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
G8
Industrialized economies
INDIA or MEXICO
Industrializing economies
BRUNEI [oil] or COSTA RICA [bananas]
Raw Material Exporting economies
AFGHANISTAN or SUDAN
Subsistence 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 FACTORS
Why is each one important?
•
•
•
•
•
POPULATION
GDP
INFRASTRUCTURE
RESOURCES
ECONOMIC GROWTH PROJECTIONS
COMPARING COUNTRIES – 1
Malaysia Indonesia Singapore
Population [millions]
Thailand
22.6
231.3
4.5
62.3
GDP / capita
$3,640
$680
$24,740
$1,970
GDP [$billions]
82.264 157.284
111.330
122.731
51
3
Computers / 100 people
13
1
SOURCES: World Bank, World Health Organization, International Telecommunications Union, and the International Road
Federation, CIA WorldFactbook 2002
COMPARING COUNTRIES – 2
Malaysia
Population [millions]
GDP / capita
Mobile phones / 100 people
KWH per capita
Cars / 1000 people
Indonesia Singapore
Thailand
22.6
231.3
4.5
62.3
3,640
680
24,740
1,970
31
3
72
12
2,474
345
6,641
1,352
147
12
122
27
SOURCES: World Bank, World Health Organization, International Telecommunications Union, and the International Road
Federation, CIA WorldFactbook 2002
COMPARING COUNTRIES – 3
Malaysia
Indonesia Singapore
Thailand
Population [millions]
22.6
231.3
4.5
62.3
Mobile phones per 100 people
31
3
72
12
Calculate 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
SOURCES: World Bank, World Health Organization, International Telecommunications Union, and the International Road
Federation, CIA WorldFactbook 2002
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
G8
PER CAPITA
INCOME
It is common for rapidly
developing nations to be in
very different positions on the
different scales.
G8
INDIA
MEXICO
MEXICO
BRUNEI
COSTA RICA
AFGHANSITAN
SUDAN
INDIA
UTILITIES INFRASTRUTURE
• Communications
• Energy
• Water
• Sewer
• Environmental [Garbage / landfill; Recycling]
UN WORLD POPULATION PROJECTIONS
U.S. Census Bureau, International Data Base, April 2005 version
11,000,000
10,000,000
9,000,000
o
8,000,000
o
7,000,000
o
20
00
20
05
20
10
20
15
20
20
20
25
20
30
20
35
20
40
20
45
20
50
6,000,000
o
Medium
High
Low
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
POLITICAL RISK ITEMS
• 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]
TYPES OF POLITICAL / ECONOMIC
SYSTEMS
• 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?
POLITICAL RISKS
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.
MANAGING / REDUCING POLITICAL
RISK
• Avoid high-risk situations
• Avoid unstable country situations
• Purchase risk insurance
– Private insurance [CNA, …]
– OPIC [Overseas Private Investment Corp.]
ASSESSING COUNTRY ECONOMIC 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
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
Fail “must
have”
criteria
~ 270 country
equivalents
Pass “must
have”
criteria
Fail “must
have” or
“key
selection”
criteria
----------Fluent
employees
readily
available
Fail “must
have” or
“key
selection”
criteria
----------Fluent
Pass “must
have”
criteria
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
- A SIX-STEP PROCESS MARKET
SEGMENTATION
1-Identify the bases for selection
[Why are you splitting it this way?]
MARKET TARGETING
3-Select and develop measures of
attractiveness
2-Develop detailed market segment
profiles
[Clearly identify each segment.]
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
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
B2B SEGMENTATION VARIABLES
Organizational
Characteristics
-Industry
-Size
-Channel
-Operating characteristics
Product[s] or Process[es]
or Technology[ies]
-Level of technology
-Configuration
-Design
Buying Approach
-Centralization
-Functional involvement
-Partnering
Application[s]
of Products / Services
-How they are used?
-What are they used for?
LEVELS OF MARKET
SEGMENTATION
MASS MARKETING
Same product to all segments
Coca Cola
Early Ford
SEGMENT MARKETING
Different products multiple large market segments
Proctor & Gamble detergents Current auto manufacturers
NICHE MARKETING
Different products to different [sub-]segments [Goal: high market share]
SUV’s standard to family to luxury
MICROMARKETING
Specialized products for individuals and locations
LOCAL MARKETING
[Brands, promotions]
Local chain grocery stores
INDIVIDUAL MARKETING
[1:1 marketing]
Amazon, Dell
MARKET SEGMENTATION:
FILLING THE GAPS
CHANNELS OF
DISTRIBUTION
1
3
2
2
PRODUCTS
SERVICES
APPLICATIONS
MARKETS / SEGMENTS
The volume of the gap is an indicator of its attractiveness. The greater the
volume, the more interesting the gap.
