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International Marketing
Czinkota & Ronkainen Spring 2010
Web Slides
Ch. 9-15, 17
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Chapter 9
Market Entryand Expansion
Chapter 9
Market Entry and
Expansion
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Why Firms go International
Proactive Stimuli
Profit advantage
Unique products
Technologicaladvantages
Exclusive information
Economies of scale
Market size
Reactive Stimuli
Competitive pressures
Overproduction
Stable or decliningdomestic sales
Excess capacity
Saturated domestic
markets Proximity to customers
and ports
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Foreign Market Entry Strategies1/2.
(A) Exporting (Casual, Indirect, Direct)(B) Contractual Agreements
Licensing (patents, technology, trade secrets)
Franchising (brand, managerial know-how)
Subcontracting (from prime contractors)
Contract manufacturing (for foreign brands)
Turnkey Operations
Co-production Agreements
Management Contracts(IK)
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Foreign Market Entry Strategies2/2.
(C) Joint Ventures (minority/majority equity)
(D) Wholly-Owned Subsidiaries Local Sales only
Local Assembly & Sales Local Production & Sales
Local Production, Sales & Export
Start-up of new operations
Merger with an existing enterprise Acquisition of an existing enterprise
Greenfield investment
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Exporting
Export management companies (EMCs)
Domestic firms that perform internationalmarketing services as commission
representatives or distributors for other firms. Two primary forms of operation
Take title to goods and operate
internationally. Perform services as agents.
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Exporting
Trading companies The most famous trading companies are the
sogoshoshaof Japan.
Reasons for the success of the Japanese sogoshosha:
gather, evaluate, and translate market informationinto business opportunities.
Their vast transaction volume provides them with costadvantages.
serve large markets around the world and havetransaction advantages.
access to capital, both within Japan and in theinternational capital markets.
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Exporting
Export trading companies Act (ETCs) Designed to improve the export performance
of small- and medium-sized firms.
Permits bank participation in tradingcompanies to allow better access to capital.
Reduces the antitrust threat to joint exportefforts to enable firms to share the cost of
international market entry. Must balance the demands of the market and
the supply of the members to be successful.
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Trading companies
Independent distributors that match up buyers andsellers. Do not represent a manufacturer but find manywho can supply a buyer. Most major trading companies are the sogoshoshaof
Japan.
Reasons for the success of the Japanese sogoshosha:
Are organized to gather, evaluate, and translatemarket information into business opportunities.
Cost advantages because of vast transaction volume
Serve large markets around the world and havetransaction advantages.
Have access to capital, both within Japan and in theinternational capital markets.
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Going International
E-commerce: Offering goods and services over theWeb: Corporate websites.
B-to-C and C-to-B forums.
Firms must: Provide 24-hour order taking and customer support
service (often outsourced)
Have the regulatory and customs-handling expertise
to deliver internationally. Understand global marketing environments for further
development of business relationships.
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Licensing and Franchising
Advantages of licensing Capital investment or knowledge or marketing strength is not
required.
Additional return on R&D investments already incurred.
Reduces the risk of R&D failures Ongoing licensing cooperation and support enables the Licensee
benefits from new developments.
Allows a firm to test a foreign market without major investment ofcapital or management time.
Preempts a market for competition, especially if the licensorsresources permit full-scale involvement only in selected markets.
Increases protection of intellectual property rights.
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Licensing and Franchising
Disadvantages of licensing
Licensor gets limited expertise.
Licensor creates its own competitor.
Allows multinational corporations (MNCs) tocapitalize on older technology.
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Foreign Direct Investment
Types of ownership - Joint ventures
Collaborations of two or more organizationsfor more than a transitory period.
Partners share assets, risks, and profits inproportion to ownership.
Governmental and commercial reasons for
joint ventures
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Foreign Direct Investment
Advantages of jointventures Pooling of resources. Better relationships with
local organizations. The partners
knowledge of the localmarket.
Minimize exposure topolitical risk.
Tap local capitalmarkets.
Disadvantages of jointventures
Different levels ofcontrol are required. Difficulty in maintaining
the relationship. Disagreements over
business decisions. Disagreements over
profit accumulation anddistribution (profitrepatriation).
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Firms are categorized as: Resource seekers - Search for natural and
human resources.
Market seekers - Search for betteropportunities to enter and expand withinmarkets.
Efficiency seekers - Attempt to obtain the most
economic sources of production.
Foreign Direct Investment
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Bring in capital, economic activity, and employment. Transfer technology and managerial skills.
