchise
gives the franchisee the rights to a specific area with the authority to sell or
establish sub franchises ( eg Mc’Donalds)
B) LICENSING franchise
right to use a product / good / service or any other asset for a fee ( eg
Coco Cola licenses local bottlers in a an area or region to manufacture and
market Coco – Cola using syrup sold by Coco Cola. Rental car companies
often enter foreign market by licensing a local franchisee to operate a
rental system under a trade mark of the parent company. )
1) To the Franchisor:
2) To the Franchisee:
3) To the Consumer:
- standardized product
- fixed price
- benefits of new technology
- technology transfer
- creates employment and business opportunity
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CONSORTIA AND CONTRACT MANUFACTURING
CONSORTIA:
CONTRACT MANUFACTURING:
FDI
-int’l companies / mnc’s seek out host govts. Which offer fiscal and
economic incentives to new investors.
-Look at govt to protect their existing investments and assets in host
countries.
-For international competitiveness.
-Protective duties , measures / tariffs / weakening exchange rate
leading to a situation wherein LANDED PRODUCTS CAN NO
LONGER COMPETE WITH LOCAL PRODUCTS.
-Operating savings in form of labor / material / resource availability.
tax another fiscal incentives.
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FDI- factors that induce / facilitate
Licensing = granting a foreign entity the right to produce and sell the firms
product in return for royalty fee on every unit sold.
LIMITATIONS OF EXPORTING:
-constrained by transportation costs, trade barriers ( low value to
freight ratio eg cold drinks. )-Quotas – protectionist threats / anti
dumping duties etc.
LIMITATIONS OF LICENSING:
-threat of giving away valuable technological know how to a potential
foreign competitor eg RCA of USA – leading edge tv tech to sony.
-Does not give a firm the tight control over manufacturing, marketing
and strategy in a foreign country that may be required to maximize
its profitability.
-when the competitive advantage of a firm lies in its manufacturing /
marketing / manufacturing capabilities.
A) P-L-C ANALOGY:
e.g. – XEROX first introduced the photo copier in the States and
then set up production facilities in Japan ( Fuji- Xerox) and Great Britain (
Rank Xerox )
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UNDERSTANDING IMPLIED- once a market is large enough to
support local production , FDI will occur.
B) STRATEGIC BEHAVIOUR:
Theory to the effect that FDI flows are a reflection of strategic rivalry
between firms in the global market place.
One to one relationship between FDI and the rivalry in the
OLIGOPOLISTIC INDUSTRY.
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IT FOLLOWS THAT THE LARGER THE MARKET IN WHICH THAT
ASSET IS APPLIED, THE GREATER THE PROFITS THAT CAN BE
EARNED FROM THE ASSET.
MODES OF FDI
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FACTORS AFFECTING THE MODES OF ENTRY:
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INTERNAL FACTORS Exporting / Licensing Branch Equity
Agent / Subsidiary investment /
Distributor exporting Production
Differentiated Products GF GF
Standard Products GF
Service-Intensive Products GF GF
Technology-Intensive products GF
Low product Adaptation GF
High Product Adaptation GF GF GF
Limited Resources GF GF
Substantial resources GF GF
Low Commitment GF GF
High Commitment GF GF
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GATT AND WTO:
GATT WTO
Its rules are applicable to trade in merchandize Its rules are applicable to trade in
goods. merchandize, services and also trade in related
Aspects of Intellectual Property.
It was designed with an attempt to establish It is established to serve its own purpose.
International Trade Organization.
It was applied on a provisional basis. Its activities are full and permanent.
Dispute settlement was not fast and automatic. Dispute settlement was fast and automatic,
much less susceptible to blockages.
CUSTOMS UNION:
one step ahead
not only eliminates all restrictions among trade members
also adopts uniform commercial policy against non members.
COMMON MARKET:
free trade among members and uniform tariff policy among non
members+
free movement of labor & capital among non members
ECONOMIC UNION:
still more advanced level of integration
satisfies overall conditions of common market +
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INTERNATIONAL FINANCE
Features
integrated and interdependent nature
effected by changes in exchange rates, inflation rates, interest rates,
etc.
at MACRO ECONOMIC level = International Monetary System
at MICROECONOMIC level = International Financial System
a) Gold Standard
an attempt to establish some form of value parity of national
currencies in term of gold
Each participating country committed itself with little coercion to
guaranteeing free convertibility of its currency into gold at a fixed
price.
b)Futures and option market – a contract which commit the parties to buy
and sell financial instruments at set prices on some agreed future dates.
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PAYMENT FOR INTERNATIONAL BUSINESS:
different legal systems within which the int’l marketer has to decide his
payment policy and issues relating to recovery of goods:
ACCOUNTS RECEIVABLES:
Prepayment / advance.
