INTERNATIONAL MARKETING

SECTION 4A

ECONOMIC GEOGRAPHY

ALAN L. WHITEBREAD

ECONOMIC ENVIRONMENT

• Economic potential– Markets in every region of the world are

potential targets for most firms. – Firms, need to

• find people and / or firms willing and able to buy;• understand the purchasing power of developed vs.

underdeveloped nations;• understand expansion is a selection process; and,• the extent of development in a nation or region is

especially important.

ECONOMIC ENVIRONMENT

• Economic analysis– There are a tremendous amount of statistics, charts,

graphs, reports, etc. available at• www.cia.gov • www.census.gov • U.S. Department of Commerce Country

Commercial Guides may be found at– http://www.buyusa.gov/home/export.html

• Most governments• International organizations

– UN– World and regional development banks– Many, many more good sources of information

COUNTRY ECONOMIC DEVELOPMENT

G8Industrialized economies

INDIA or MEXICOIndustrializing economies

BRUNEI [oil] or COSTA RICA [bananas]Raw Material Exporting economies

AFGHANISTAN or SUDANSubsistence economies

ECONOMIC DRIVERS

• Key elements of world trade are– Capital flows

• Volume of capital movements– >$100,000,000,000 per year on the London Exchange

– Productivity growth• Output continues to grow faster than employment

in developed countries.

– What do each of these mean for global employment?

ECONOMIC DRIVERS

• Key elements of world trade– Use of natural resources

• Selling a developing country’s resources– What are the short term and long term implications?

• Industrialized nations buying [not using their] resources– What are the long term implications?

– Concentration of income• Developed countries have a disproportionate [and

proportionately growing] share of total wealth• What is your most likely world scenario 30-50 years in the

future?

KEY ECONOMIC FACTORSWhy is each one important?

• POPULATION

• GDP

• INFRASTRUCTURE

• RESOURCES

• ECONOMIC GROWTH PROJECTIONS

COMPARING COUNTRIES – 1

SOURCES: World Bank, World Health Organization, International Telecommunications Union, and the International Road Federation, CIA WorldFactbook 2002

  Malaysia Indonesia Singapore Thailand

Population [millions]

GDP / capita

22.6

$3,640

231.3

$680

4.5

$24,740

62.3

$1,970

GDP [$billions]

Computers / 100 people

82.264

13

157.284

1

111.330

51

122.731

3

COMPARING COUNTRIES – 2

SOURCES: World Bank, World Health Organization, International Telecommunications Union, and the International Road Federation, CIA WorldFactbook 2002

  Malaysia Indonesia Singapore Thailand

Population [millions]

GDP / capita

22.6

3,640

231.3

680

4.5

24,740

62.3

1,970

Mobile phones / 100 people 31 3 72 12

KWH per capita 2,474 345 6,641 1,352

Cars / 1000 people 147 12 122 27

COMPARING COUNTRIES – 3

SOURCES: World Bank, World Health Organization, International Telecommunications Union, and the International Road Federation, CIA WorldFactbook 2002

  Malaysia Indonesia Singapore Thailand

Population [millions] 22.6 231.3 4.5 62.3

Mobile phones per 100 people 31 3 72 12Calculate the market potential [ 80%

of the total population] 18.08 Your answer Your answer Your answer

Calculate the number of phones in the market

7.006 Your answer Your answer Your answer

Calculate the market penetration [number of phones / market potential] * 100

38.75% Your answer Your answer Your answer

SUBJECTIVE COMPARISONS

• When you are analyzing non-numeric data you have several different issues to consider.

– A fixed point of reference is critical.

– Non-numeric data is hard to compare.

– You must develop a meaningful scale.

SECTION 4A: REVIEW

• You should now have knowledge of– Economic geography

• Sources of credible information– International Monetary Fund [IMF]– Department of Commerce and CIA Factbook

– Economic drivers and comparing countries• Quantitative data issues• Qualitative data issues

– World Bank data statistics section

INTERNATIONAL MARKETING

SECTION 4B

EVALUATING ENVIRONMENTS

ALAN L. WHITEBREAD

STAGE OF DEVELOPMENT

PER CAPITA INCOME

It is common for rapidly developing nations to be in

very different positions on the different scales.G8

INDIA

MEXICO

BRUNEI

COSTA RICA

AFGHANSITAN

SUDAN

G8

MEXICO

INDIA

UTILITIES INFRASTRUTURE

• Communications

• Energy

• Water

• Sewer

• Environmental [Garbage / landfill; Recycling]

UN WORLD POPULATION PROJECTIONS

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

11,000,000

Medium

High

Low

o

o

oo

U.S. Census Bureau, International Data Base, April 2005 version

SECTION 4B: REVIEW

• You should now have knowledge of– Country economic structure and its evaluation– Comparing country infrastructures– Understanding forecasts and growth projections– Credible sources of data

INTERNATIONAL MARKETING

SECTION 4C

EVALUATING ENVIRONMENTS: RISK AND COMPETITIVE ANALYSIS

ALAN L. WHITEBREAD

EVALUTING COUNTRY RISK

How risky are the nations you selected? Look up:

• POLITICAL RISK

• ECONOMIC RISK

• LEGAL RISK

• SOCIAL RISK

• GOVERNMENT RISK

• Find a political risk map on the internet and find the highest risk nations.

• SOURCES OF POLITICAL RISK INCLUDE– Economic planning failures– External conflict– Corruption [especially in government]– Military or religion in politics– Racial or national tensions or civil strife– Quality and strength of the legal system to withstand political

influence– Process deterioration– Contract repudiation [some or all]

POLITICAL RISK ITEMS

• Centrally Planned and controlled– Cuba, North Korea

• Democratic Socialism – Sweden, Australia

• Radical Interventionism – USA

TYPES OF POLITICAL / ECONOMIC SYSTEMS

• Light Interventionism – Hong Kong, Singapore

• Laissez-Faire Capitalism – USA of the Founding Fathers

• Anarchy– What does this lead to?– Current examples?

TYPES OF POLITICAL / ECONOMIC SYSTEMS

CONFISCATION: A government taking property without compensation.

EXPROPRIATION: Government confiscation with inadequate compensation.

NATIONALIZATION: Partial or complete government takeover of assets.

DOMESTICATION: Transfer of ownership from a government to local individuals or organizations.

GENERAL INSTABILITY RISK: Uncertainty regarding the likelihood of government actions in the future.

POLITICAL RISKS

• Avoid high-risk situations

• Avoid unstable country situations

• Purchase risk insurance– Private insurance [CNA, …]– OPIC [Overseas Private Investment Corp.]

MANAGING / REDUCING POLITICAL RISK

• SOURCES OF ECONOMIC RISK– Inflation rate– Unemployment rate– Nationalized industries and trends– Foreign exchange, Currency controls, limits, &

restrictions– Economic volatility– The effective tax rate [as a per cent of GDP]

• U.S. 35-36% Highest in the world

ASSESSING COUNTRY ECONOMIC RISK

LEGAL AND SOCIAL RISKS

• The type of legal system and its use– Do they have laws?– How well are they enforced [if at all]?– Are some people and/or entities above the law?

• Products conflict with social norms– Women’s western clothing in Saudi Arabia

• Role and rights of – Firms– Women

• The lack of “the rule of law”

TYPES OF MARKET ENTRY BARRIERS

• Competitive [make business difficult]

– What other examples can you name?

• Duties and taxes [multiple taxes not equally levied]

– What other examples can you name?

• Non-tariff trade barriers [standards, testing]

– What other examples can you name?

TYPES OF GOVERNMENT RISK

• Regulations, registrations, approvals– What other examples can you name?

• Level of bureaucracy– What other examples can you name?

• Taxes– What other examples can you name?

• Support and programs– What other examples can you name?