Encourage competition, market choice, andcompetitiveness.
But, they: Drain resources from host countries.
Starve smaller capital markets.
Discourage local technology development.
Bring in outmoded technology.
Create new competition for local firms.
Foreign Direct Investors
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Chapter 10
ProductAdaptation
Chapter 10
Product Adaptation
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Product Variables
Products can be differentiated by theircomposition, country of origin, tangiblefeatures such as packaging or quality, or
augmented features such as warranty.
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Standardization vs. Customization:Decision Criteria
Nature of Product Technology Differences Weights & Measures Physical Environment Cost/Benefit Relationship Legal Requirements Competition Support Systems
Cultural differences Market Conditions
(IK)
TM 89 Product Design Strategy Standardization vs. Customization
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Exhibit 10.2 - Standardization versusAdaptation
Factors encouragingstandardization
Economies of scale inproduction
Economies in product R&D Economies in marketing
Shrinking of the worldmarketplace/economicintegration
Global competition
Factors encouraging adaptation
Differing use conditions
Government and regulatoryinfluences
Differing consumerbehavior patterns
Local competition
True to the marketingconcept
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Government Influences onAdaptation
Government regulations
Political agendas
Firms can influence these regulations by lobbyingdirectly or through industry associations.
Economic integration reduces discretionarygovernmental regulations to some extent.
Nontariff barriers
Include product standards, testing or approval
procedures, subsidies for local products, andbureaucratic red tape.
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Customer Variables
Customer characteristics, expectations, and preferences
Physical size, local behaviors, tastes, attitudes, andtraditions.
Consumption patterns, psychosocial characteristics,general cultural criteria
Product positioning - Consumers perception of abrand as compared with that of competitors brands.
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Economic Conditions
Economic development
Affects demand characteristics and helpsdetermine potentials for selling certain kinds
of products and services. Backward innovation of the product may be
required to meet local requirements.
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Competition, Environment
Competitive offerings - Monitoringcompetitors product features is critical inadjusting the product for competitive
advantage.
Climate and geography influence coreproduct; tangible elements (mainly packaging);
and the augmented features.
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Global Brand Development
Questions to ask when managementseeks to build a global brand:
Will anticipated scale economies materialize?
How difficult will it be to develop a globalbrand team?
Can a single brand be imposed on all markets
successfully?
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Global Brand Development
Create a compelling value proposition (warrantycan also be a value proposition)
Think about all elements of brand identity andselect names, marks, and symbols that have the
potential for globalization
Research the alternatives of extending anational brand versus adopting a new brand
identity globally Develop a company-wide communication
system
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Packaging Considerations
three major functions: protection, promotion, userconvenience.
Materials: vary by transportation mode, transit conditions,storage, display, length of time in transit, regulations...
The promotional aspect of packaging relates mostly tolabeling.
User convenience. Containers must withstand logisticschallenge, and yet must be easy for customers to open.
Package aesthetics: prudent choice of colors and package
shapes. Package size: varies by purchasing patterns and market
conditions.
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Country of Origin (COO)
The origin of a product may have a strongeffect on consumer perceptions and biases.
This effect reduces as: Customers become more informed.
Countries develop the necessary bases tomanufacture products.
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Product Counterfeiting
Counterfeit goods Goods bearing an unauthorizedrepresentation of a trademark, patented invention,or copyrighted work that is legally protected in thecountry where it is marketed.
The European Union estimates that trade incounterfeit goods accounts for 2 percent of totalworld trade.
The largest number of counterfeit goods are
sourced from China, Brazil, Taiwan, Korea, andIndia.
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Combating Counterfeiting
Some acts, agreements, and alliances that help combatcounterfeiting include:
The Omnibus Tariff and Trade Act of 1984
The Trademark Counterfeiting Act of 1984
The Trade-Related Aspects of Intellectual PropertyRights (TRIPS) agreement
The International Anti-Counterfeiting Coalition (1978)
Counterfeit Intelligence and Investigating Bureau
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Chapter 11
Export Pricing
Chapter 11
Export Pricing
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Price Dynamics
The alternatives strategies for first-time pricing: Skimming - Achieve the highest possible contribution
in a short initial time period, and then gradually lowerthe price as more segments are targeted and moreproducts are available.
Market pricing Determined based on competitiveprices; production and marketing is adjusted to theprice.
Penetration pricing Offer products at a low price togenerate volume sales and achieve high marketshare, to compensate for lower per unit return.
