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COO – FORM 12
SUBJECT TITLE: INTERNATIONAL BUSINESS AND TRADE
INSTRUCTOR: MONA LIZA S. EJUSA, CPA
SUBJECT CODE: MS4
MODULE 3
LEARNING OBJECTIVES:
The course demonstrates how international business variables affect the trade process.
It aims to highlight the realities of international business; some of its advantages and its
problems that come when business is conducted on the international stage.
By the end of this course, the student will be able to:
ü
ü
ü
ü
To understand what is International Marketing
Identify the various elements of culture.
To understand what is International Logistic
To understand what is International Human Resource Management
NOTES:
Topic 1: International Marketing
A. What is International Marketing?
International marketing is the application of marketing principles in more than one
country, by companies overseas or across national borders. International marketing is
based on an extension of a company’s local marketing strategy, with special attention
paid to marketing identification, targeting, and decisions internationally
According to the American Marketing Association (AMA) “international marketing is the
multinational process of planning and executing the conception, pricing, promotion and
distribution of ideas, goods, and services to create exchanges that satisfy individual and
organizational objectives.”
1
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Who employs International Marketing?
Rapid technological advances mean that geographical and cultural communication
barriers are disappearing, and even smaller businesses without a physical presence in
other countries can market and sell their products internationally. This means that
almost anyone with the desire can market internationally, but will do so with varying
levels of success, depending on the thought and research that is put into the
international marketing strategy.
Companies selling goods that have customs restrictions, like food and live plants, must
contend with a more rigorous regulatory process before marketing their products
internationally. While they may have a more difficult time setting up their international
export business, they also have the opportunity to expose other countries to native
products they couldn’t access otherwise.
Other types of companies that often perform well internationally include those involved
in export, joint ventures, and direct investment.
Exporting is the practice of shipping goods directly to a foreign country. Prominent
companies that do an excellent job of marketing their foreign exports to the United
States include Fanta soft drinks, Honda, and retail giant H&M. In fact, H&M paid $3.5
million for a 30-second commercial during the 2012 Super Bowl, a marketing bonanza
that has long been dominated by American brands.
Joint venture companies refer to the combined efforts of two or more businesses to
their mutual benefit. One of the most famous international joint venture success stories
is Sony-Ericsson, a partnership between a Japanese electronics company and a
Swedish telecommunications company. Their international marketing strategy,
comprised of bright colors and modern shapes, has helped make the joint venture
known the world over.
A direct investment company places a fixed asset in a foreign country with the aim of
manufacturing a product, or part of a product, abroad. Dell computers, for example, is
an American company with factories in many other countries that assemble personal
computers from parts made all around the world. Dell then markets their computers with
an exceptional emphasis on customer needs and customization – unlike other
companies that sell pre-manufactured products; Dell computers are custom-assembled
after customers place their orders.
What kinds of customers are effectively marketed to with International Marketing?
Depending on your brand, any foreign citizen is a potential customer. But how
does a marketing team figure out how to tap into an international market? Customers
who live in foreign markets have different buying habits, preferences, and priorities than
the customers they're familiar with. By tracking these foreign customers through market
research and cultural surveys, marketers can discover the best methods of reaching
them.
Trying to market a brand to international customers without researching is just asking
for trouble, as companies have proven time and time again. Careful consideration of a
culture’s beliefs and prejudices is important in international marketing. For example, the
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Muslim culture considers dogs to be dirty animals. So, positioning a dog as “man’s best
friend” in a Middle Eastern country will surely fall flat.
How is an International Marketing Plan developed and employed?
It can be difficult for a small or medium-sized corporation to initially build an international
marketing plan, because they generally don’t have the expertise or budget to launch
the campaign. By partnering with another group or hiring marketing experts with
knowledge of foreign markets, smaller companies can build their cultural research and
implement more successful campaigns.
Whether a company chooses to partner with another foreign agency or hire an inside
international marketing representative, the most important facet of building a successful
international marketing campaign is the research they conduct. Research will inform the
company's marketing mission as they proceed, allowing them to maximize potential in
new markets.
Once research is completed and a market is chosen, experts should examine and
modify a brand's marketing strategy so that it fits their target demographics. Hiring
representatives from the country will help ensure that all cultural differences are handled
appropriately and with sensitivity.
For an emerging international brand, establishing partnerships and networking with
other companies in the country are essential for success. Partners within a target
market help new companies establish themselves in markets where they would
otherwise have gone unnoticed.
Finally, it is important to review an international marketing strategy on a quarterly
basis. Even if a company sends representatives to travel to the foreign market, it is
much more difficult to keep a finger on the pulse of an overseas marketing campaign.
This means that results need to be tracked extremely closely, and tweaks should be
made regularly to help a product gain the appropriate foothold for success.
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What types of Careers work with International Marketing Strategies
Because international business is largely conducted over the telephone and internet, an
international marketing professional should have a firm grasp on changing technologies
as well as an understanding of different cultures and global economy. An
international marketing career is especially suited to an individual with political
understanding, good economic and communications skills, and an ear for
language.
Marketing Managers
International marketing campaigns are generally led by a marketing manager with the
knowledge and training necessary to manage and effectively direct a comprehensive
global campaign. Typically, marketing managers oversee all activities within a
company’s marketing, advertising, and promotional department, locally and abroad.
They establish brand guidelines and growth strategies, evaluate customer needs in
foreign markets, and tweak marketing plans dependent on culture. This position is a key
component in ensuring the success of an international marketing campaign.
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Education and Experience
Most marketing managers have at least a bachelor's degree in marketing or a related
major like communication, advertising, or business. For an international marketing
manager, a second major or minor in a foreign language, and retained fluency in that
language, would also be extremely beneficial. Marketing managers generally begin in
entry-level marketing positions and work their way up the career ladder.
Marketing Coordinators
A marketing coordinator organizes and implements the day-to-day tasks of personifying
a brand across all markets. In the case of international marketing, a marketing
coordinator may be hired for each foreign market, to ensure that the brand and its
message are being utilized appropriately across all cultures in routine application.
Education and experience
Most marketing coordinators need a bachelor’s degree in marketing, event planning, or
a related field, but generally need less experience than other positions in the
international marketing field. They should have excellent time management and
organizational skills, and should be able to manage multiple projects on tight deadlines.