MINIMIZE INTERNATIONAL RISK

• Political– Be involved at many levels

• Financial– Borrow locally especially if it is a weak currency– Buy investment insurance [public or private]

• Product and program– Understand product liability– Become culturally astute

• Intellectual property– Protect all knowledge

SECTION 4C: REVIEW

• You should now have knowledge of– Evaluating risk

• Types of political risk• Assessing economic risk• Legal and social risk• Government risk• Competitive risk

– Minimizing international risk

– Understanding competition

INTERNATIONAL MARKETING

SECTION 4D

EVALUATING ENVIRONMENTS: RISK AND COMPETITIVE ANALYSIS

ALAN L. WHITEBREAD

COUNTRY SELECTION:A MULTI-STAGE PROCESS

~ 270 country equivalents

Fail “must have”

criteria

Pass “must have”

criteria

Fail “must have” or

“key selection”

criteria-----------Fluent

employees readily

available

Pass “must have”

criteria

Fail “must have” or

“key selection”

criteria-----------Fluent

Pass “must have” criteria

Prospects

Customers

EVALUATING / SELECTING MARKETS

• Evaluation is based on a number of criteria:– market-related characteristics – cost-related aspects– the regulatory framework – tariffs, duties & non-tariff trade barriers

• The entry decision may vary by country– item weights and components

ISSUES AFFECTING THE EVALUATION / SELECTION OF MARKETS

• Strategy and objectives

• Access to target market[s]

• Country infrastructure

• Foreign exchange

• Cost of entry and on-going operation

• Opportunity costs

DEVELOPING CRITERIA

• SELECT AND DEFINE CRITERIA

• Market Potential• Size; growth rate; and … ?

– Market Access and Barriers– Assessing Product Needs and Wants– Appraising Quality – The level of Competition– Familiarity with U.S. products– Product / Service Requirements and Fit– Logistic / Supply Chain Issues

VISITING THE POTENTIAL MARKET

• ASSESSMENT– Confirm, modify or contradict assumptions

about the market.

– Gather additional primary data from• Commercial sources• Governmental sources• Private market research

– Develop a marketing plan in co-operation with the local channels of distribution

MARKET SEGMENTATION

1-Identify the bases for selection

[Why are you splitting it this way?]

2-Develop detailed market segment profiles

[Clearly identify each segment.]

MARKET TARGETING 3-Select and develop measures of attractiveness

4-Select target markets or market segments

MARKET POSITIONING

5-Develop a market position for every market segment

6-Develop the marketing mix for every market segment

MARKET SEGMENTATION- A SIX-STEP PROCESS -

B2B MARKET SEGMENTATION: Organizational / Demographic [FIRMOGRAPHICS]

• Industry• Geography / Location

– Some industries are concentrated in a few areas

• Size– Company [sales, employees, …]– Account– Usage rate

• Channel of distribution – and possibly customer type

• Operating characteristics

B2B TARGET MARKET SEGMENT CRITERIA

1. Measurable– The degree to which you can measure buyer

characteristics

2. Accessible– The ability to focus on target market segments

3. Substantial– The degree to which target market segments

are large enough and potentially profitable enough to pursue

B2B TARGET MARKET SEGMENT CRITERIA

4. Compatible -The extent to which marketing and business

strengths compare to current and expected competitive and technology states

5. Responsive-The extent to which target market segments

respond to elements of the marketing mix

Organizational Characteristics

-Industry-Size

-Channel-Operating characteristics

Organizational Characteristics

-Industry-Size

-Channel-Operating characteristics

Product[s] or Process[es] or Technology[ies]

-Level of technology-Configuration

-Design

Product[s] or Process[es] or Technology[ies]

-Level of technology-Configuration

-Design

Buying Approach-Centralization

-Functional involvement-Partnering

Buying Approach-Centralization

-Functional involvement-Partnering

Application[s]of Products / Services

-How they are used?-What are they used for?

Application[s]of Products / Services

-How they are used?-What are they used for?

B2B SEGMENTATION VARIABLES

LEVELS OF MARKET SEGMENTATION

MASS MARKETINGSame product to all segments

Coca Cola Early Ford

SEGMENT MARKETINGDifferent products multiple large market segments

Proctor & Gamble detergents Current auto manufacturers

NICHE MARKETINGDifferent products to different [sub-]segments [Goal: high market share]

SUV’s standard to family to luxury

MICROMARKETINGSpecialized products for individuals and locations

LOCAL MARKETING INDIVIDUAL MARKETING[Brands, promotions] [1:1 marketing]Local chain grocery stores Amazon, Dell

MARKETS / SEGMENTS

CHANNELS OF DISTRIBUTION

PRODUCTS

SERVICES

APPLICATIONS

13

2

2

The volume of the gap is an indicator of its attractiveness. The greater the volume, the more interesting the gap.

MARKET SEGMENTATION:FILLING THE GAPS

• Positioning– The perception of your product in the mind of the

customer.• Expectations of performance and value• How do I select positioning dimensions?

• Standardized Position– Can you create a standard image?– Do you want to create a standard image?– High-tech or high-touch?

POSITIONING

POSITIONING DIMENSION CANDIDATESAND PERCEPTUAL MAPPING

Selection of the metric and its scale of measurement [preferably subjective] is a very difficult process. Select from the items on the left or possibly use your two best

differentiators [meaningful benefits] for the axes.

Quality

Application[s]

Occasion[s]

Lifestyle / image

Attributes

Competition

Price

POSITIONING: PERCEPTUAL MAPPING

MoreArtwork

U

CCC

C

This portrays the relative position of our product [U] to our various competitors [C].

We are not in a good position [U] since we are so close to many competitors.

We need to find a way to move to a new position [U1] much further from any competitor by finding a better benefit on the x axis. Some improvement in the y axis would also help.

U1

C

POSITIONING STRATEGIES

Repositiona Competitor

Repositiona Competitor

C C

Against CompetitionAgainst Competition

CU

We are positioned very close to a competitor so there is little perceived difference in the products.

Consequently, this is little or no price differential.

You reposition a competitor to a new position so that you can occupy their old position. This is both difficult and very risky.

POSITIONING STRATEGIES

Find a PositionFind a Position Create a PositionCreate a Position

C CC

Un

C CC

CC

UUnn

We introduce a new product [Un] with some meaningful differences from all competitive offerings. There may be some positive price differential and / or market share gain.

We introduce a new product [Un] with very meaningful differences from all competitive offerings. There should be a more positive price differential [than with find a position] and / or market share gain.

POSITIONING STRATEGIES

Broaden the BaseBroaden the Base

C UC C

CWe introduce a new product [U] with some a little difference from existing competitive offerings. It is difficult to get any positive price differential in the marketplace.

Strive to achieve at least three of these attributes. Look around, it is very difficult to find a brand name that meets four or more of these brand name

objectives.

There are many objectives for creating a successful brand name. It should be

1. Distinctive;

2. Easy to pronounce, recognize, and remember;

3. Lack poor foreign language meanings;

4. Positive;

5. Suggesting product benefits;

6. Suggesting product quality;

7. Timeless; and/or

8. Versatile.

BRAND NAME SELECTION

BUILD SUSTAINABLE COMPETITIVE ADVANTAGE WITH EVERY THING YOU DO WITH YOUR BRAND!

Advantagesof

Brand Names

AdvantagesOf

Brand Equity

Advantagesof

Brand Names

AdvantagesOf

Brand EquityBrand LoyaltyBrand Loyalty

AttributesAttributes

Perceived Qualityand Value

Perceived Qualityand ValueConsistencyConsistency

Easy IdentificationEasy Identification

AwarenessAwarenessCredibilityCredibility

Defense AgainstCompetition

Defense AgainstCompetition

BRAND ISSUES

A COMPETITIVE REPORT

• A comprehensive review of every major competitor.