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The Setting of Export Prices
Export pricing strategy The standard worldwide price may be the
same regardless of the buyer ormay bebased on average unit costs of fixed, variable,
and export-related costs. Dual pricing differentiates between domestic
and export prices.
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Export pricing strategy Approaches to pricing products for exports:
Full cost method Fully allocating domestic and foreigncosts to the product; ensures profit margins but maycompromise the firms competitiveness
Marginal cost method Considers direct costs of
producing and selling products for export as the floorbeneath which prices cannot be set.
Market-differentiated pricing
based on the dynamic conditions of the marketplace.
prices change frequently due to changes in competition,exchange rate, or environment.
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The Setting of Export Prices
Export-related costs Unique export-related costs include:
Cost of modifying a product for a foreign market.
Operational costs of exporting.
Cost incurred in entering the foreign market. Price escalation
A combined effect of clear-cut and hidden costs
results in an increase in export prices over and above
the domestic prices.
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Price Escalation Thru Exporting(see Exhibit 11-4 in your text)
Domestic:- Shipping and insurance- wholesaler margin- retailer margin
Exported:
- higher shipping & insurance costs- Tariff- Importer, wholesaler and jobbers margins- VAT at each value-added level
If manufacturers price is $6.00 then domestic customersprice may be $12.00 to $14.00 and foreign customers pricemay be anywhere from $20.00 to $45.00
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Mitigating export-related costs
- Reorganize the channel of distribution(consolidate or go around certain middlemenand/or their functions)
- Product adaptation- Local sourcing of inputs
- Use new or more economical tariff or tax
classifications.- Assemble or produce overseas.
I t
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Incoterms(First issued by ICC in 1936, revised 6 times since then)
These delivery terms influence the quoted export price
EXW (named place)FCA FREE CARRIAGE (named place)
FAS (named port of shipment)
FOB (named port of shipment)
CFR OR C&F (named port of destination)
CIF (named port of destination)CPT CARRIAGE PAID TO (named place of destination)
CIP CARRIAGE AND INSURANCE PAID TO (named place of destination)
DAF DELIVERED AT FRONTIER (named place)
DES DELIVERED EX SHIP (named port of destination)
DDU DELIVERED DUTY UNPAID (named place of destination)
DDP DELIVERED DUTY PAID (named place of destination)
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Terms of Payment
Cash in advance
Relieves the exporter of all risks and allowsfor immediate use of the money.
Used for first time transactions or situationswhere the exporter doubts the importerssolvency.
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Terms of Payment
Letter of credit (lc) (Opener, Issuer, Beneficiary) An instrument issued by the bank at the request of
the buyer.
The bank promises to pay money on presentation ofspecified documents like the bill of lading, consularinvoice, and description of the goods.
Classified as irrevocable versus revocable, confirmed
versus unconfirmed, and revolving versus non-revolving.
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Terms of Payment
Drafts (Drawer, Drawee, Payee)
Similar to personal check; an order by one party topay another.
Buyer must obtain shipping documents beforeobtaining possession of the goods involved in the
transaction. Documentary collection
The seller ships the goods, and the shippingdocuments and the draft are presented to the
importer through banks acting as the sellers agent. The draft , also known as the bill of exchange, may beeither a sight draft, time draft orarrival draft.
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Terms of Payment
Bankers acceptance - A time draft drawn on andaccepted by a bank; it is sold in the short-term moneymarket.
Discounting - Selling a draft to the bank at a discountfrom face value; it can be with recourse or without
recourse. Open account - The normal manner of doing business in
the domestic market; also known as open terms.
Consignment selling Allows the importer to defer
payment until goods are actually sold.
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Payment Risks
Commercial risk Refers to the insolvency of, or protracted payment
default by, an overseas buyer.
Results from deterioration of conditions in the buyers
market, fluctuations in demand, unanticipatedcompetition, or technological changes.
Political risk
Can neither be controlled by the buyer nor the seller.
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Managing Foreign Exchange Risk
To prevent currency related risks, the exporter can:
Shift the risk through foreign currency contractualhedging.
Modify the risk by manipulating prices and other elementsof a marketing strategy.
Forward exchange market
The exporter gets the bank to agree to a rate at which itwill buy the foreign currency the exporter receives whenthe importer makes payment.
The rate is either a premium or a discount on the currentspot rate.
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Foreign Exchange Risk & Price Adjustments
Pass through Make no change in the price, resultingin a less favorable price in foreign currencies and,most likely, lower sales.