Again, fluency in a foreign language is extremely beneficial.
Translators
Even if most members of an international marketing team are fluent in a second
language, it is best practice to keep a translator on staff who is familiar with the
subtleties, nuances, and unique sayings of a language in the target market. As the
language expert, a translator helps keep business transactions running smoothly across
linguistic barriers and can prevent mishaps in marketing.
Education and experience
In most situations, a translator will have formal study in his or her specialty language,
like a bachelor’s degree in Spanish or Farsi. However, a translator can also be a
foreign-born professional whose second (or third, or fourth) language is English.
How can a marketing school help you succeed in a company who uses
International Marketing?
A marketing degree is essential to begin a career in international marketing. Education
at a marketing school will cover:
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The best way to pursue an international marketing career is to earn a marketing
degree. Marketing graduates have the advertising knowledge, consumer and cultural
smarts, and communication skills necessary to build a successful career. Most
organizations that hire an integrated marketing team require a minimum of a bachelor’s
degree in marketing. They also look for individuals with strong creative skills, an ability
to see the big picture, and an attention to detail. Earning a degree from a marketing
school ensures you have the proper background knowledge upon which to build your
career.
To learn more about how a marketing degree can help you build a successful
international marketing career, request information from schools offering marketing
degrees today.
Major Decisions in International Marketing
A. Deciding Whether to Go Abroad
Most companies would prefer to remain domestic if their domestic market were large
enough. Managers would not need to learn other languages and laws, deal with volatile
currencies, face political and legal uncertainties, or redesign their products to suit
different customer needs and expectations. Business would be easier and safer. Yet
several factors can draw companies into the international arena:
•
•
•
•
•
Some international markets present better profit opportunities than the
domestic market.
The company needs a larger customer base to achieve economies of scale.
The company wants to reduce its dependence on any one market.
The company decides to counterattack global competitors in their home
markets.
Customers are going abroad and require international service.
Reflecting the power of these forces, exports accounted for roughly 13
percent of U.S. GDP in 2008, almost double the figure 40 years ago.10
Before making a decision to go abroad, the company must also weigh
several risks:
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•
•
•
•
•
The company might not understand foreign preferences and could
fail to offer a competitively attractive product.
The company might not understand the foreign country’s business
culture.
The company might underestimate foreign regulations and incur
unexpected costs.
The company might lack managers with international experience.
The foreign country might change its commercial laws, devalue its
currency, or undergo a
political revolution and expropriate foreign property.
Some companies don’t act until events thrust them into the
international arena. The internationalization process typically has
four stages:11
1.
2.
3.
4.
No regular export activities
Export via independent representatives (agents)
Establishment of one or more sales
subsidiaries 3. Establishment of production facilities abroad
The first task is to move from stage 1 to stage 2. Most firms work with an independent
agent and enter a nearby or similar country. Later, the firm establishes an export
department to manage its agent relationships. Still later, it replaces agents with its own
sales subsidiaries in its larger export markets. This increases investment and risk, but
also earning potential. Next, to manage sub- sidiaries, the company replaces the export
department with an international department or divi- sion. If markets are large and
stable, or the host country requires local production, the company will locate production
facilities there.
By this time, it’s operating as a multinational and optimizing its sourcing, financing,
manufacturing, and marketing as a global organization. According to some researchers,
top management begins to focus on global opportunities when more than 15 percent of
revenue comes from international markets.
B.
Deciding Which Markets to Enter
In deciding to go abroad, the company needs to define its marketing objectives and
policies. What proportion of international to total sales will it seek? Most companies start
small when they venture abroad. Some plan to stay small; others have bigger plans.
How Many Markets to Enter
The company must decide how many countries to enter and how fast to expand. Typical
entry strategies are the waterfall approach, gradually entering countries in sequence,
and the sprinkler approach, entering many countries simultaneously. Increasingly,
firms—especially technology- intensive firms—are born global and market to the entire
world from the outset.
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Matsushita, BMW, General Electric, Benetton, and The Body Shop followed the
waterfall approach. It allows firms to carefully plan expansion and is less likely to strain
human and financial resources. When first-mover advantage is crucial and a high
degree of competitive intensity prevails, the sprinkler approach is better. Microsoft sold
over 150 million copies of Windows 7 in 100 countries in fall 2009 with only minor
tweaks in its marketing. The main risk is the substantial resources needed and the
difficulty of planning entry strategies for many diverse markets.14
The company must also choose the countries to consider based on the product and on
geography, income and population, and political climate.
Developed versus Developing Markets
One of the sharpest distinctions in global marketing is between developed and
developing or emerging markets such as Brazil, Russia, India, and China (often called
“BRIC” for short: Brazil, Russia, India, and China).15 Two other developing markets with
much economic and marketing significance are Indonesia and South Africa. The unmet
needs of the developing world represent huge potential markets for food, clothing,
shelter, consumer electronics, appliances, and many other goods. Market leaders rely
on developing markets to fuel their growth. Consider the following:
•
•
•
Coca-Cola, Unilever, Colgate-Palmolive, Groupe Danone, and PepsiCo earn 5
percent to 15 percent of their total revenues from the three largest emerging
markets in Asia—China, India, and Indonesia.16
Developing markets make up over 25 percent of Kraft’s total business, almost 40
percent of Cadbury’s, and over 50 percent of Tupperware’s sales.17
Nestlé estimates about 1 billion consumers in emerging markets will increase
their incomes enough to afford its products within the next decade. The world’s
largest food company gets about a third of its revenue from emerging economies
and aims to lift that to 45 percent within a decade.18
Developed nations account for about 20 percent of the world’s population. Can
marketers serve the other 80 percent, which has much less purchasing power
and living conditions ranging from mild deprivation to severe deficiency? This
imbalance is likely to get worse, as more than 90 percent of future population
growth is projected to occur in the less developed countries.19
Successfully entering developing markets requires a special set of skills and
plans. Consider how these companies pioneered ways to serve “invisible”
consumers:2
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Deciding How to Enter the Market
Once a company decides to target a particular country, it must determine the best
mode of entry. Its broad choices are indirect exporting, direct exporting, licensing, joint
ventures, and direct investment Each succeeding strategy entails more commitment,
risk, control, and profit potential.