• At a minimum, it usually contains all of the following items.– Company profile and management structure– Detailed financials including subsidiaries– Market and industry research key items– Significant events

• New product announcements• Price change dates relative to competition

– Trade articles of note

BATTLEFIELD MAP

TYPE OF PRODUCT

MARKET SEGMENT 1

MARKET SEGMENT 2

MARKET SEGMENT 3

PRODUCT A Brand A Brand A

PRODUCT B Brand A

Brand B

Brand B Brand B

PRODUCT C Brand A

Brand C

Brand C

PRODUCT D Brand D

A Battlefield Map helps everyone in the organization understand who they are competing against in every category. This knowledge helps sales people focus on what they should sell and how to sell in that situation.

SECTION 4D: REVIEW

• You should now have knowledge of– Evaluating and selecting country markets– Market segmentation: a six-step process– Kotler’s five tests for a target market segment– Business market segmentation– Levels of market segmentation– Types of positioning strategies– Brands and brand competition

INTERNATIONAL MARKETING

SECTION 5A

GLOBAL STRATEGY, PLANNING, AND PROGRAMS

ALAN L. WHITEBREAD

COMPETITIVE ANALYSIS & STRATEGY

• Industry Analysis

• National Competitive Advantages

• Competitive Advantage & Strategic Models

• Strategic Positions

• Role of Competitive Innovation

NATIONAL COMPETITIVE ADVANTAGEAll forces interact in various ways in different situations.

FACTORS THAT AFFECT THE BUSINESS

The nation’s position in factors of production.

STRATEGY, STRUCTURE, AND

RIVALRYHow are we going to compete against the various competitors in this country?

DEMAND FUNCTIONS AND

CHARACTERISTICSWhat is the nature of demand functions in-country?

RELATED AND SUPPORTING INDUSTRIES

What are extent of the in-country resources?

COUNTRY-SPECIFIC ADVANTAGES INCLUDE

• COST ADVANTAGE– Due to materials or supply chain advantages

• LABOR ADVANTAGE– Especially in underdeveloped nations

• SHIPPING HUB – Netherlands for Europe

• INFRASTRUCTURE– Especially industrialized nations

• RELATED / SUPPORTING INDUSTRIES– A group of strongly related industries or vendor support

• COUNTRY-OF-ORIGIN– May be significant

COUNTRY-SPECIFIC ADVANTAGES: DEMAND CONDITIONS

• Important domestic-market demand components include– Size of domestic demand– Composition of domestic demand– The forces behind, and pattern of, domestic

demand growth– How will domestic customers pull the products

into foreign markets?– Are you increasing your domestic sales?

COUNTRY-SPECIFIC ADVANTAGES: RELATED & SUPPORTING INDUSTRIES

• AN ADVANTAGE WHEN THE FIRM’S HOME COUNTRY / MARKET HAS INTERNATIONALLY COMPETITIVE INDUSTRIES

– Industries that are related to or in direct support;– Suppliers providing inputs to downstream industries;– That function so that contact and coordination gives

access to foreign markets; and / or– Have clusters of geographic concentrations of

interconnected companies in a particular field

FIRM STRATEGY, STRUCTURE, AND RIVALRY

• Differences in management styles, skill sets, and strategic perspectives create advantages and disadvantages.

• Domestic rivalry has a strong influence on competitive advantage because it– keeps an industry dynamic, and– creates pressure on all firms to improve and innovate.

• The intensity of competition and quality of competitors are important.

FIRM-SPECIFIC ADVANTAGES

• INTELLECTUAL PROPERTY• KNOWLEDGE MANAGEMENT• BRAND EQUITY• CONTROL OF MATERIALS / COMPONENTS• DISTRIBUTION CONTROL• CAPACITY• TECHNOLOGY• HUMAN RESOURCES

OTHER FORCES

• GOVERNMENT– Buyer of products and services– Maker of policies on

• Labor• Capital formation• Product standards• Environmental issues• Nature of competition• Tax

COMPETITIVE ADVANTAGE OF THE FIRM:PORTER’S THREE GENERIC STRATEGIES

Customer Perceived Uniqueness

Low Cost Position

INDUSTRY-WIDE COMPETITIVE SCOPE

DIFFERENTIATION

Focus on differentiation

and perceived value

OVERALL COST

LEADERSHIP

Hard to keep long term

MARKET SEGMENT

COMPETITIVE SCOPE

NICHE

Understand segments and focus attack.

No direct battles with major competitors

THE MANY DIMENSIONS OF MANAGING WORLD MARKETING ACTIVITIES

LOGISTICS

SYSTEMS AND TRANSACTIONS

OPERATIONS

MARKETING PROGRAMS

MARKETING MIX

SUPPLY CHAIN OR

VALUE CHAIN MANAGEMENT

MARKETING MIX

• Which products?

• Which channels of distribution?

• What promotions?

• What price structures?

THE INTERNATIONAL PRODUCT LIFE CYCLE: AN OVERVIEW

TIME

DeclineMaturityIntroduction Growth

SALES

A

-I

BC

D

E

E

G H

-J

-K

Most developed nations – stream of new product introductions

Medium developed

nations – trailing introduction

Least developed nations – simple product version

THE PRODUCT LIFE CYCLE OVERVIEW

TIMEManage the Marketing Mix (4P’s) – The marketing mix may be different in each country or market and each stage

of the product life cycle.

Country 1In Decline

MaturityIntroduction Growth TOTAL S ALESCountry 1 + Country 2

Country 2Country 1

REQUIREMENTS FOR A GLOBAL PROGRAM

• STANDARDS– Company name, logo, and placement of these

items • Compare General Electric items around the globe

– A standard brand or trademark• Usually with some modifications – see Coca-Cola

and McDonalds

– A leadership position

SYSTEMS AND TRANSACTIONS

• What types of transactions?– Purchase order, internet, verbal, …– By each, or case, or pallet, or truck, …

• What terms of sale?– Cash, check, credit card, letter of credit …

• What are the support requirements for the types of transactions and the terms of sale?

• What systems are required?

SECTION 5A: REVIEW

• You should now have knowledge of– Competitive analysis & strategy

• Porter’s national competitive advantage, and competitive advantage of the firm

– Many dimensions of world marketing activities

– Product life cycle

INTERNATIONAL MARKETING

SECTION 5B

GLOBAL STRATEGY, PLANNING, AND PROGRAMS:

EXPORT ASSISTANCE AND BASIC STEPS IN EXPORTING

ALAN L. WHITEBREAD

U.S. LAW

• The Webb-Pomerene Act of 1918 allows U.S. firms to join forces in export activities. These export activities will not be subject to the Sherman Act.

EXPORT PROMOTION

• International Partner Search [USDOC]– The U.S. Commercial Service’s International Partner

Search will put our trade specialists in over 80 countries to work finding you the most suitable strategic partners. You provide your marketing materials and background on your company. We use our strong network of international contacts to interview potential partners and provide you with a list of up to five pre-qualified partners.

EXPORT PROMOTION

• Gold Key Service [USDOC]– Representatives of U.S. businesses planning to visit a

country to explore business / investment prospects are encouraged to use the custom-tailored "Gold Key Service" provided by the U.S. Embassy’s Commercial Section. This service combines orientation briefings, introductions to potential business partners, assistance in developing a sound marketing strategy, and effective follow-up. The service has a small fee. Companies interested in this service are requested to contact the U.S. Embassy's Commercial Section well in advance of their arrival.

EXPORT PROMOTION

• Trade Opportunity Program [TOP]– Provides notification to pre-registered American firms,

trade associations, and state development agencies of trade leads generated by inquiries from country firms and agencies. Each automatic notice contains information on product specifications, quantities, delivery, and other requirements. Major projects can also be reported through TOP leads are published in leading commercial newspapers and distributed via the US DOC Economic Bulletin Board. There is a nominal fee and connect-time charge for this service.