Absorption - Decrease the export price in conjunction
with increases in the value of the currency to maintainstable export prices in foreign currencies.
Partial pass-through only a portion of the increase.
Pricing-to-market - Destination-specific adjustment of
mark-ups in response to exchange-rate changes.
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Sources of Export Financing
Commercial banks Provide assistance to only first rate credit
risks.
Provide enhanced services which helpexporters monitor and expedite theirinternational transactions.
Marketers should assess the overseas reach
of banks to avail greater market coverage.
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Sources of Export Financing
Forfeiting Provides the exporter with cash at the time of
shipment.
The importer uses bills of exchange orpromissory notes to pay the exporter at thetime of shipment.
The exporter sells them to a third party at a
discount from their face value for immediatecash.
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Sources of Export Financing
Factoring houses
May purchase an exporters receivables for adiscounted price.
Provide the exporter with a complete financialpackage that combines credit protection,accounts-receivable bookkeeping, andcollection services.
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Sources of Export Financing
Differences between forfeiting and factoring: Factors usually want a large percentage of the
exporters business, while most forfeiters work on aone-shot basis.
Factors usually do not have strong capabilities in thedeveloping countries, forfeiters do.
Forfeiters work with capital goods, factors typicallywith consumer goods.
Forfeiterswork with medium-term receivables, whilefactors work with short-term receivables.
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Government Export Financing
Can be either a loan or a guarantee, including creditinsurance.
Advantages of trade financing by the government: Protection in the riskiest part of an exporters business. Protection against political and commercial risks over
which the exporter does not have control. Encouragement to exporters to make competitive offers by
extending terms of payment. Broadening of potential markets by minimizing exporter
risks.
Possibility of leveraging exporter accounts receivable. Opportunity for commercial banks to remain active in the
international finance arena.
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Price Negotiations
Pricing is the most sensitive issue in businessnegotiations; the exporter should discuss it as part of acomprehensive package and should avoid priceconcessions early on in the negotiations.
Carefully consider concessions that reduce price orprofitability; example: discounts, payment terms, productfeatures.
Revisit competitive prices to ascertain that the pricereflects market conditions accurately.
Focus negotiations first on substantive issues (qualityand delivery), then on price.
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Leasing
Trade liberalization has benefitted lessors boththrough expected growth in target economiesand eradication of country laws and regulations
hampering outside lessors. Allows market penetration for the firms products,
when outright sale is not possible.
Total net income from leasing is often higher than
it would be if the unit was sold.
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Dumping
Selling goods overseas at a price lower than in theexporters home market or below the cost of production,or both.
Ranges of dumping
Predatory dumping Intentionally selling at a loss inanother country in order to increase its market shareat the expense of domestic producers.
Unintentional dumping - Result of time lags between
the dates of sales transaction, shipment, and arrival.
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Remedies for Dumping
Antidumping duty - Levied on imported goods sold atless than fair market value.
Countervailing duties - Imposed on imports which aresubsidized in the exporters home country.
To minimize the risk of being accused of dumping, focuson value-added products and increase differentiation byincluding services in the product offering
Keep excellent records
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Chapter 17
Global Pricing
Chapter 17
Global Pricing
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Transfer Pricing Objectives
Transfer pricing is established to :
Be competitive in various markets
Reduce taxes and tariffs
Manage cash flows Minimize exposure to foreign exchange risks
Avoid conflicts with home and host governments
Internal concerns such as goal congruence and
motivation of subsidiary managers
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The three philosophies are cost-based, market-based,andarms-length price.
Transfer at cost to increase the profits of affiliates
Derive transfer prices from the local market conditions
Use arms-length pricing to ensure properintracompany pricing and to minimize governmentinterference
Transfer Pricing Philosophies
F t G i P i i Withi
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Corporate objectives: to undersell a major competitor. to improve their efficiency and/or shift production bases.
Costs: Easily measured, Varying inflation ratesWhen prices cannot be changed, try value pricing, stripping down
products, introducing innovative products at a modest premium, andgetting close to customers by using new technologies.
Demand and market factors: Price elasticity, customerperception of the product
Market structure and competition: Distribution structure, tradediscounts, etc.
Environmental constraints: Government policies. Try non-pricemeasures, emphasize other marketing mix elements
Factors Governing Pricing WithinIndividual Markets
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Countertrade
Countertradeis a sale that encompasses anexchange of goods, services, or ideas for othergoods, services, or ideas instead (or in addition
to) money. Conditions that support countertrade are lack of
money, lack of value of money, lack ofacceptability of money as an exchange medium,
or greater ease of transaction by using goods.