Indirect and Direct Export
Companies typically start with export, specifically indirect exporting—that is, they work
through in- dependent intermediaries. Domestic-based export merchants buy the
manufacturer’s products and then sell them abroad. Domestic-based export agents,
including trading companies, seek and negotiate foreign purchases for a commission.
Cooperative organizations conduct exporting activities for several producers—often of
primary products such as fruits or nuts—and are partly under their administrative
control. Export-management companies agree to manage a company’s export
activities for a fee.
Indirect export has two advantages. First, there is less investment: The firm doesn’t
have to develop an export department, an overseas sales force, or a set of
international contacts. Second, there’s less risk: Because international marketing
intermediaries bring know-how and services to the relationship, the seller will make
fewer mistakes.
Companies may eventually decide to handle their own exports.35 The investment and
risk are somewhat greater, but so is the potential return. Direct exporting happens in
several ways:
•
•
•
Domestic-based export department or division. A purely service function may
evolve into a self-contained export department operating as its own profit center.
Overseas sales branch or subsidiary. The sales branch handles sales and
distribution and per- haps warehousing and promotion as well. It often serves as
a display and customer-service center.
Traveling export sales representatives. Home-based sales representatives travel
abroad to
find business.
•
Foreign-based distributors or agents. These third parties can hold limited or
exclusive rights
to represent the company in that country.
Many companies use direct or indirect exporting to “test the waters” before
building a plant and manufacturing their product overseas. A company does not
necessarily have to attend international trade shows if it can effectively use the
Internet to attract new customers overseas, support existing customers who live
abroad, source from international suppliers, and build global brand awareness.
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Licensing
Licensing is a simple way to engage in international marketing. The licensor
issues a license to a foreign company to use a manufacturing process,
trademark, patent, trade secret, or other item of value for a fee or royalty. The
licensor gains entry at little risk; the licensee gains production expertise or a wellknown product or brand name.
The licensor, however, has less control over the licensee than over its own
production and sales facilities. If the licensee is very successful, the firm has
given up profits, and if and when the con- tract ends, it might find it has created a
competitor. To prevent this, the licensor usually supplies some proprietary
product ingredients or components (as Coca-Cola does). But the best strategy is
to lead in innovation so the licensee will continue to depend on the licensor.
Licensing arrangements vary. Companies such as Hyatt and Marriott sell
management contracts to owners of foreign hotels to manage these businesses
for a fee. The management firm may have the option to purchase some share in
the managed company within a stated period.
In contract manufacturing, the firm hires local manufacturers to produce the
product. When Sears opened department stores in Mexico and Spain, it found
qualified local manufacturers to produce many of its products. Contract
manufacturing reduces the company’s control over the process and risks loss of
potential profits. However, it offers a chance to start faster, with the opportunity to
partner with or buy out the local manufacturer later.
Finally, a company can enter a foreign market through franchising, a more
complete form of licensing. The franchisor offers a complete brand concept and
operating system. In return, the franchisee invests in and pays certain fees to the
franchisor. McDonald’s, Ramada, and Avis have entered scores of countries by
franchising their retail concepts and making their marketing culturally relevant.36
Joint Ventures
Historically, foreign investors have often joined local investors in a joint venture
company in which they share ownership and control. To reach more geographic
and technological markets and to di- versify its investments and risk, GE
Money—GE’s retail lending arm—views joint ventures as one of its “most
powerful strategic tools.” It has formed joint ventures with financial institutions in
South Korea, Spain, Turkey, and elsewhere.37 Emerging markets, especially
large, complex countries such as China and India, see much joint venture action.
A joint venture may be necessary or desirable for economic or political reasons.
The foreign firm might lack the financial, physical, or managerial resources to
undertake the venture alone, or the for- eign government might require joint
ownership as a condition for entry. Joint ownership has draw- backs. The
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partners might disagree over investment, marketing, or other policies. One might
want to reinvest earnings for growth, the other to declare more dividends. Joint
ownership can also prevent a multinational company from carrying out specific
manufacturing and marketing policies on a worldwide basis.
The value of a partnership can extend far beyond increased sales or access to
distribution. Good partners share “brand values” that help maintain brand
consistency across markets. For example, McDonald’s fierce commitment to
product and service standardization is one reason its retail out- lets are so similar
around the world. McDonald’s handpicks its global partners one by one to find
“compulsive achievers” who will put forth the desired effort.
Direct Investment
The ultimate form of foreign involvement is direct ownership: the foreign
company can buy part or full interest in a local company or build its own
manufacturing or service facilities. Cisco had no presence in India before 2005
but opened a second headquarters in Bangalore to take advantage of
opportunities in India and other locations such as Dubai.38
If the market is large enough, direct investment offers distinct advantages. First,
the firm secures cost economies through cheaper labor or raw materials,
government incentives, and freight savings. Second, the firm strengthens its
image in the host country because it creates jobs. Third, the firm deepens its
relationship with government, customers, local suppliers, and distributors,
enabling it to better adapt its products to the local environment. Fourth, the firm
retains full control over its investment and therefore can develop manufacturing
and marketing policies that serve its long- term international objectives. Fifth, the
firm assures itself of access to the market in case the host country insists locally
purchased goods have domestic content.
The main disadvantage of direct investment is that the firm exposes a large
investment to risks such as blocked or devalued currencies, worsening markets,
or expropriation. If the host country requires substantial severance for
employees, reducing or closing operations can be expensive.
By adapting its marketing to different regions of the world, KFC has met with
much global success, such as with its many restaurants in Tokyo, Japan.
Deciding on the Marketing Program
International companies must decide how much to adapt their marketing strategy to
local conditions. At one extreme is a standardized marketing program worldwide, which
promises the lowest costs; Table 21.2 summarizes some pros and cons. At the other
extreme is an adapted marketing program in which the company, consistent with the
marketing concept, believes consumer needs vary and tailors marketing to each target
group.
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Consumer behavior may reflect cultural differences that can be pronounced across
countries. Hofstede identifies four cultural dimensions that differentiate countries:
1. Individualism versus collectivism—In collectivist societies, the self-worth of an
individual is rooted more in the social system than in individual achievement
(high collectivism: Japan; low: United States).