HARMONIZED TARIFF SYSTEM [HTS]IMPORTS

• The HTS assigns 6-digit codes for general categories. Countries are allowed to define commodities at a more detailed HTS level [7 to 10 digits], but all definitions must conform to the first 6-digit framework.

• The harmonized code number is also used to assist customs with duty assessments.

• It is helpful, and in some countries required, to have the code included on the commercial invoice.

• FOR CLASSIFICATIONS AND RATES GO TO http://www.usitc.gov/tata/index.htm

DETERMINING AN HS CODE:1 Liter Frozen Juice in a Container

20 Chapter 20 - Preparations of vegetables, fruit, nuts or other parts of plants

2009 Fruit juices (including grape must) and vegetable juices, not fortified with vitamins or minerals, unfermented and not containing added spirit, whether or not containing added sugar or other sweetening matter:

Orange juice:

2009.11 Frozen:

2009110020 In containers each holding less than .946 liter liters 2009110040 In containers each holding .946 liter or more but

not more than 3.785 liters . . . . . . . .liters 2009110060 In containers of more than 3.785 liters

SCHEDULE HTS

• All of the imports of the U.S. are based on the Harmonized Tariff System [HTS] which is based on the Harmonized Commodity Description and Coding System [HS], administered by the World Customs Organization in Brussels.

• In the U.S., the 4-digit and 6-digit HS product categories are subdivided into 8-digit unique rate lines and 10-digit non-legal statistical reporting categories.

• Import codes are administered by the U.S. International

Trade Commission [USITC].

UNDERSTANDING TARIFFS

• A thorough understand of tariffs and how they are applied to products in every country you are shipping into is required to make the best business decision.

– The firm needs to be sure they have the correct classification for import, export, or ECCN for smooth transactions.

– The firm probably also needs to minimize duties to have the greatest chance of success.

RULES OF ORIGIN

• Rules of origin are a key component of tariff determination.

• Based on country of origin, the tariff amount on the product or service can be substantially reduced.

• Each country has its unique set of rules for country of origin for non-member nations.

• Each country follows trade agreements for tariff rates for trade agreements [or free trade area] member nations.

RULES OF ORIGIN: FREE TRADE AREA [FTA]

Encourages trade among its members by eliminating trade barriers (tariffs, quotas, and other non-trade barriers [NTBs]).

-EFTA [European Free Trade Area]

-NAFTA [North American Free Trade Area]

-LAIA [Latin American Integration Association]

-CIS [Commonwealth of Independent States]

-there are many FTAs around the world

FREE TRADE AREA: RULES OF ORIGIN: EXAMPLES

Minimum Cost [MC%] - Regional Value Content [RVC%]

Value Point

[% if applicable]

PANEURO 50 - 30 Yes - ExWorks

MEX-CHILE 50 - 40 50 FOB or 40 cost of production

CAN-CHILE 35 - 25 35 FOB or 25 cost of production

US-JORDAN 35 FOB location

US-ISRAEL 35 ExWorks

THE RIGHT HS / SCHEDULE B CODE

• It must be correct!– Can be 6 to 10 digits

• IF IT IS WRONG– MANY BAD THINGS CAN HAPPEN if the error is

discovered with the• OUTBOUND SHIPMENT DATE, OR THE• INBOUND SHIPMENT DATE, AND / OR THE• PERFORMANCE OR NON-PERFORMANCE OF THE

FINANCIAL INSTRUMENT!

SECTION 5B: REVIEW

• You should now have knowledge of– the Webb - Pomerene Act of 1918– Export promotion

• International Partner Service, Gold Key Service, and the Trade Opportunity Program

– The Harmonized Tariff System for imports and Schedule B codes for exports

– Export Commodity Control List– Finding export assistance

INTERNATIONAL MARKETING

SECTION 6A

INTERNATIONAL MARKET RESEARCH

ALAN L. WHITEBREAD

MARKET RESEARCH OVERVIEW

Market Research

The collection and analysis ofdata for market decisions about

COMPETITORSMARKETS

PRODUCTSRESPONDENTS

STRATEGY OPTIONS

Strategic Marketing for Evaluation data for

-Strategy analysis -New business analysis

Market Planning for Market segmentation Market potential / shareCompetitive analysis

Product Management forNew or enhanced products 4 P's decisions

Product Development for Product concept testingSales techniques Price testing

WHY USE MARKET RESEARCH?

• TO UNDERSTAND CUSTOMER & PROSPECT NEEDS AND WANTS.

• TO IMPROVE THE CHANCE SUCCESS OF NEW PRODUCTS.

• TO SELL MORE, PRICE BETTER, AND IMPROVE ADVERTISING EFFECTIVENESS.

• TO GAIN EFFICIENCY [greater output with the same or less expense].

ENTERING FOREIGN MARKETS:FIVE INITIAL QUESTIONS

1. Which markets are the most attractive?

2. How large are each of those markets?

3. How intense is the competition in each of those markets?

4. How much business can I reasonably expect to do in each of these markets?

5. Can I expect a sufficient return to make it worth entering each of these markets?

SOURCES OF INFORMATION:COMMERCIAL SOURCES

• Full-service research [where an entity conducts the entire project]– Exploratory

• Understand the problem• Define issues and hypotheses

– Descriptive• Magnitudes• Product potential, attributes, …

– Casual• Test cause-and-effect relationships• Test hypotheses about cause-and-effect relationships

SOURCES OF INFORMATION:COMMERCIAL SOURCES

• Research approaches / methodologies– Observational [watch]– Focus Group [controlled group interview]– Survey [questionnaire]– Behavioral [watch people]– Experimental

• control groups, placebos, …

THE MARKET RESEARCH PROCESS

Clearly define [1] the problem

and [2] theresearch

Objectives!

Clearly define [1] the problem

and [2] theresearch

Objectives!

Develop the research

plan

Develop the research

planCollect dataCollect data

Analyze thedata

Analyze thedata

Present thefindings

Present thefindings

Makedecisions

Makedecisions

• SOURCES– International organizations

• World Trade Organization [WTO]• UN Statistics Division

– See http://unstats.un.org/unsd/default.htm

– Also see http://www.un.org/Depts/index.html • UN Agencies

– World Bank Group– International Monetary Fund [IMF]– World Intellectual Property Organization [WIPO]– and more, see http://wipo.int/portal/index.html.en or

search for “WIPO home”.

SECONDARY DATA

EXPORT STATISTICS WEBSITES

• Export.Gov market research– http://www.export.gov/mrktresearch/index.asp

• Stat-USA– http://www.stat-usa.gov/usatrade.nsf

• International Trade Administration: USA Trade Information Center– http://www.ita.doc.gov/td/tic/

• The World Bank http://www.worldbank.org • The World Trade Organization http://www.wto.org • Regional trade organizations http://www.aseansec.org/ • The United Nations http://www.intracen.org/index.htm • OECD http://www.oecd.org • IMF http://wwwimf.org • Various international organizations and associations• Other governments• Many, many more

INTERNATIONAL SOURCES OF ASSISTANCE

• USING DATA FROM EXISTING SOURCES– Data was not gathered for the specific project

• MINIMAL COST AND EFFORT

• POSSIBLE PROBLEMS– Accuracy / Reliability– Availability– Timeliness– Comparability of data / degree of fit

SECONDARY DATA ISSUES

PRIMARY RESEARCH

• Used when good secondary data is not available

• Provides accurate data for answers to a given research problem

• Potential problems– Difficulty in obtaining the data– Cost of obtaining the data– Time to gather the data

DATA AND ITS USE

• QUALITATIVE DATA

• Symbolic data• Only subjective data• Understand behavior• Evaluate reactions• Describe small groups of

subjects or individuals in depth

• Exploratory role [generate ideas and hypotheses]

• Depth and richness of information

• QUANTITATIVE DATA

• Numeric data• Objective data• Measure a market• Describe groups of

consumers [structured by parameters]

• Extrapolate from a sample to the general population [market or market segment]

• Representative data

INTERNATIONAL MARKETING RESEARCH ISSUES

• Research design may be much more complex – especially if it is multinational.