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Forms of Countertrade.
- Straight barter- Counterpurchase agreement (with the government,
smaller deals)
- Offset (with the government, larger, longer-term deals)
- Buyback (from plant output)- Triangular Compensation {A (goods) B (goods) C
(cash) A}
- Clearing agreements (Accounts cleared periodically)
- Switch trading(one company sells to another its obligation tomake a purchase in a given country)
Blocked currencies (Typically soft currencies)
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Merits: Permits the covert reduction of prices and thereforeallows firms and governments to circumvent price andexchange controls.
An excellent mechanism to gain entry into new markets. Provides stability for long-term sales.
Limitations:
Requires that accounts be settled on a country-by-
country or even transaction-by-transaction basis. Valuation of goods received in exchange can be difficult
Why Use Countertrade?
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Chapter 16
Global
Logistics and
Materials
Management
Chapter 16
Global Logistics and
Materials Management
A Definition of International
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A Definition of InternationalLogistics
International logistics - The design and managementof a system that controls the flow of materials into,through, and out of the international corporation.
The systems approach helps the firm explicitly recognizethe linkages among the traditionally separate logisticscomponents within and outside of the corporation.
Interaction with outside organizations, suppliers, andcustomers helps build on commonality of purpose in the
areas of performance, quality, and timing.
A Definition of International
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A Definition of InternationalLogistics
The systems approach also ensures
JIT - Just-in-time.
EDI - Electronic data interchange (more efficientorder processing).
ESI - Early supplier involvement.
ECR - Efficient customer response systems(tracks sales at retail level, allows manufacturer to coordinate
production to shelf-replacement needs).
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Logistics: major concepts
Systems concept - The extensive and complexmaterials-flow activities within and outside the firmmust be considered in the context of their interaction.
Total-cost concept - Minimize overall logistics cost by
identifying activity-based costs that impact after-taxprofits.
Trade-off concept - Recognizes the linkages withinlogistics systems that result from the interaction of
their components.
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Supply Chain Management
An integration of the three-system concepts.
1. planning and management of all activities involved insourcing and procurement, conversion, and logistics.
2. coordination and collaboration with channel partners.
3. Integration of supply and demand management withinand across companies.
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Basic differences between domestic and
international logistics Distance - Presence of firms in more than one
country.
Currency variations and exchange ratedifferences.
Transportation modes - Reliability of carriersmay be different; computation of freight rates
may be different.
International Shipping/Transportation
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1. Air:(wide body jets)2. Truck: Truck trains
3. Rail: Gauges, technology, unit trains
4. Inland Waterways: Barges (motorized, non-motorized)
5. Ocean:Container ships, Ro-Ro ships, Lighter aboardships, Supertankers, Ore carriers, LNG carriers
(Trades, Conferences, Lines, Liner/Tramp, rates, flags,Insurance: General/Particular average)
6. Pipelines: Liquid, gas, domestic, transnational7. Intermodal
IK
International Shipping/TransportationModes
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Choice of Transportation Modes
is influenced by:
Transit time
Predictability (Air is more predictable than
ocean) Cost
Noneconomic factors (government involvement)
Exhibit 16 6 - Documentation for an
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Exhibit 16.6 Documentation for anInternational Shipment
Trading regions such as theEuropean Union have greatlysimplified their documentation
requirements.
Documentation is sometimesconsidered to be a trade
barrier.
P k i f I t ti l Shi i
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Packaging for International Shipping
Customer Requirements Shipper Requirements
Distributor Requirements
Climate
Customs and traditions
Government Requirements
Cost (shipping, insurance, pilferage)
Physical hazards (acceleration, deceleration, dropping,pitching, rolling, vibrations, etc.)
Management of International
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Management of InternationalLogistics
Centralized logistics management - Headquarters retaindecision-making power and control over logistic activitiesaffecting international subsidiaries.
Decentralized logistics management
Each subsidiary is made a profit center which carriesresponsibility for its performance.
Leads to greater local management satisfaction and betteradaptation to local market condition.
Required by firms operating in a number of international markets
that are diverse in nature.
Management of International
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Management of InternationalLogistics
Contract logistics Outsourcing logistical management by employing
outside logistical expertise.
Helps firms to achieve improved service at equal orlower cost.
Allows marketers to take advantage of an existingnetwork, complete with resources and experience.
Leads to loss of the firms control in the supply chain.