2. High versus low power distance—High power distance cultures tend to be less
egalitarian (high: Russia; low: Nordic countries).
3. Masculine versus feminine—This dimension measures how much the culture is
dominated by assertive males versus nurturing females (highly masculine:
Japan; low: Nordic countries).
4. Weak versus strong uncertainty avoidance—Uncertainty avoidance indicates
how risk-aversive people are (high avoidance: Greece; low: Jamaica).
Consumer behavior differences as well as historical market factors lead
marketers to position brands differently in different markets.
•
•
•
Heineken beer is a high-end super-premium offering in the United States but
middle-of-the- road in its Dutch home market.
Honda automobiles denote speed, youth, and energy in Japan and quality and
reliability in the United States.
The Toyota Camry is the quintessential middle-class car in the United States but
is at the high end in China, though in the two markets the cars differ only in
cosmetic ways.
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Marketing Adaptation
Because of all these differences, most products require at least some adaptation.
Even Coca-Cola is sweeter or less carbonated in certain countries. Rather than
assuming it can introduce its domestic product “as is” in another country, the
company should review the following elements and deter- mine which add more
revenue than cost if adapted:
•
•
•
•
•
•
•
•
•
•
•
Product features
Labeling
Colors
Materials
Sales promotion
Advertising media
Brand name
Packaging
Advertising execution
Prices
Advertising themes
Deciding on the Marketing Organization
Companies manage their international marketing activities in three ways: through export
departments, international divisions, or a global organization.
Export Department
A firm normally gets into international marketing by simply shipping out its goods. If its
international sales expand, it organizes an export department consisting of a sales
manager and a few assistants. As sales increase, the export department expands to
include various marketing services so the company can go after business more
aggressively. If the firm moves into joint ventures or direct investment, the export
department will no longer be adequate to manage international operations.
International Division
Sooner or later, companies that engage in several international markets and ventures
create an international division to handle all this activity. The unit is headed by a division
president who sets goals and budgets and is responsible for the company’s
international growth.
The international division’s corporate staff consists of functional specialists who provide
services to various operating units. Operating units can be geographical organizations.
Reporting to the international-division president might be regional vice presidents for
North America, Latin America, Europe, Africa, the Middle East, and the Far East.
Reporting to the regional vice presidents are country managers responsible for a sales
force, sales branches, distributors, and licensees in the respective countries. Or the
operating units may be world product groups, each with an international vice president
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responsible for worldwide sales of each product group. The vice presidents may draw
on corporate-staff area specialists for expertise on different geographical areas. Finally,
operating units may be international subsidiaries, each headed by a president who
reports to the president of the international division.
Global Organization
Several firms have become truly global organizations. Their top corporate management
and staff plan worldwide manufacturing facilities, marketing policies, financial flows, and
logistical systems. The global operating units report directly to the chief executive or
executive committee, not to the head of an international division. The firm trains its
executives in worldwide operations, recruits management from many countries,
purchases components and supplies where it can obtain them at least cost, and makes
investments where anticipated returns are greatest.
These companies face several organizational complexities. For example, when the firm
is pricing a company’s mainframe computers for a large banking system in Germany,
how much influence should the headquarters product manager have? And the
company’s market manager for the banking sector? And the company’s German
country manager?
When forces for “global integration” (capital-intensive production, homogeneous
demand) are strong and forces for “national responsiveness” (local standards and
barriers, strong local preferences) are weak, a global strategy that treats the world as a
single market can make sense (for example, with consumer electronics). When the
reverse is true, a multinational strategy that treats the world as a port- folio of national
opportunities can be more appropriate (such as for food or cleaning products).91
Korea’s globally integrated LG decided to hire a number of top executives from Western
firms to help transform it from “an engineering powerhouse that excelled at
manufacturing and selling in different parts of the world” to a “globally efficient, trendsetting organization.” The new executives were charged with standardizing the
hodgepodge of processes and systems LG had developed in different markets in
purchasing, the supply chain, marketing, and other areas. A single agency (London’s
Bartle Bogle Hegarty) was given global responsibility to sell an increasing number of
higher-end products.92
When both forces prevail to some extent, a “glocal” strategy that standardizes certain
elements and localizes others can be the way to go (for instance, with
telecommunications). Many firms seek a blend of centralized global control from
corporate headquarters with input from local and re- gional marketers. As one top
marketer for global brand icon Jack Daniels described the challenges
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C. How Foreign Market Selected
International Market Selection Process
Market selection plays a crucial role at the international level. Market selection is
based on a thorough evaluation of the different markets with reference to certain welldefined criteria, given the company resources and objectives.
The following are the steps involved in the market selection process:
a) International Marketing Objectives: The first step in market selection process is to
determine or ascertain the export marketing objectives of the organization. The
market selected to serve a particular international marketing objective need not
necessarily be the best suited to achieve some other international marketing
objective.
(b) Parameters for Selection: For proper evaluation and selection of the markets, it is
essential to clearly lay down the parameters and criteria for evaluation. The different
parameters for the selection of a market are firm's resources, international environment,
market situation, nature of competition, government policy, etc.
(c) Preliminary Screening: The objective of the preliminary screening is to eliminate
the markets which are not potential. The parameters used for the preliminary screening
may vary from product to product. However, parameters like the size of population,
per capita income, structure of the economy, infrastructural factors and political
conditions are commonly used.
(d) Short Listing of Markets: Preliminary screening enables to eliminate markets
which obviously do not meet consideration at the very outset. There would be a large
number of markets left even after the preliminary screening. They are further screened
with the help of more information than was used at the preliminary screening stage
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(e) Evaluation and Selection: The short listed markets are further evaluated with
reference to the cost-benefit analysis and feasibility study. They are then, ranked on
the basis of their overall attractiveness. Of the markets, the best one is chosen for the
launching of product considering the company’s resources and external environment.
(f) Test Marketing: Initially, the market is tested on a smaller scale by launching the
product in a part of the markets. This provides a feedback to the producer about the
market. At the same time, it helps the producer in assessing overall response of the
consumers from a specific market, after tested success, the production can be
undertaken on a mass scale.
(g) Commercial Production: Once the product is tested "in the selected market, the
company goes ahead with mass production. Minor modifications, if any, are introduced
in the product mix during this stage.