• Data collection costs may be much more.

• The challenge of coordinating research across multiple markets/countries and languages can be very large.

• Understanding the results requires the appropriate paradigm adjustments.

INTERNATIONAL MARKETING RESEARCH ISSUES

• How do I compare markets to recognize unique characteristics?

• Different techniques may be required to study small or different markets.

• There is a lack of data consistency for a given term.– For instance, in the EU, there is not common

definition for any of the following terms …• Educational level, marital status, and social class

among others

INTERNATIONAL MARKETING RESEARCH ISSUES

• Developing country data and using unfamiliar resources may be questionable – at best!

• Test for the compatibility and the comparability of data.

• Consumers may be hard to reach.

INTERNATIONAL MARKETING RESEARCH ISSUES

• Markets have different definitions– Regional, national, international

• Data must have the same meaning & the same level of – Validity

• Does it measure what it intends to measure?– Integrity

• Is it accurate?– Reliability

• How much error exists?

SECTION 6A: REVIEW

• You should now have knowledge of– Basic international market research– The market research process– Sources of information

• Export.gov, ITA, EXIMBANK, FAS, USAID, OPIC, and others

– Secondary data and primary research– Qualitative and quantitative data– International marketing research issues

INTERNATIONAL MARKETING

SECTION 6B

INTERNATIONAL MARKET RESEARCH:

THE REGULATORY ENVIRONMENT

ALAN L. WHITEBREAD

REGULATORY ENVIRONMENT

• Governments have needs because of– Political reasons– Financial reasons– Special interest reasons– Different legal systems operate differently and

may not use “the rule of law” the same as in the U.S.

TRADE & MARKETING BARRIERS

• Impediments to the unrestricted free market flow of goods and services.

TRADE & MARKETING BARRIERS: RATIONALE

• Protect infant industries [protectionism]

• Reduce unemployment

• Equalize costs and prices to their nation’s level

• Reduce balance of payments

• Enhance national security

TARIFFS

• Taxes levied by a government on an import [rarely an export] of an item to

1. Protect domestic industries by• providing a price support;• assuring profits so they can be used for

reinvestment and growth; and / or• building economies of scale and thereby

becoming more competitive.

2. Increase employment

TARIFFS

• Protective Tariffs – Increase domestic prices– Reduce consumption – Tend to have the highest rates

• Revenue Tariffs– Generate income for governments– Usually on high-volume products – Tend to have the lowest rates

TARIFF DURATION AND TYPES

• Tariff– Effective until changed by the government

• Specific duties – tied to weight or quantity• Ad valorem duties – tied to product value• Combined duties – specific and ad valorem

• Tariff surcharge– Temporary

• Countervailing duty [also anti-dumping duty]– Long term

• Up to 5 years in the U.S.• http://addcvd.cbp.gov/

TARIFFS AND TRADE AREAS

• In terms of trade areas, tariffs – are intended to make entry of foreign goods

into “local” markets more difficult; and / or – tariffs discourage the growth of multinational

manufacturing; and / or – simple "screwdriver" assembly plants may be

used to avoid high tariffs.

HTS AND TARIFF RATES

• Tariff engineering is the deliberate changing of a product to reduce the amount of tariffs due coming into a country. A couple of examples will demonstrate the principle.

• The following is an extreme example with potentially little benefit to the importing nation.– A nylon jacket typically has a duty of 32%. By adding

a water-resistant coating the duty rate drops to 7%.

IMPORT CONTROL REGULATIONS

• Voluntary Export Restraint [VER] or Orderly Market Agreement [OMA]– This is where exporting countries limit shipments

• Japanese limit auto imports into US in 1980’s

• License or permit controls– A special license or permit is required for every

shipment• Items like alcohol, pharmaceuticals, explosives, cosmetics

IMPORT CONTROL REGULATIONS

• Inspection– To classify products, verify document

accuracy, check license requirements, check health and safety requirements,

• Ingredients, diseases, design flaws, ...

• Price controls– Regulation of an industry or item

• Minimum price• Fixed price

IMPORT CONTROL REGULATIONS

• Rules of origin – NAFTA and some other trade areas

• Anti-dumping – WTO plus country laws– In the U.S. it is a counterveiling duty

• Use of Fair Trade Laws• Embargo• Special documentation / license / approval[s]• Special fees may be applied

– Supplemental, administrative

• Quotas may apply – Units and/or monetary amount

IMPORT CONTROL REGULATIONS: QUOTAS

• Export Quotas– Usually at beginning of a value chain– Encourage value-added activities before

export

• Import Quotas– Absolute; impose specific limits on the

quantity within a time period• Japan: leather shoes

IMPORT CONTROL REGULATIONS

• Domestic content regulations– Australia: cigarettes must have at least 57%

domestic leaf content

• State Trading Enterprise [STE]– China, Japan, Korea, …

• Environmental– Germany Green Dot Law

• Sanitary and phytosanitary barriers– Guiding Principle: SAFETY

OMNIBUS TRADE AND COMPETITORS ACT OF 1988

• Allows the President to negotiate trade agreements

• Accepts the HS code system• Permits the U.S. Trade Representative to

respond to unfair international trade practices• Permits antidumping and counterveiling duties• Protects intellectual property [IP]• …

CONTRABAND INTO THE U.S.

• Weapons

• Tobacco products and associated items

• Consumables– Foods, beverages, or medicines

• Alcoholic beverages

• Narcotics and drug paraphanalia

• Selective magazines

• All pornographic photos or materials

EXCHANGE CONTROLS:CURRENCY

• Exchange rate management– World [IMF], regional, or central bank intervention– Amount of exchange with another country or the

amount that can leave the country within a certain time period

• Conversion of the portion of country income to local / foreign currency

• Currency flows• Devaluation

EXCHANGE CONTROLS:CURRENCY

• Many countries limit the amount of currency you take can in or out.– 7/19/03 Egypt raises the amount of cash that travelers

can carry in or out of the country to 5,000 pounds from 1,000 pounds. The new regulation is aimed at preventing speculation in Egyptian currency abroad.

– Usually, there is a form for larger amounts of currency.

• Currency– Belarus: foreign currency must be exported within two

months of its entry into the country.

GOVERNMENT CONTROLS:EXCHANGE

• Taxes and Surcharges– India: Imports and protectionism– Indonesia: 10% VAT + 35% luxury tax + x% sales tax

• Restricted foreign investment– Ghana

• foreign investment is not allowed in 1-petty trading, 2-taxis, 3-lotteries, or 4-beauty salons and barber shops

– India• foreigners cannot own supermarkets

GOVERNMENT CONTROLS:EXCHANGE

• Local laws– Japan: restricts the size [of a type of retail

outlet] and/or type of foreign operations.

• Restricted sales– Brazil: you must have a manufacturing /

assembly facility operating in the country to be eligible to sell that product in Brazil.

GOVERNMENT CONTROLS:MISCELLANEOUS

• Guidance

• Government Procurement & State Trading

• Subsidies:– Concessionary financing

• Lower than market interest rates

– Cash subsidies• Price cuts or price supports• Japan: for R&D expenditures

GOVERNMENT CONTROLS:MISCELLANEOUS

• Favorable foreign exchange conversion rate

• Rebates of various taxes– VAT rebates for transshipment– VAT rebate for company purchases in the

country in which the firm operates

NON-TARIFF TRADE BARRIERS:STANDARDS

• Manufacturing– ISO– CB Scheme

• Quality– Includes product testing, self-declaration,

government testing, third-party testing, and auditing

• CE Mark

NON-TARIFF TRADE BARRIERS:STANDARDS

• Import licensing procedures– A specific permit required for a product.