The Supply Chain and the
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The Supply Chain and theInternet
Global net e-commerce revenue is expected to surpassthe $1 trillion dollar mark by 2012.
Companies enter e-commerce through hub sites (alsoknown as virtual malls or digital intermediaries) which
bring together buyers, sellers, distributors, andtransaction payment processors in a marketplace (e Bay,Priceline, Amazon etc.).
Companies using e-commerce need to be prepared for
24-hour order-taking and customer service.
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Logistics and Security
Logistics systems are vulnerable to terroristattacks and piracy; to prevent them,governments impose security measures(screening of shipments and shippers).
Security measures:
Affect the firms ability to plan their internationalshipments and distributions.
Increases the cost of supply chain activities.
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Logistics and Security
Strategies employed for reducing security costs: Replace international shipments with domestic.
Eliminate the use of vulnerable internationaltransportation.
Redesign the logistics strategies to incorporate theeffects of substantial and long-term interruptions ofsupplies and operations.
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Recycling and Reverse Logistics
The firms ability to develop reverse logistics is a keydeterminant for market acceptance and profitability.
Reverse distribution Ensures that a firm can retrieve a product from the market for
subsequent use, recycling, or disposal.
Is a complex customer service, inventory control, informationmanagement, cost accounting, and disposal process.
Reverse logistics management is highlyspecialized.
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Chapter 12
Marketing
Communication
Chapter 12
Marketing Communication
I i l N i i
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International Negotiations
The two biggest dangers faced ininternational negotiations:
Parochialism - The misleading perception that
the world of business is becoming ever moreAmerican and that everyone will behaveaccordingly.
Stereotyping - Generalizations about anygiven group, both positive and negative.
I t ti l N ti ti P
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International Negotiations Process
Five-stage negotiated selling process: Offer
Initiated by either the seller or the buyer . Allows the partiesto assess each others needs and commitment.
Informal meetings
To discuss the terms and get acquainted. It may be necessary to utilize facilitators (such as consultants
or agents) to establish the contact.
Strategy formulation Review and assess all factors to be negotiated, and
Prepare for actual give-and-take of the negotiation.
I t ti l N ti ti
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International Negotiations
Negotiations details Two approaches are used: competitive and
collaborative.
Depend on the cultural background and businesstraditions prevailing in different countries.
Outcomes
The choice of location for the negotiations and thenegotiator characteristics play a role in theoutcome.
N ti ti i th C t i
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Negotiating in other Countries 1/2
Approaches used for adjusting to the style of the host-country negotiators:
Team assistance (use specialists to allow all points to be considered)
Traditions and customs(status relations & business procedures)
Language capability (a culturally and linguistically competentinterpreter may be needed)
Determination of authority limits (US & European negotiatorshave much greater authority than Asians)
Patience
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Negotiating in other Countries 2/2
Negotiation ethics (may be different and, sometimes, seemunethical to US & Europeans)
Silence(must be interpreted correctly. It not always negative)
Persistence(insisting on quick answers may be seen as a threat.Let things develop as per local culture)
Holistic view (concessions should come at the end of bargainingafter all other issues have been discussed)
The meaning of agreements (written, legal contracts may notbe needed or even be negative)
Th ti l i
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The promotional mix
Advertising
Personal selling
Publicity
Sales promotion
Sponsorship.
The choice of tools leads to either a push or a
pull emphasis in marketing communications.
P h & P ll St t i
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Push & Pull Strategies
Push strategies - Focuses on personal selling;considered useful for marketing industrial goodswhich have shorter channels of distribution.
Pull strategies - Depend on mass communications
to reach target audiences over long distributionchannels.
Integrated marketing communications -
Coordinated use of a broad range of promotionaltools to reach a target market.
Direct marketing
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Direct marketing
Establishes relationship with a customer in orderto initiate immediate and measurable responses.
Accomplished through direct-responseadvertising (direct mail literature and catalogs),
telemarketing (telephone via call centers), anddirectselling (database marketing to create individual relationships witheach customer).
All can be highly personalized tools if the targetaudience can be identified and defined narrowly.
T d Sh d Mi i
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Trade Shows and Missions
Trade shows may be general (horizontal) orspecialized (vertical). They provide: Opportunity to introduce, promote, and demonstrate new
products.
Goodwill and contacts. Locate trade intermediaries and suppliers.
Meet government officials and decision makers.
Collecting market research and competitive intelligence.
Reach sizable sales prospects in a brief time period at areasonable cost per contact.