D. The pricing Strategy for export items
1. Sliding-Down the Demand Curve:
This resembles the above strategy except that in this case the company reduces
prices faster and further than it would be forced to do in view of potential
competition. A company pursuing this strategy has the objective to become
established in foreign markets as an efficient producer at optimum volume before
foreign or domestic competitors can get entrenched.
This is primarily used by companies introducing product innovations. Here the strategy
involves starting-out with almost the entire emphasis on pricing on the basis of what the
market will bear and moving from this point toward cost pricing at a measured pace.
The pace must be slow enough to pick-up profits but fast enough to discourage
competitors from entering the market. Companies following this strategy are seeking to
recover development costs as they become an established entity in the market.
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2) Skimming the Market:
A simple, and somewhat unusual, objective might be to make the largest short run profit
possible and retire from the business. This involves the strategy of getting the highest
possible price out of a product’s distinctiveness in the short-run without worrying about
the long-run company position in the foreign market. A high price is set until the small
market at that price is exhausted.
The price may then be lowered to tap a second successive market or income level.
However, little thought is given to the company’s permanent position in the field. This
strategy may be used either because the company feels that there is no permanent
future for the product in a foreign market or markets or that its costs are high and a
competitor may come in and take the market away.
3) Penetration Pricing:
This strategy involves establishing a price sufficiently low to rapidly create a mass
market. Emphasis is placed on value rather than cost in setting the price. Penetration
pricing involves the assumption that if the price is set to bring in a mass market, the
effect of this volume will be to lower costs sufficiently to make the price yield a profit.
In an industry of rapidly decreasing costs, penetration pricing can accelerate the
process. The strategy also involves the assumption that demand is highly elastic or that
foreign purchasers buy primarily on a price basis. This strategy may be more
appropriate than skimming for multinational companies facing the demand conditions of
the less developed countries.
An extreme form of penetration pricing is expansionistic pricing. This is the same as
penetration pricing except that it goes much lower in order to get a larger percentage of
the customers who are potential buyers at very low prices. This strategy assumes:
i) A high degree of price elasticity of demand, and
ii) Costs extremely susceptible to reduction with volume output.
This may be based on experience-curve pricing.
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4) Preemptive Pricing:
Setting prices so low as to discourage competition is the objective of preemptive pricing.
The price will be close to total unit costs for this reason. As lower costs result from
increased volume, still lower prices will be quoted to buyers. If necessary to discourage
potential competition prices may even be set temporarily below total cost. The
assumption is that profits will be made in the long run through market dominance. This
approach, too, may utilize experience curves.
5) Extinction Pricing:
The purpose of extinction pricing is to eliminate existing competitors from international
markets. It may be adopted by large, low-cost producers as a conscious means of
driving weaker, marginal producers out of the industry. Since it may prove highly
demoralizing, especially for small firms and those in newly developing countries, it can
slow down economic advancement and thus retard the development of otherwise
potentially substantial markets.
Preemptive and extinction pricing strategies are both closely associated with ‘dumping’
in international markets. Actually, they are merely variations of the dumping process,
depending upon the domestic or ‘home’ market price. Although they may serve to
capture initially a foreign market and may keep-out, or drive-out, competitors, they
should be used only with extreme caution.
There is the ever present danger that Foreign Governments will impose arbitrary
restrictions on the import and sales of the product, consequently closing the market
completely to the producer. More importantly, once customers have become used to
buying at low prices it may prove difficult, if not impossible, to raise them subsequently
to profitable levels.
.
-END OF TOPIC 1 –
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Topic 2 : International Logistics
A. International Logistics
Domestic logistics means distributing goods within you country, while international
logistic deals is the transportation of goods beyond your country line.
The Five Elements of Logistics
1.
2.
3.
4.
5.
Storage, warehousing and materials handling.
Packaging and unitisation.
Inventory
Transport
Information and Control
What is the role of storage, material handling and warehouses in logistics?
It is to enable a steady stream of products to be supplied by manufacturers. Why is this
important? Manufacturers need to operate at peak efficiency, but consumers tend not to
demand goods at the same rate as a manufacturer supplies them.
There tends to be an imbalance between supply, which is steady, and demand, which
can be unpredictable. The answer is to store the surplus goods produced by a
manufacturer until they are demanded by consumers. To achieve this, warehouse
buildings are required. These need specialist storage equipment such as shelving or
racks and material handling equipment to move them around the warehouse and to load
and unload delivery vehicles.
What is the role of packaging and unitisation?
A key definition and one of the Rs of logistics is the care and condition of a product.
Packaging is an essential part of that. Unitisation is also important as this assists
storage and transportation. The easiest product to move and store is a cube, so
packaging and unitisation attempts to take all different sizes and shapes of product and
pack them as near as possible into a cuboid shape.
What is the role of transport?
A major element of logistics that most will recognise is transport. This includes all
modes of transport including road vehicles, freight trains, cargo shipping and air
transport. Without transport, goods would be unable to move from one stage to another
within a supply chain. Some goods with short supply chains, such as foods, do not
travel far. Other more complex products consist of many components that can be
transported from all over the world.
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What is the role of information and control?
The element of information and control is needed by all the elements to act as triggers
to various operational procedures. We have mentioned the information needed for
inventory. Order levels help decide what orders need to be picked and packed in
warehouses and enable the planning and organisation of transport. Information and
control’s role is to help design information systems that can control operational
procedures. They are also key in the forecasting of demand and inventory as already
mention.
Example of International Logistics Companies
1. FedEx
2. DHL Supply Chain
B. The usefulness of free trade zones
A free trade area (FTA) refers to a specific region wherein a group of countries within
the said region signs an agreement that seals the economic cooperation among them.
The FTA’s main aims are to bring down barriers in trading, specifically tariffs and quotas
and encourage the free trade of goods and services among its member countries.
Free Trade Agreements
Free trade agreements are entered into by two or more countries who want to seal the
economic cooperation among themselves and agree on each other’s terms of trading. In
the agreement, member countries specifically identify the duties and tariffs that are to
be imposed on member countries when it comes to imports and exports.