• Certificates and/or certifications

• Products, labels, and markings

• Management by commodity

CUSTOMS / ENTRY PROCEDURES

• Product Classification– Tied to rates and are often very arbitrary

• Product Valuation– Usually based on transaction value

• Documentation– Varies by country, often includes different documents

and differing quantities of:• Certificate of Origin

– a signed statement as to the origin of the export item• Bill of Lading• Packing List• Shipper's Export Declaration [SED]• Insurance Certificate [may be country specific]• Import License [country specific]

NON-TARIFF TRADE BARRIERS:BUSINESS PRACTICES

• Cartels and business associations– Switzerland allows them– Not illegal per se in Singapore– Korea: use of radio & TV for advertising by

foreign forms– No Class A dairy products into the U.S.

SECTION 6B: REVIEW

• You should now have knowledge of– Marketing barriers and their rationale

• Types of tariffs, VERs, import control regulations,

– Omnibus Trade and Competitors Act of 1988– Contraband– Types of export controls– Types of non-tariff trade barriers

INTERNATIONAL MARKETING

SECTION 7A

INTERNATIONAL INTELLECTUAL PROPERTY

ALAN L. WHITEBREAD

INTELLECTUAL PROPERTY

• The U.S. leads the world in technology—it is something everyone wants and they are very willing to pay for it—legally or illegally.

• National levels of protection, enforcement, and the rule of law vary considerably around the globe. Just because you “own” a piece of IP in a country does not mean you have the same rights as in the U.S.

• IP thieves are numerous and active.

• ORIGINALLY GATT [1948 – for tariffs]

• WTO IS CURRENTLY INVOLVED IN– INTELLECTUAL PROPERTY– DUMPING– SUBSIDIES [three categories from

allowable to unfair] like• JAPAN [100% R&D reimbursement]

– SAFEGUARDS• INDUSTRY PROTECTION [also protectionism]

WORLD TRADE ORGANIZATION (WTO)http://www.wto.org/english/thewto_e/thewto_e.htm

ELEMENTS OF INTELLECTUAL PROPERTY

• COPYRIGHT [©]– a guarantee of control of an original work– for the original way the idea is expressed

– any type of• artistic, dramatic, digital, literary or musical work

ELEMENTS OF INTELLECTUAL PROPERTY: WIPO http://www.wipo.org/about-ip/en/trademarks.html

• TRADEMARK [TM ®]– a guarantee of control of a work of some item

used to uniquely identify the product [or service in some countries]

– it could be a• word, logo, package design, slogan, or other

identifying mark

DOMAIN NAMES

• Internet addresses [domain names] are bought and sold – sometimes for large amounts of money.

• If a domain name infringes on a registered trademark, the domain name will be suspended immediately if challenged by the trademark owner.

ELEMENTS OF INTELLECTUAL PROPERTY

• SERVICE MARK [SM ®]– some item used to uniquely identify a service

[available only in some countries]

– it could be a• word, logo, package design, slogan, or other

identifying mark

TRADEMARKS & SERVICE MARKS AREAVAILABLE IN APPROXIMATELY 200 of ABOUT 270

POLITICAL ENTITIES• There are different filing methods and requirements in

most countries.

• You have no more than six months to claim copyright protection.

• The safe route is “first use” – Next is “intent to use”– Use the U.S. CASSIS System for searching marks– See the USPTO website for detailed information.

• The level of protection by law and in practice varies by country.

TRADEMARKS & SERVICE MARKSAVAILABLE IN APPROXIMATELY 200 of ABOUT 250

COUNTRIES• A Service Mark [SM] is not permitted in some countries.

• Using a registered trade mark symbol [®] may have serious implications in a few countries.

• The mark can often be invalidated through 3 to 5 years of non-use.

• The EUROPEAN COMMUNITY TRADE MARK ACT [CTM] for 15 nations has one filing.

TRADEMARK PROTECTION

• EXHAUSTIONor “first sale” determines from when the trademark owner may or may not have rights

-This varies by country

• UNIVERSALITY [or trade identity]states a trademark is not only an identification of the source of a product but remains as a part of the product.

• TERRITORIALITYstates a trademark holder has the right to control the distribution of the trademarked product.

ELEMENTS OF INTELLECTUAL PROPERTY

• PATENT– A guarantee of a set of rights to control the

use of an invention– Protects the original idea and the way it is

implemented [in some countries]– Generally 17-20 years protection and can

vary by country and type of patent– Many different types of patents

• What types can you name?

PRIMARY REQUIREMENTS FOR A PATENT

• The new invention must be:– Novel

• not known or used in the country and • not published anywhere

– Non-obvious • cannot be an obvious way to do something, e.g., a simple

extension of a principle

– Useful • must have some application, even if not commercially

practical. See Wacky Patents and similar sites for some funny examples.

PATENT COOPERATION TREATY [PCT]See http://www.wipo.int/pct/en/texts/articles/atoc.htm for complete text.

• PCT is a procedure for filing patent applications internationally. One filing results in a single search which is accompanied by a written opinion. You can also get a preliminary examination. An full examination required by national law must to done to receive a patent in each application country.

• No “international patent” exists. • Find a map of PCT countries on the web.• Find a list of PCT member nations on the web.

ELEMENTS OF INTELLECTUAL PROPERTY

• UTILITY PATENT– Covers processes, machines, manufacture or

composition of matter, plus new and useful improvements

• DESIGN PATENT– Covers the appearance or ornamental design

of an article

TRADE SECRETS

• The Trade Secret Office, Inc. in Naperville, Illinois estimates that trade secret information worth $40,000,000,000 per year is stolen from U.S. companies.

• Trade secret information is protected by the– Uniform Trade Secrets Act of 1979, and the– Economic Espionage Act of 1996.

KNOWLEDGE MANAGEMENT

• A newly emerging business field of all aspects of knowledge within a firm.

– Information– Combined with experience– Context of use– Interpretation– And its place in the context of the firm

SECTION 7A: REVIEW

• You should now have knowledge of

– World Trade Organization positions on• IP, dumping, subsidies, industry safeguards

– International IP issues• Copyrights• Trademarks, Service marks, domains, and WIPO• Types of patents and PCT• Trade secret law• Knowledge management

INTERNATIONAL MARKETING

SECTION 7B

QUALITY SYSTEMS, STANDARDS, AND SPECIFICATIONS

ALAN L. WHITEBREAD

• Although the ISO-9000 series is often referred to as a quality system, it is really a measure of consistency. – Specifically, it says if you produce 950 good and 50 bad

parts in a day, you will most likely produce 950 good and 50 bad parts on any day of manufacture.

• A quality system would go beyond this and tell you about the quality level of all the parts produced that day.

QUALITY SYSTEMS

QUALITY PROCESSES

• ISO-9000 Series for Manufacturers– This is the roadmap for all standards included in the

series though ISO-9004 and ISO 9000-2008.

• ISO-9001– The most comprehensive set of standards including

design, development, installation, production, and servicing.

• ISO-9002– A smaller set of standards including installation,

production, and servicing.

INTERNATIONAL STANDARDS ORGANIZATION [ISO]

http://www.iso.org/iso/en/ISOOnline.frontpage • 146 countries working in partnership with

– International standards organizations– Government entities and standards – Industry associations

• including national standards organizations

– Business and consumer representatives

STANDARDS

• International– Metric not imperial measurements– Numerous electrical systems

• US – The U. S. market is not government driven.