R f t ti i ti i t d f i
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Reasons fornot participating in trade fairs
High cost. Difficulty in choosing the appropriate trade fairs
Coordination.
Other promotional events that the exporter canuse are trade missions, seminar missions, soloexhibitions, virtual trade shows, etc.
P l lli
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Personal selling
Involves high costs per contact.
Provides immediate feedback on customerreaction as well as information on markets.
Can be used for consumer selling in low-wagemarkets
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Chapter 13
DistributionManagement
Chapter 13
Distribution Management
Channel Structure
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Channel Structure
From direct (producer-to-consumer types) to elaborate(multilevel channels using many types of intermediaries).
Channel configurations for the same product will vary withinindustries, even within the same firm, because nationalmarkets quite often have unique features.
Channel structures are designed to manage multidirectionalconnections for:
Physical movement of goods and services.
Transactional title flows.
Information communications flows.
Foreign Wholesaling
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Foreign Wholesaling
1. Smaller
2. More numerous
3. More services, especially financing
4. Higher margins cf. U.S. wholesalers
5. Operate in permanent wholesale markets,fewer trade shows
IK
Foreign Retailing
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Foreign Retailing
1.Much smaller2. Fewer/smaller chains3. Varied operating hours
4. Limited offerings5. Nomenclature differences6. Government regulations7. Service level varies by country8. Less self-serviceIK
Channel Strategies
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The general distribution systems used bycompanies include:
Direct sales to customers through a firms own fieldsales force or through electronic commerce.
Indirect sales through independent intermediaries atthe local level.
Indirect sales through an outside distributionsystemhaving a regional or global coverage.
Channel Strategies
Channel Design Influences
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Channel Design Influences
Customer characteristics The demographic and psychographic
characteristics of targeted customers form the
basis for channel design decisions. Focusing on customer needs: why, when, and
how they buy helps to generate a competitiveadvantage.
Channel Design Influences
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Channel Design Influences
Culture The existing channel structures or the
distribution culture.
The functions performed by the varioustypes of intermediaries.
Foreign legislation affecting distributors andagents
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Channel Design Influences
Competition Channels used by competitors may be the only
product distribution system that is accepted by boththe trade and consumers.
If distribution channels used by competitors are notsatisfactory, the exporter can:
Form jointly owned sales companies with distributors toexercise more control.
Seek a good company fit in terms of goals and objectives.
Channel Design Criteria
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Channel Design Criteria
Company objectives: market share and profitability
Nature of the product: consumer, industrial
Capital: financial requirements for setting up a channel
system Cost: of maintaining a channel
Coverage:intensive, selective, exclusive
Control: depends on company plans for the future
Continuity: expressed thru visible market commitment
Communication: for channel coordination
Selection of Intermediaries
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Selection of Intermediaries
Two basic decisions: Determining the type of intermediary
relationship
Distributorship Agency relationship
Determining the type of exporting function
Indirect exporting
Direct exporting
Integrated distribution
The distributor agreement
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The distributor agreement
Some important terms to be included:
Contract duration.
Geographic and customer boundaries.
Method of compensation.
Products and conditions of sale. Means of communication between parties.
Process of dispute resolution/dissolution
Gray Markets
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Gray Markets
Gray markets (parallel importation) Authentic and legitimately manufactured trademark
items that are produced and purchased abroad butimported or diverted to the market by bypassing
designated channels. Fuelled by price segmentation and exchange rate
fluctuation.
They under-cut local marketing plans, erode long-
term brand images, eat up costly promotion funds,and sour manufacturerintermediary relations.
Gray Markets
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Gray Markets
Arguments for gray markets: The right to free trade.
Consumers benefit from lower prices.
Discount distributors find a profitable marketniche.
Gray Markets
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Gray Markets
Arguments against gray markets: Hurts the legitimate owners of trademarks.
Reduces incentive among trademark owners to
undertake product development. Take unfair advantage of the trademark owners
marketing and promotional activities.
Can deceive consumers by not meeting product
standards or their normal expectations of after-sale service.
Gray Markets
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Gray Markets
Solutions to the gray market problem:A contractual relationship that ties businesses
together.
A one-price policy. Producing different versions of products for
different markets.
Conducting educational and promotionalcampaigns.
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Chapter 14
Global ProductManagement
and Branding
Chapter 14
Global Product
Management and Branding
Global Product Development
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Global Product Development
The goal of the product developmentprocess is to build adaptability intoproducts and product lines to achieve
worldwide appeal.