The key terms of free trade agreements and free trade areas include:
•
•
Import goods are products that were manufactured from a foreign land and are
brought into another country and consumed by its domestic residents.
Export goods are the opposite of import goods – a manufacturer located in one
country sells its products to buyers in another country.
Advantages of a Free Trade Area
Free trade area offers several advantages, including:
1. Increased efficiency
The good thing about a free trade area is that it encourages competition, which
consequently increases a country’s efficiency, in order to be on par with its competitors.
Products and services then become of better quality without being too expensive.
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2. Specialization of countries
When there is tough competition, countries will tend to produce more products or goods
that they are most efficient at. This is because they take less time to complete and their
output is higher.
3. No monopoly
When there is free trade, and tariffs and quotas are eliminated, monopolies are also
eliminated because more players can come in and join the market.
4. Lowered prices
When there is competition, especially on a global level, prices will surely go down,
allowing consumers to enjoy a higher purchasing power.
5. Increased variety
With imports becoming easier and cheaper, consumers will gain access to a variety of
products that are inexpensive.
Disadvantages of Free Trade Area
Despite all the benefits brought about by a free trade area, there are also some
corresponding disadvantages, including:
1. Threat to intellectual property
When imports come in more easily, domestic producers can easily access them,
allowing them to copy the ideas and sell them as knock-offs. With many countries with
little to no laws on intellectual property, it would be easy to steal ideas.
2. Unhealthy working conditions
Outsourcing jobs in developing countries can become a trend with a free trade area.
Because many countries lack labor protection laws, workers may be forced to work in
unhealthy and substandard work environments.
3. Less tax revenue
Since member countries are no longer subject to import taxes, they need to think of
ways to compensate for the reduced tax revenue.
-END OF TOPIC 2 -
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Topic 3 : International Human Resource
A. The objectives of human resource management in an International
Firm.
What Is Human Resources (HR)?
Human resources (HR) is the division of a business that is charged with finding,
screening, recruiting, and training job applicants, as well as administering
employee-benefit programs. HR plays a key role in helping companies deal with
a fast-changing business environment and a greater demand for quality
employees in the 21st century.
Understanding Human Resources
The presence of an HR department is an essential component of any business,
regardless of the organization's size. An HR department is tasked with
maximizing employee productivity and protecting the company from any issues
that may arise within the workforce. HR responsibilities include compensation
and benefits, recruitment, firing, and keeping up to date with any laws that may
affect the company and its employees.
Six key people-related activities that HR must effectively do to add value to a
company. These include:
•
•
•
•
•
•
Managing and using people effectively
Tying performance appraisal and compensation to competencies
Developing competencies that enhance individual and organizational
performance
Increasing the innovation, creativity, and flexibility necessary to enhance
competitiveness
Applying new approaches to work process design, succession planning
career development, and inter-organizational mobility
Managing the implementation and integration of technology through
improved staffing, training, and communication with employees
•
International Human Resource Management (IHRM) is the term used for organisations
that manage their human resources activities at an international level. IHRM includes
‘typical’ HR functions such as recruitment, selection, performance management, training
and development, and remuneration, however these are analysed and/or managed at
an international level (e.g. companies may advertise positions globally or update their
policies following a review of international best practice).
Furthermore, IHRM may also encompass additional activities such as expatriate
management, multiple industrial relation activities (e.g. varying international collective
agreements/employment contracts to meet differing country legal and tax
requirements), global succession planning and so on.
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Essentially, IHRM concerns the global understanding or management of HR activities
within an organisation. More specifically there are three broad approaches that relate to
IHRM:
•
Strategic or cross-cultural IHRM: managing HR practices within any organisation
from an international perspective (e.g. consideration of global trends, talent etc)
•
Comparative IHRM: any organisation seeking, describing, comparing and
analyzing HRM systems and practices in various countries (e.g. review of
industrial relations or HRM theories to assist in HR policy development)
•
Multinational enterprises (MNE) focus: management of HR activities for
organizations that have offices, and employees or representatives spread across
two or more countries.
IHRM typically applies to MNEs, and in turn the focus of AHRI’s guidelines on IHRM are
around MNEs. Many of the same principles apply to and overlap across all three
approaches. I.e. MNEs would need to consider cross-cultural management, and would
likely undertake a systems analysis when updating their HR activities.
There are many factors a MNE must consider when deploying and engaging staff
across different countries and regions. Tax regulations, industrial relations, law,
immigration and culture are examples of some of the additional issues MNEs face when
managing human resources across international boundaries. In turn it’s essential that
an organisation have a clear purpose and objective to its international assignments, and
be well prepared to manage anything that comes of an international assignment.
Objectives of International Human Resource Management
Within present business scenario, there are larger number of organisations
conduct business beyond national boundaries. The differences in organisational
environment across nations have encouraged to determine and develop
international HR staffing and practices. At global scenario, it is needful to study
about HR hiring, staffing developing, compensating and appraising HR for better
utilisation of people.
International Human Resource Management is the process of managing people
in international ventures and involves activities in at least two nations.
It is fact that the success of business and trades are depends on the skills and
quality of human resources and how effectively these resources are managed
and utilised at international level.
1. It enhances to develop managerial skills, organisational knowledge and
technical abilities of HR managers and employees;
2. To develop more and better handle of global business operations;
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3. To manage and secure the performance, compensation and career path of
employees;
4. To manage and organise cross cultural counselling and language training
programme;
5. To develop more feasible understanding of work practices at global levels;
6. To raise and develop better and new performance management of human
resources;
7. To get more and more opportunities within global HR scenario;
8. To develop better and competitive HR strategies in global competitive
scenario;
9. To reduce the cultural differences as amicable for cultural environment.
Activities and Cultural Dimensions of International
Human Resource Management
Managing human capital is undoubtedly the most challenging task for any
manager and for the human resource department. The knowledge-based
economy and knowledge workers have meant that a lot is at stake when it comes
to managing people. The internationalization puts additional challenges and
issues in managing employees.
The complexity is far greater and issues are many times delicate since
expatriation often means relocation of the employee’s family as well. The focal
areas of priority of HR also changes with the stage of internationalization.
There are three major international HRM activities – Procure, Allocate and
Utilize. In effect these three major activities of IHRM covet all the six activities of
domestics HRM i.e. HR planning, Employees Hiring, Training and Development,
Remuneration, Performance Management and Industrial Relations.