• Commercial• Government• Numerous industry standards groups

U.S. COMMERCIAL STANDARDS

• ASTM International [ formerly the American Society for Testing and Methods]

– http://www.astm.org/cgi-bin/SoftCart.exe/BOOKSTORE/BOS/index.html?L+mystore+znwr3647+1116868729

• UL [Underwriters Laboratories]

– http://ulstandardsinfonet.ul.com/catalog/stdscatframe.html

• ANSI [American National Standards Institute]– http://webstore.ansi.org/ansidocstore/default.asp

• many other industry and other level standards

U.S. GOVERNMENT STANDARDS

• Federal Standards– http://apps.fss.gsa.gov/pub/fedspecs/fedspecs.cfm?sort=8&firstTime=Y

&RequestTimeout=500

• MilSpec – Federal military procurement– http://www.dscc.dla.mil/Programs/MilSpec/

• NIST – National Institute of Standards & Testing– http://ts.nist.gov/ts/htdocs/210/ssd.htm

• Review these websites to see some of the breadth of U.S. government standards.

SECTION 7B: REVIEW

• You should now have knowledge of– Quality systems

• ISO-9000

– Standards• International

– ISO and individual country

• U.S. commercial– ANSI, ASTM, UL, …

• U. S. government– MilSpec, NIST …

– Testing– Product specifications

INTERNATIONAL MARKETING

SECTION 8A

FOREIGN MARKET ENTRY ALTERNATIVES

ALAN L. WHITEBREAD

MARKET ENTRY FACTORS-CHALLENGES-

• GOVERNMENT and POLITICAL STABILITY

• CORRUPTION

• FOREIGN EXCHANGE

• INTELLECTUAL PROPERTY RIGHTS

• TRADE RESTRICTIONS / QUOTAS

• SHIPPING RISK AND THEFT / PIRACY

• MANAGEMENT COMMITMENT

SELECTING FOREIGN MARKETS

• DETERMINE MARKET ATTRACTIVENESS– ECONOMIC GEOGRAPHY– DRIVING FACTORS– MARKET RESEARCH

• EVALUATE AND MANAGE RISKS• EVALUATE THE COMPETITIVE POSITION

– COMPETITORS SHARING INFORMATION• Remember, collusion and participation in cartels is illegal for

any American business or citizen anywhere in the world.

FOREIGN MARKET ENTRY ALTERNATIVES

Indirect exporting

Direct exporting

Licensing

Franchising

Contractual

Direct foreign

investment

COMMITMENT

RISK

CONTROL

PROFIT

POTENTIAL

ENTERING FOREIGN MARKETS

INDIRECT EXPORTING• RISKS

– LIABILITY, CONTROL– VERY ERRATIC DEMAND– FIT WITH OPERATIONS

• REWARDS– VERY LITTLE SALES EFFORT– INCREMENTAL VOLUME AND PROFIT

ManufacturerAgents / Distributors

[Not in destination country- Usually in home country] ?

ENTERING FOREIGN MARKETS

DIRECT EXPORTING [Step 1]• RISK

– CONTROL OF INDEPENDENT RESELLERS

• REWARD– DIRECT CONTACT WITH THE LOCAL MARKET

Manufacturer Resellersin destination country

IndividualAccounts

Manufacturer OEMsin destination country

IndividualAccounts

ENTERING FOREIGN MARKETS

DIRECT EXPORTING [Step 2 – establish a sales subsidiary]• RISK

– CONTROL OF INDEPENDENT RESELLERS

• REWARD– DIRECT CONTACT WITH LOCAL MARKET

1. Manufacturer Sales SubsidiaryResellersin country

IndividualAccounts

2. Manufacturer Sales Subsidiary OEMs in countryIndividualAccounts

3. Manufacturer Sales SubsidiaryIndividualAccounts

ENTERING FOREIGN MARKETS

LICENSING & FRANCHISING• RISK

– CONTROL OF RESELLERS• REWARDS

– MINIMIZE ENTRY RISK– PROFIT STREAM

1. ManufacturerLicensee orFranchisee

Resellersin country

IndividualAccounts

2. Manufacturer Licensee or FranchiseeIndividualAccounts

ENTERING FOREIGN MARKETS

FOREIGN DIRECT INVESTMENT [FDI][ACQUISITION, GREENFIELD, BROWNFIELD]

• RISKS– START-UP COST; INVESTMENT; WC; THE RULE OF LAW– COUNTRY STABILITY; CURRENCY EXCHANGE

• REWARDS– DIRECT MARKET CONTACT– PROFIT STREAM

1. ManufacturerManufacturing

Subsidiary

Resellersin country

IndividualAccounts

2. ManufacturerManufacturing

SubsidiaryOEMs in country

IndividualAccounts

3. Manufacturer Manufacturing SubsidiaryIndividualAccounts

ENTERING FOREIGN MARKETS

CONTRACTUAL[JOINT VENTURE, STRATEGIC ALLIANCE, or CONTRACT MANUFACTURING]

• RISKS– AUDIT & CONTROL– START-UP INVESTMENT; WORKING CAPITAL

• REWARDS– MINIMIZE ENTRY RISK; PROFIT STREAM

1. Manufacturer CONTRACTUALResellersin country

IndividualAccounts

2. Manufacturer CONTRACTUALIndividualAccounts

FREE TRADE ZONE

• WHY ARE THEY IMPORTANT?– Host country wants to promote employment– Seller sees that function as a key part of its

supply chain– Duty exemption is becoming less important

with the evolution of trading areas

INVESTMENT INCENTIVES

• NATIONAL– Duty exemptions [materials and equipment]– Expediting paperwork & eliminating fees– Additional tax exemptions– Potential reduced tax rates– Potential duty free imports– Potential full or partial VAT exemption

SECTION 8A: REVIEW

• You should now have knowledge of– Foreign market entry alternatives

• Risks and rewards of indirect exporting, direct exporting, licensing & franchising, direct foreign investment, and contract manufacturing

• Likely entry alternatives, investment incentives, and FTZs

INTERNATIONAL MARKETING

SECTION 8B

BUSINESS BUYER BEHAVIOR

ALAN L. WHITEBREAD

THE CUSTOMER PERCEPTION

ISTHE REALITY!

BUSINESS-TO-BUSINESS [B2B] MARKETING

• B2B marketing consists of selling to businesses primarily for any of the following three applications.

1. Internal consumption for use in their business.– Pencils for use in the office.

2. As a component part that will be put with other parts to product a finished product.– The box the finished product goes into to be put on the

shelf.

3. As a finished product that will be sold to other businesses.– An accessory item like an additional game controller.

BUSINESS CLASSIFICATION

• NORTH AMERICAN INDUSTRIAL CLASSFICATION SYSTEM [NAICS]– SUPPLY-ORIENTED SYSTEM– 20 SECTORS: 1,174 INDUSTRIES [and growing]– NAFTA: 5 DIGITS + 6TH FOR COUNTRY CODE– COMPATIBLE WITH ISIC Rev. 3 [UN] [SITC]– CONTINUALLY UPDATED

• Services is now the major development project.

THE SUPPLY CHAIN

B2B MARKETSBusinesses,

governments, institutions

-----------------

CONSUMERMARKETS

SUPPLY CHAIN

Agriculture, Manufacturing, OEM, Resellers,Services, Transportation, Utilities, and

other sectors

SUPPLY AND VALUE CHAINS

SUPPLY CHAIN

Demand Sourcing Procure-

ment

Fulfill-

ment

Delivery Payment Vendor

Relation-

ships

VALUE CHAIN = THE SUPPLY CHAIN PLUS

Design Develop Produce Market Distribute Sell Customer

Relation-

ships

BASIC ECONOMICS

P

R

I

C

E

QUANTITY

DEMANDED

[PER PERIOD]

EQUILIBRIUM

INELASTIC

DEMAND

ELASTIC

DEMAND

LARGE change in P

Small change in Q

[Gasoline]

Small change in P

LARGE change in Q

• Inelastic demand

• Derived demand– Situations where demand for products

and services is derived from the demand for their customers’ products and services.