Global Product Development
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Global Product Development
Stages of the product developmentprocess
Idea generation
Screening Product and process development
Scale-up
Commercialization
Global Product Development
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Global Product Development
Sources for idea generation: Company
Customers
Lead users Procurement requisitions from governments
and supranational organizations
Facilitating agents, such as advertisingagencies or market research organizations
Screening Product Ideas
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Screening Product Ideas
Product ideas are screened on the basisofmarket, technical, and financial criteria.
A product idea that at some stage fails tomeet the specified criteria is not scrapped;data from these banks are used in the
development of other products.
Global Product Development
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Global Product Development
The use ofcomputer aided design (CAD)allows inexpensive adaptation of theproduct designs for future markets.
The product development process can beinitiated by any unit of the organization, inthe parent country or abroad.
Global Product Development
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Global Product Development
The assignment of product developmentresponsibility may be based on a combinationof special (market and technical) knowledge aswell as long-term or political considerations.
Though product development activity takesplace in the parent country, the affected unitsparticipate in the development and market
planning for a new product.
Global Product Development
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p
Reasons for investing in R&D activities abroad: Aids technology transfer from parent to subsidiary.
Develops new and improved products for foreignmarkets.
Develops new products and processes forsimultaneous application in world markets of the firm.
Generates new technology of a long-term exploratorynature.
Curries favor with host-country governments
Global Product Development
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Global Product Development
Multidisciplinary teams in an organization Maximize the payoff from R&D by streamlining decision
making.
Reduce development time of a new product.
Reduce overall material costs.
Trim manufacturing processes.
Companies increase communication and exchange ofpersonnel to reduce language and cultural barriersamong R&D teams.
R&D consortiahave been established provide the
benefits and face the challenges of any strategicalliance.
Global Product Development
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p Testing of new product concepts for performance
and customer acceptance Is the final stage of product development.
Ranges from reliability tests to mini-launches.
Is undertaken to avoid high rate of product failure.
Reasons for product failure: Relying on instinct or hunch rather than testing and
research.
Lack of product distinctiveness.
Unexpected technical problems.
International product testing
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p g Laboratory test markets - Captures consumer reactions
in a controlled environment. Micro test-marketing - Uses a permanent panel of
consumers and assesses their willingness to buy afterexposure to media and purchase incentives.
Forced distribution tests - Relies on the continuousreport of consumer reactions to new products already inthe market.
Global Product Launch
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Global Product LaunchGlobal Launch: Introducing the product into countries in
three or more regions within a narrow timeframe. Measures undertaken for successful launches:
Involvement of country managers.
Pre-launch attention to localization and translationrequirements.
Increased education and support of the sales channel.
Benefits of a successful global launch: Permits the company to showcase the product.
Removes old models at once.
Captures new products higher margins.
Management of the Product and BrandP tf li
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Portfolio
Should have a balanced product and market portfolioa proper mix ofnew, growing, and mature products toprovide a sustainable competitive advantage.
Product portfolio analysis
Is based on growth rates and market share positions.
Is used to analyze: Business entities, product lines, or individual products.
Market, product, and business interlinkages.
Management of the Product andB d P tf li
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Brand Portfolio
Advantages of productportfolio approach A global view of competitive
structures.
A guide for formulation of global
marketing strategy based onallocation of scarce resources.
A guide for formulation ofmarketing objectives based onthe role of product lines in themarkets served.
A convenient visualcommunication goal.
Disadvantages of product
portfolio approach Foreign competition does not
follow the same rules as
domestic competition. Relationships between market
share and profitability may vary.
Government regulations.
Local content laws.
Different production sites impactperceptions of risk and quality.
Branding Policies
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Branding Policies
Three choices of branding: Use of the corporate name.
Use family brands for a wide product line.
Use individual brands for each item in the product line.
Global brands are a key way of creating consistency and impact.
May be completely standardized or some elements of theproduct may be adapted to local conditions.
Characteristics of global brands Carry a strong quality signal and compete on emotion.
Cater to the need of feeling cosmopolitan.
Reflect the professional and personal status of the user.
Use their monetary and human resources to benefit society
Branding Policies
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Branding Policies
Private branding The intermediaries own branded products or store
brands.
Methods used for private branding:
Umbrella branding with the intermediarys name.
Separate brand names for individual products or productlines.
Private brand goods have achieved a significant
penetration in many countries due to increase in pricesensitivity and decrease in brand loyalty.
MKT-421 Spring 2010
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MKT 421 Spring 2010
End of Class Slides