International HRM involves employees of three countries – parent country or the
home country (where a company’s headquarters might be located), host country
(where company’s subsidiary may be located) and third country (Other countries
that may be sources of labour or finance).
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International Staffing:
Staffing is a challenging function. Finding the right set of people has never been
easy. However when it comes to international operations, the complexity of
staffing increases many folds. Deciding on the mix of local employees to expats
is not an easy decision to make. Several factors may impact the same.
Then cost is another major consideration. Cost of finding an international
employee and hiring that person if often very high. Such cost aspects demand
even more careful consideration and selection. Errors in selection could be
tremendously costly for the firm. Expat compensation and tax laws are huge
consideration in international staffing. Tax treaties between certain countries
ease income tax obligations of an expat.
Such treaties may make it easier to hire from certain countries, while it may
difficult to hire from others since the compensation may not work out in the favor
of the expat. Environmental factors may also affect international staffing. Political
environment may change with government regimes and may favor or disfavor
expat movement.
Cultural Challenge:
Difference in national cultures of expats poses a challenge in hiring and
assimilating international staff. A lot of pre-departure training for the expats is
focused on cross cultural training. Cultural fitment of the expats plays a important
role in the success of the projects and international assignments. Multi-national
companies often develop hiring strategy and training interventions to cope up
with this cultural challenge.
Geert Hofstede work on cultural dimensions is an authoritative repository on
national cultures and how cultures differ across countries. Hofstede defines six
cultural dimensions to qualify a national culture (Hofstede, Cultural Dimensions).
A comparison across these dimensions also helps distinguish one national
culture from the other.
The cultural dimensions according to Hofstede are:
1. Power Distance Index (PDI) – The degree to which the less powerful members
of a society accept and expect that power is distributed unequally.
2. Individualism versus Collectivism (IDV) – Preference for a loosely- knit social
framework in which individuals are expected to take care of only themselves and
their immediate families. The opposite of individualism is collectivism.
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3. Masculinity versus Femininity (MAS) – Masculinity side of this dimension
represents a preference in society for achievement, heroism, assertiveness and
material rewards for success, whereas femininity, stands for a preference for
cooperation, modesty, caring for the weak and quality of life.
4. Uncertainty Avoidance Index (UAI) – The degree to which the members of a
society feel uncomfortable with uncertainty and ambiguity.
5. Long-term Orientation versus Short-term Normative Orientation (LTO) –
Cultures low on this dimensions, for example, prefer to maintain time-honored
traditions and norms while viewing societal change with suspicion. Contrastingly,
those high on this dimension have a more pragmatic approach: they encourage
thrift and efforts in modern education as a way to prepare for the future.
6. Indulgence versus Restraint (IND) – Indulgence stands for a society that
allows relatively free gratification of basic and natural human drives related to
enjoying life and having fun. Opposite of indulgence is restraint.
The Hofstede center helps to understand how each nation features on these six
dimensions and hence can give a very definitive picture of its national culture. It
also lets users compare two national cultures.
Hofstede’s work established a major research tradition in cross-cultural
psychology and has also been drawn upon by researchers and consultants in
many fields relating to international business and communication.
It continues to be a major resource in cross-cultural fields. It has inspired a
number of other major cross-cultural studies of values, as well as research on
other aspects of culture, such as social beliefs.
Selection Process of Employees in International Human
Resource Management
International postings are complex and carry a lot of in-built pressures along with
them. It would be erroneous to assume that the job requires the same set of skills
in different locations. The local dynamics might be different; the cultural and
social pressures might be too complex.
If the spouse and children join the expatriate, there are additional issues to be
resolved – from learning a new language to shopping in new environs, to children
finding new friends and attending new schools.
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For an expat to succeed, therefore, the selection process must be rigorous and
must invariably include criteria such as:
1. General and Technical Criteria:
Research findings consistently indicate that MNCs place heavy reliance on
relevant technical skills during the expatriate selection process. In addition, the
expatriate manager should be a good communicator, and possess management
talent, maturity, emotional stability in ample measure.
2.
Language Skills:
Most researchers argue that knowledge of the host-country’s language is an
important factor affecting the performance of an expatriate. Where the expatriate
is expected to communicate with host country subjects frequently, language skills
come to occupy the centre-stage.
Tung and Anderson’s study indicated that the respondents (mostly Americans)
greatly valued the ability to speak local language, regardless of how different the
culture was from their home country.
3. Cross-Cultural Suitability:
Expatriate managers must be able to adapt to change. They must have the ability
to translate their technical or managerial skills into meaningful action plans in a
foreign environment. They should get along with local people easily without
upsetting host country customs, traditions and other cultural niceties.
The expatriate managers should as a rule, have good interpersonal skills and
extra-cultural openness — including a variety of outside interests, tolerance for
ambiguity and non-judgmental behaviour.
4. Motivation for a Foreign Assignment:
The candidate for foreign assignment must believe in the importance of the job
and possess a certain amount of idealism or a sense of mission. Applicants, who
are not happy with their current situation at home and are looking to get away,
rarely succeed as overseas managers.
5. Family Situation:
Several items including the adaptability of spouse and family, spouse’s positive
opinion, willingness of spouse to live abroad, stable marriage comprises this
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factor. This factor was found to be the most important of the above list,
contributing to the expat’s success or failure on a foreign locale.
Selection Process:
The selection process varies widely from country to country. Asian companies
use extensive testing procedures and screening techniques. Europeans do not
test as much as Asians, but considerably more than Americans. Testing in the
US is not favored because of its negative impact on equal employment and
affirmative action efforts. In most global corporations, however, adaptability
screening is usually followed.
The screening, carried out by a professional psychologist or psychiatrist, tries to
assess the family’s probable success in handling the foreign transfer, and to alert
the couple to personal problems (impact on children’s education, etc.) the foreign
move may involve. Many companies more or less have realised the importance
of preparing managers to work in foreign cultures. In fact, several companies try
to give future managers exposure to foreign cultures early in their careers.