POSITIONING
• 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 DIMENSION CANDIDATES
AND PERCEPTUAL MAPPING
Quality
Application[s]
Occasion[s]
Lifestyle /
image
Attributes
Competition
Price
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.
POSITIONING: PERCEPTUAL
MAPPING
C
U1
U
C
C
C
This portrays the relative
position of our product [U] to
our various competitors [C].
We are not in a good
More [U] since we are so
position
Artwork
close to many competitors.
C
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.
POSITIONING STRATEGIES
Against 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.
Reposition
a Competitor
C
C
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 Position
C
C C
Create a Position
Un
C
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.
C
C C
C
Un
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 Base
C U
C C
C
We 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.
BRAND NAME SELECTION
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.
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.
BRAND ISSUES
Consistency
Perceived Quality
and Value
Attributes
Advantages
of
Brand Names
Easy Identification
Defense Against
Competition
Advantages
Of
Brand Equity
Brand Loyalty
Credibility
Awareness
BUILD SUSTAINABLE COMPETITIVE ADVANTAGE WITH
EVERY THING YOU DO WITH YOUR BRAND!
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
MARKET
MARKET
SEGMENT 1 SEGMENT 2 SEGMENT 3
PRODUCT A
Brand A
Brand A
PRODUCT B
Brand A
Brand B
Brand B
PRODUCT C
Brand A
Brand C
PRODUCT D
Brand B
Brand C
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 ADVANTAGE
All forces interact in various ways in different situations.
FACTORS THAT
AFFECT THE
BUSINESS
The nation’s position in factors of
production.
DEMAND FUNCTIONS
AND
CHARACTERISTICS
What is the nature of demand
functions in-country?
STRATEGY,
STRUCTURE, AND
RIVALRY
How are we going to compete
against the various competitors in
this 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
INDUSTRY-WIDE
COMPETITIVE
SCOPE
MARKET SEGMENT
COMPETITIVE
SCOPE
Customer Perceived
Uniqueness
Low Cost Position
DIFFERENTIATION
OVERALL COST
LEADERSHIP
Focus on differentiation
and perceived value
Hard to keep long term
NICHE
Understand segments and focus attack.
No direct battles with major competitors
THE MANY DIMENSIONS OF MANAGING
WORLD MARKETING ACTIVITIES
MARKETING
PROGRAMS
SUPPLY CHAIN
OR
VALUE CHAIN
MANAGEMENT
OPERATIONS
MARKETING
MIX
SYSTEMS AND
TRANSACTIONS
LOGISTICS
MARKETING MIX
•
•
•
•
Which products?
Which channels of distribution?
What promotions?
What price structures?
THE INTERNATIONAL PRODUCT LIFE
CYCLE: AN OVERVIEW
Most developed
nations – stream
of new product
introductions
Medium
developed
nations – trailing
introduction
Least developed
nations – simple
product version
G
H
-I
E
-J
E
-K
SALES
D
A
B
Introduction
C
Growth
Maturity
TIME
Decline
THE PRODUCT LIFE CYCLE
OVERVIEW
Introduction
Growth
Maturity
TOTAL
S ALES
Country 1 +
Country 2
Country 1
Country 2
Country 1
In Decline
TIME
Manage the Marketing Mix (4P’s) – The marketing mix may be different in each country or market and each stage
of the product life cycle.
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
Strategic Marketing for
Market Research
Evaluation data for
-Strategy analysis
-New business analysis
Market Planning for
The collection and analysis of
data for market decisions about
COMPETITORS
MARKETS
PRODUCTS
RESPONDENTS
STRATEGY OPTIONS
Market segmentation
Market potential / share
Competitive analysis
Product Management for
New or enhanced products
4 P's decisions
Product Development for
Product concept testing
Sales 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] the
research
Objectives!
Make
decisions
Develop the
research
plan
Present the
findings
Collect data
Analyze the
data
SECONDARY DATA
• 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”.
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/
INTERNATIONAL SOURCES OF
ASSISTANCE
•
•
•
•
•
•
•
•
•
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
SECONDARY DATA ISSUES
• 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
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
• QUANTITATIVE 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
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.
WORLD TRADE ORGANIZATION (WTO)
http://www.wto.org/english/thewto_e/thewto_e.htm
• 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]
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 ARE
AVAILABLE 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 MARKS
AVAILABLE 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
• EXHAUSTION
or “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.