Documentary Credit
Consignment
DA / DP
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INDIA’S FOREIGN TRADE:
Eg. COMESA,
EU and NAFTA,
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Free Trade Agreement with Sri Lanka
E.g. NAFTA
SAPTA (SAARC Preferential Trade Agreement)
Reduction of tariffs by SL
ASEAN Nations
Afghanistan
Thailand
Nepal
Bhutan
Bangladesh
Bhutan
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Other FTAs in process:
Gulf Cooperation Council (Qatar, Oman, Bahrain, Kuwait,
UAE, Saudi Arabia)
Brazil
China
Taiwan
Singapore
Malaysia
Myanmar
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OTHER INITIATIVES TO PROMOTE EXPORTS:
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INTERNATIONAL PRODUCT LIFE CYCLE:
New technology is now seen and need base developed by other advanced
nations like France, Canada , UK etc.
Stage 3 - MATURITY:
Growing demand in other advanced nation encourages innovating firm (in
the USA) to start local production with help of the local government.
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Stage 4 – WORLDWIDE INNOVATION:
The innovating firm faces decline in demand due to lower demand from
other advanced nations and LDC’s
Firms in other advanced nations use their lower prices to enter the
advanced country (US) markets.
Stage 5
LDC’s start production on their own to satisfy their own needs as well as to
produce for the US markets.
Result – product of the advanced country (USA) firm are undersold in their
own country.
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DISTRIBUTION CHANNELS:
Can be viewed as sets of interdependent organizations involved in the
process of making a product or service available for consumption or use.
How can the firm keep its distribution strategy up to date. ? – (boom in
retailing, internet giving new dimension to direct marketing, evolution in
buying behavior, laws affecting distrbn are changing – network mktg
currently non-taxable, technological changes – IT replaces inventory /
COLD CHAIN.)
-distribution
infrastructure and pattern vary from country to country.
-Storage and transportation possibilities.
-Dispersion of income.
-Consumer income and buying behavior.
-Strengths and behavior of competitors (forcing a firm to adapt / use the
same channel case in point – Pharma Selling)
COSTS:
Initial, Maintenance and Logistics costs. Include locational costs, setting up
costs Ongoing cost of sales, advantages and profits to intermediaries.
Transportation, storage, break bulking, customs clearance etc.
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CAPITAL REQUIRED:-
Inventory costs, accounts receivables etc.
Offset by cash flow patterns from each channel alternative. Case in point –
Establishment of a direct sales channel thus often require the greatest
capital investment whereas using distributors often reduces the investment
required.
CONTROL:
Direct Sales force – greatest degree of control over price, promotion,
amount of sales effort and type of retail outlet.
COVERAGE:
Balance between reach of channel in urban and rural markets.
SYNERGY:-
Channel choice can be influenced by the complementary skills that
enhance the total channel systems productivity.
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Steps in Purchase Description Corresponding Role of the Channel
process of
Consumers
Product Decision An assortment Creation of the need of a new
decision where product.- AWARENESS.
the consumer
decides which
product to buy. Abstract need – wherein different
products could satisfy the need.-
Channel provides assortment of
goods – to help consumer make
better choice.
Brand Brand decision Make the brand enter the
a)Consideration consideration set. – Window displays
b)Information / POP advt.
c)Evaluation Information Provider – brochures /
displays, info from salesman.
(Satguru)
“OBTAINING From consdrn set to prospecting via
THE DEMAND” promotion.
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Decision Consid- Info Evalu- Channel Role
Process eration Search ation
set
Picking/ No No No No evaluation process thus -
Impulse ENSURE BRAND VISIBILITY.
Variety Yes No No Buyer forms a consideration
Seeking set and chooses a different
brand each time purchase is
made. – ENSURE BRAND
ENTERS CONSIDERATION
SET THRU RECOGNITION
Habit No No Yes Buyer looks for reinforcements
to continue with the same
brand- thus SUPPLEMENT
THE BUYERS EVALUATION
THRU TESTIMONIAL BASED
POP ADVERTISING.
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CHANNEL DESIGN
- Channel design does not refer to structures that have simply evolved, it
refers only to those where the management has taken an active role in
the development of the channel.
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CHANNEL PARTNER ROLE PLAYED / VALUE ADDITION
Franchising Mc Donald's
Dealer Direct For those products needing high after sales service
support eg – Heavy Equipment dealers.
Buying Club Services requiring membership – CD’s / tapes /
books BARNES and NOBLE.
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RETAILER BASED CHANNEL FORMATS:
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INNOVATIVE CHANNELS ……..
Multi Level Marketing Salesperson not only sells but recruits other sales
people who become a leveraged sales force that
gives the original salesperson a commission on
sales.
Co-operatives Companies usually in the same industry create a
organization in which each member becomes a
share-holder. The organization uses a combined
strength of the shareholders to get economies of
scale.
Vending / Kiosks Narrow product line ~ machine Dispensers.
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