American Express Company’s Travel related services unit gives American
business-school students summer jobs in which they work outside the United
States for up to 10 weeks. Colgate-Palmolive selects 15 recent graduates each
year and then offers up to 24 months of training prior to multiple overseas job
stints. The overall US selection and training practices, however, continue to lag
behind those of Japan and Germany.
In Japan, for example, expatriates are selected a year or more prior to their
posting so that they and their families receive extensive cultural and language
training. Not surprisingly, the overseas success rate for the Japanese is
significantly higher than that for Americans.
Training and Development in International Human Resource
Management
Careful selection is only the first step in ensuring the foreign assignee’s success.
The expatriate may then require proper orientation, cross-cultural training,
assistance in career planning and development, etc., in order to handle the
assigned jobs in a competent way.
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A. Orientation:
International positions require an extensive orientation to familiarise the
employee with culture, language and other unique aspects of the assignment.
Familiarization trips could also be arranged for the prospective expatriates so
that they can actually visit the country of their posting and live like natives there
for a while.
The orientation programmes, generally cover areas such as:
1. Pre-Arrival Orientation:
(i) Cultural Briefing- Explaining the traditions, customs, living conditions, clothing
and housing requirements, health stipulations, etc.
(ii) Assignment Briefing- Throwing light on length of assignment, vacations,
compensation package, tax implications, repatriation policy etc.
(iii) Shipping Requirements- Shipping, packing, storage, housing facility in the
new location etc.
(iv) Cross-Cultural Training- Differences in culture, language and laws may make
it difficult for the global employees to be on track quickly. In order to lead a
normal life, they need cross- cultural as well as language training. The failure to
provide such training may create adjustment problems for the expatriate
manager and the resultant culture shock (the inability to adjust to a different
cultural setting) may compel the expatriate to quit the field altogether.
2. Post-Arrival Orientation:
Once global employees arrive in the host country, they will require further
assistance in ‘settling in’. Someone should receive them and help them in
obtaining housing accommodation, establishing bank accounts, getting driving
licenses, arranging admissions to school for dependent children etc.
Firms can help employees avoid culture shock, of course, by using selection
tools to choose the employees with the highest degree of cultural sensitivity. An
important part of an expatriate manager’s training, further, should be an overview
of the legal and ethical issues that are likely to be encountered on the overseas
assignment.
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B. Career Development:
The expatriate’s motivation to do well on an international assignment is
primarily dependent on the following things:
(i) Whether the present assignment would help the expatriate to learn new things,
expand his knowledge, create a unique position for himself in the organisation
ladder, and grow vertically within the firm — once the job is successfully
completed.
(ii) Whether the expatriate is enjoying continued support from the headquarters
or not.
One of the important deterrents to accepting foreign assignments is the
expatriates’ concern that they will be ‘out of sight, out of mind’. If they do not
have direct and regular contact with their bosses and colleagues at
headquarters, they feel isolated and thrown out of the system. To reduce their
anxiety levels therefore, global companies must project foreign assignments as
stimulating growth opportunities leading to continued career progression.
A monitoring system would certainly solve such issues. In this system, an
expatriate is guided by a senior executive in the headquarters. This executive
talk with the expatriate regularly, ensures that the expatriate’s name is submitted
during promotion and development discussions at headquarters and resolves
any headquarters-related problems faced by the expatriate.
Another approach has the expatriate coming back to the home office
occasionally to foster a sense of belonging to the organisation. Alternatively,
mini-sabbaticals could be offered to the expatriate and his family so that he or
she can be in touch with current happenings in the headquarters.
Challenges and Emerging Issues in International Human Resource
Management
There are certain problems and challenges as arising within the process and
methods of global HR scenario.
Some of the challenges and emerging issues in IHRM are:
1. Ethics and corporate social responsibilities
2. Bribery
3. Code of conduct for MNCs
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1. Ethics and Corporate Social Responsibilities:
Ethics and corporate social responsibilities in the international business
environment are always debatable. MNCs have been accused of being
indifferent to the problems of host countries as they are more concerned about
the profitability of their companies. MNCs have to balance the ethics and moral of
their country and host country.
i. Ethical relativist
ii. Ethical absolutist
iii. Ethical universalist
Ethical Relativist:
An ethical relativist believes that there is no right or wrong. What is right in a
particular situation in one place may not be so in another. Relativism offers
flexibility but may prove to be disastrous in the long-run for an MNC.
Ethical Absolutist:
An MNC which believes in this approach is strongly influenced by the practices
and policies of its home country. They do not give much importance to the culture
and values of the host country. Ethical absolutists have been criticised for their
arrogance and for showing little respect to the traditions and culture of the host
countries.
Ethical Universalist:
An ethical universalist believes that there are fundamental rules which help us
differentiate between right and wrong. These rules need to be adhered to in any
country and in any situation. An ethical universalist believes that cultural
variations between countries should not lead to any wrongdoing on the part of
the MNCs. There is a distinction between practices which are culturally different
and ones which are morally wrong. MNCs should understand this difference and
work towards achieving high ethical standards.
2. Bribery:
According to a survey conducted by J. Macken, developed countries give around
$85 billion to underdeveloped countries in the form of bribes. MNCs from
developed countries have been accused of bribing Government officials. Hence,
countries should frame laws to prevent corruption. For example, in the US, there
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is a law called Foreign Corrupt Practices Act (FCPA), which prohibits US- based
firms from bribing officials in other countries.
3. Code of Conduct for International Business:
The first step in framing a code of conduct for international business players
came in the form of the Caux Roundtable Conference on ‘Principles for Business
Conduct’ held in 1994. It was a conference on international business ethics, held
at Caux in Switzerland and was attended by the business leaders from all
countries.
The focus was to formulate a set of rules and ethical codes which would be used
for benchmarking global business practices. Major work on this issue was done
at Minnesota centre for corporate responsibility in the US. The main aim of Caux
conference as given in the charter is, “to further the twin value of living and
working together and human dignity by promoting free trade, environmental and
cultural integrity and prevention of bribery and corruption.
-END OF TOPIC 3Book References:
1. Title : Market Potential Analysis
Authors: Kraemer, Kenneth L and Dedrick, Jason
2. Website: Marketing-Schools.Org.
3. Website: Iedunote.com
4. Marketing Management
Authors: Philip Kotler and Kevin Lane Keller
5. https://econmic discussion.