• EXAMPLE: PC’s drive the demand for a type of computer chips.

BUSINESS DEMAND

• Fluctuating demand– Varies with seasons, customers, promotions, etc.– Total demand [shown in the chart below] is a sum

of several other demand schedules.

BUSINESS DEMAND

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10 11 12

BUSINESS BUYER CLASSIFICATION

PRODUCERS Purchase products for producing other goods and services.

RESELLERS Purchase finished goods for resale, rental, or leasing for a profit.

GOVERNMENTS Federal, state, and local governments purchase mostly for consumption – all have different buyer behaviors!

NPOs Purchase finished goods and services for resale, rental, or leasing for a profit.

RELATIONSHIP MARKETING

QUALITYCUSTOMER

SERVICE

MARKETING

TRUST – BONDING – EMPATHY – RECIPROCITY

• Base price • Tooling

Common additional international price factors

• Changes to packaging • Escalation of prices• Transportation from/to x • Customs duties & fees• Additional insurance • Payment terms & costs• Document fees • Port storage / handling• Port handling charges • Customs brokers• Taxes [all kinds] • Communications• Possibly travel • Inventory costs

ELEMENTS OF TOTAL COST FOR INTERNATIONAL SOURCING

SECTION 8B: REVIEW

• You should now have knowledge of– B2B Marketing

• Supply chains and value chains• Types of B2B demand• Business buyer classification• Elements of government procurement• Finding leads

INTERNATIONAL MARKETING

SECTION 8C

GLOBAL DISTRIBUTION SYSTEMS

ALAN L. WHITEBREAD

CHANNEL POWER and DIFFERENTIAL ADVANTAGE

• CHANNEL POWER– is obtained through differential advantage.

• DIFFERENTIAL ADVANTAGE CAN BE ANY COMBINATION OF THE FOLLOWING.– Physical / experiential– Psychological [communication / perception]– Purchase environment– Total cost including price and terms of sale– Post-purchase satisfaction [cognitive dissonance]

WHY ARE CHANNELS IMPORTANT?

• One of the least developed areas of business, they present an opportunity to rapidly expand sales and profitability– ALTOIDS [a product of Kraft Foods of Altria] went from <$10M to

>$100M by changing from a niche to a mass distribution strategy including supermarkets, drug chains, and mass merchandisers. There were no changes to the other 3 P’s.

• Companies have prospered and declined primarily based on their evolving [or not] channel strategies.– Office products firms / Dell and Compaq

• The emergence of multi-channel shopping provides firms the opportunity to provide products through multiple channels.– You buy toilet paper at a retail store [a grocery store or pharmacy for

example] for your home but you purchase it in large quantities for your factory from a paper products distributor.

PRODUCTS &

SERVICES

APPLICA-TIONSMARKET[S]

SEGMENT[S]

CHANNELS OF DISTRIBUTION

Channels of distribution tie markets, segments, products, services, and applications together.

CHANNEL STRUCTURES

PRODUCERSAND

PROVIDERS

CHANNELS BUSINESSCONSUMERS

CHANNELS OF DISTRIBUTION PROVIDE UTILITY OF PLACE, TIME, POSSESSION, & INFORMATION

CHANNEL STRUCTURE

• To really understand channel structure, you must understand the role [functions] the entity is filling. You can not use their name as a guide.

• What the types of channel members are available in your country?

• What is the channel intensity for the– Firm?– Market?

• How many channels should be used to cover the market [segments]?

CHANNEL MEMBERS

Manufacturer

Distributor or

Wholesaler

Dealer or Retailer

BUSINESSCONSUMERS

• Manufacturers or importers or primary providers

• Large resellers generally servicing smaller resellers

• Generally smaller resellers although there are very large retailers

• Business consumers of various types generally purchasing for any of the following reasons.

1. Consumption in the operation of their business2. As a component of a finished product they produce3. As a final product for resale

INTERNATIONAL CHANNELS

• They may be longer and thus require a larger number of intermediaries.– Wholesalers, distributors, retailers, and many other

types exist.– In some countries like Japan, laws prevent you from

shortening the channel.

• They are more complex to manage due to the differences of intermediaries and their environments.

• They are more difficult to effectively and economically control.

TYPES OF VERTICAL MARKETING SYSTEMS [VMS]

Greater

Degreeof

DirectControl

Lesser

Greater

Degreeof

DirectControl

Lesser

CORPORATECommon Ownership at Different Channel Levels

CONTRACTUALContractual Agreements Among Channel Members especially internationally

ADMINISTEREDLeadership is Assumed by One or a Few Dominant Members; Contracts are not common

DISTRIBUTION STRATEGY: INTENSITY

INTENSIVEFrito-Lay:

we need to have potato chips available everywhere.

SELECTIVEPanasonic:

we need to select technically competent resellers.

EXCLUSIVEJaguar:

we need a single strong dealer in every territory

B2B [INDUSTRIAL] CHANNEL MAP[Simple direct distribution]

Manufacturer’ssales branch

Manufacturer’srepresentative

Manufacturer

B2B CONSUMERS

Manufacturer’sInternet site

B2B [INDUSTRIAL] CHANNEL MAP[Simple indirect distribution]

Manufacturer’ssales branch

Manufacturer’srepresentative

Manufacturer

B2B CONSUMERS

Manufacturer’sInternet site

Many Types of Industrial Distributors [See NAICS]

May Resell to Many Types of Industrial Dealers

TYPES OF RESELLERS: WHOLESALING INTERMEDIARIES• MERCHANT

WHOLESALERS• Take Title to Goods• Independently owned• Distributors / Dealers• Fairly standard arrangements

EXAMPLES INCLUDE:• Distributors - Wholesalers• Dealers - Retailers• Exporter• Export Trading Company• [possibly state

controlled]

• REPRESENTATIVES• Independently owned• Never take Title to Goods• Help negotiate business

arrangements• Be careful of payments !

EXAMPLES INCLUDE:• Agent• Broker• Export Broker• Export Management Company• Manufacturer’s Rep.• Freelance Sales Person

B2B CHANNELS – TYPES OF DISTRIBUTORS

• General Line• Material handling / Material handling supplies• Plastic• MRO• Electrical• HVAC• Plumbing• Medical instruments / Medical supplies• Chemical • …many more• What are the types of distributors and their “natural”

channels in your country? HINT: you may want to refer back to NAICS in the previous lecture to help do this.

STRUCTURING CHANNELS WITH TERMS & CONDITIONS OF SALE

ACCOUNT TYPE PAYMENT TERMS DELIVERY TERMS SPECIAL TERMS PROMOTION & INCENTIVES

Regional distributor

Distributor

Retailer

Dealer

B2B Consumer

Less

ALL U.S. FIRMS SHOULD HAVE

1. some form of Export Reseller Questionnaire that they use with every reseller inquiry, and

2. a completed Reseller Compliance Application for every foreign reseller

to have maximum protection under U.S. law for dual-use products and transshipments! See the Readings for examples.

SECTION 8C: REVIEW

• Channel decisions are difficult to manage globally.

• A global marketer must – tailor marketing programs to various types of channels– and / or introduce new distribution / merchandising

concepts

• Effective channel management is dependent on control—from the selection process through the implementation of roles, expectations, and controls.

SECTION 8C: REVIEW

• You should now have knowledge of– Why channels of distribution are important– Types of channel members and VMS– Key channel issues

• Distribution intensity, channel maps, direct or indirect• Wholesaling intermediaries and problems• Channel roles, expectations, and controls

– Channel control, selecting channel members, and channel conflict