• TERRITORIALITY
states 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
QUALITY SYSTEMS
• 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 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/cgibin/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
foreign
investment
COMMITMENT
Direct
exporting
RISK
CONTROL
Contractual
Licensing
PROFIT
POTENTIAL
Franchising
ENTERING FOREIGN MARKETS
INDIRECT EXPORTING
• RISKS
– LIABILITY, CONTROL
– VERY ERRATIC DEMAND
– FIT WITH OPERATIONS
• REWARDS
– VERY LITTLE SALES EFFORT
– INCREMENTAL VOLUME AND PROFIT
Manufacturer
Agents / 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
Manufacturer
Resellers
in destination country
OEMs
in destination country
Individual
Accounts
Individual
Accounts
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 Subsidiary
Resellers
in country
Individual
Accounts
2. Manufacturer
Sales Subsidiary
OEMs in country
Individual
Accounts
3. Manufacturer
Sales Subsidiary
Individual
Accounts
ENTERING FOREIGN MARKETS
LICENSING & FRANCHISING
• RISK
– CONTROL OF RESELLERS
• REWARDS
– MINIMIZE ENTRY RISK
– PROFIT STREAM
1. Manufacturer
2. Manufacturer
Licensee or
Franchisee
Resellers
in country
Licensee or Franchisee
Individual
Accounts
Individual
Accounts
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. Manufacturer
Manufacturing
Subsidiary
Resellers
in country
Individual
Accounts
2. Manufacturer
Manufacturing
Subsidiary
OEMs in country
Individual
Accounts
3. Manufacturer
Manufacturing Subsidiary
Individual
Accounts
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
2. Manufacturer
CONTRACTUAL
CONTRACTUAL
Resellers
in country
Individual
Accounts
Individual
Accounts
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
IS
THE 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 MARKETS
Businesses,
governments, institutions
----------------CONSUMER
MARKETS
SUPPLY CHAIN
Agriculture, Manufacturing, OEM, Resellers,
Services, Transportation, Utilities, and
other sectors
SUPPLY AND VALUE CHAINS
SUPPLY CHAIN
Demand
Sourcing
Procure-
Fulfill-
ment
ment
Delivery
Payment
Vendor
Relationships
VALUE CHAIN = THE SUPPLY CHAIN PLUS
Design
Develop
Produce
Market
Distribute
Sell
Customer
Relationships
BASIC ECONOMICS
EQUILIBRIUM
INELASTIC
ELASTIC
DEMAND
DEMAND
P
R
I
C
E
QUANTITY
LARGE change in P
Small change in P
DEMANDED
Small change in Q
LARGE change in Q
[PER PERIOD]
[Gasoline]
BUSINESS DEMAND
• 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.
60
50
40
30
20
10
0
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
QUALITY
CUSTOMER
SERVICE
MARKETING
TRUST – BONDING – EMPATHY – RECIPROCITY
ELEMENTS OF TOTAL COST FOR
INTERNATIONAL SOURCING
• Base price
• Tooling
Common additional international price factors
• Changes to packaging
• Transportation from/to x
• Additional insurance
• Document fees
• Port handling charges
• Taxes [all kinds]
• Possibly travel
• Escalation of prices
• Customs duties & fees
• Payment terms & costs
• Port storage / handling
• Customs brokers
• Communications
• Inventory costs
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.
CHANNELS OF
DISTRIBUTION
PRODUCTS &
SERVICES
MARKET[S]
APPLICATIONS
SEGMENT[S]
Channels of distribution tie markets, segments,
products, services, and applications together.
CHANNEL STRUCTURES
PRODUCERS
AND
PROVIDERS
CHANNELS
BUSINESS
CONSUMERS
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
•
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.
Manufacturer
Distributor
or
Wholesal
er
Dealer or
Retailer
BUSINESS
CONSUMERS
1.
2.
3.
Consumption in the operation of their business
As a component of a finished product they produce
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
CORPORATE
Common Ownership at Different Channel Levels
Degree
of
Direct
Control
CONTRACTUAL
Contractual Agreements Among Channel Members
especially internationally
Lesser
ADMINISTERED
Leadership is Assumed by One or a Few Dominant
Members; Contracts are not common
DISTRIBUTION STRATEGY:
INTENSITY
INTENSIVE
Frito-Lay:
we need to have potato chips
available everywhere.
SELECTIVE
Panasonic:
we need to select technically
competent resellers.
EXCLUSIVE
Jaguar:
we need a single strong dealer in
every territory
B2B [INDUSTRIAL] CHANNEL MAP
[Simple direct distribution]
Manufacturer
Manufacturer’s
sales branch
Manufacturer’s
Internet site
B2B CONSUMERS
Manufacturer’s
representative
B2B [INDUSTRIAL] CHANNEL MAP
[Simple indirect distribution]
Manufacturer
Manufacturer’s
sales branch
Manufacturer’s
Internet site
Manufacturer’s
representative
Many Types of Industrial Distributors [See NAICS]
May Resell to Many Types of Industrial Dealers
B2B CONSUMERS
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