MKT 420: Review Questions: Chapter 9: Global Market Entry Strategies: Licensing, Investment and Strategic Alliances 1- What is licensing? What are its advantages and disadvantages? Licensing is a contractual agreement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation. For example Some companies that use licensing extensively: Apparel designers (Hugo Boss, Ralph Lauren), Coca-Cola, Disney, Caterpillar, Mc Donald’s, Dunkin Donuts, Zaatar W Zeit,…. Licensing agreements allow companies to extend their brands and generate substantial revenue Advantages: - Provides additional profitability with little initial investment - Provides method of circumventing tariffs, quotas, and other export barriers - Attractive ROI - Low costs to implement - License agreements should have cross-technology agreements to share developments and create competitive advantage for each party Disadvantage: - Limited participation - Returns may be lost - Lack of control - Licensee may become competitor - Licensee may exploit company resources 2- Joint ventures are becoming very popular as entry mode into foreign markets. Why is this strategy so attractive to companies interested in entering other markets in the world? A joint venture with a local partner represents a more extensive form of participation in foreign markets than either exporting or licensing. A Joint venture is an entry strategy for a single target country in which the partners share ownership of newly created business entity. This strategy is attractive for several reasons. First and foremost is the sharing of risk by pursuing a joint venture entry strategy, a company can limit its financial risk as well as its exposure to political uncertainty. Second, a company can use the joint venture experience to learn about new market environment. If it succeeds in becoming an insider, it may later increase the level of commitment and exposure. Third, joint venture allow partners to achieve synergy by combining different value chain strengths. One company might have in-depth knowledge of a local market, an extensive distribution system or access to low-cost labor or raw materials. A company that lacks sufficient capital resources might seek partners to jointly finance a project. Finally, a joint venture may be the only way to enter a country or region if government bid award practices routinely favor local companies if import tariffs are high, or if law prohibit foreign control but permit joint venture. 3- A true global strategic partnership is unique and different. Discuss the attributes that are needed for a fine working partnership The attribute that are needed for a fine working partnership are: - Two or more companies develop a joint long-term strategy aimed at achieving world leadership by pursuing cost leadership differentiation pf the two. Example Samsung and Sony are jockeying with each other for leadership in the global television market. - The relationship is reciprocal. Each partner possesses specific strengths that is shares with other learning must take place on both sides. Example, Samsung is leader in manufacturing technologies used to create flat-panel TVs. Sony excels at parlaying advanced technology into world- class consumer products specialized to optimizing TV picture quality. - The partner’s vision and efforts are truly global, extending beyond home country and the regions to the rest of the world. Sony and Samsung, are both global companies that market global brands throughout the world. - The relationship is organized along horizontal not vertical, lines. Continual transfer of resources laterally between partners is required, with technology sharing and resource pooling representing norms. - When competing in market excluded from the partnership, the participants retain their national and ideological identities. Samsung markets a line of high-definition television that use digital light processing (DLP) technology. Sony does not produce DLP sets. 4- Companies are faced with the decision whether to expand by seeking new markets in existing countries or seeking new country markets for already identified and served market segments. Faced with these situations, what are the strategies that can be followed? Companies must decide whether to expand by seeking new markets in existing countries for alternatively, by seeking new country market for already identified and served market segment. This two dimensions in combination produce four market expansion strategy options: - Country and market concentration, involves targeting a limited number of customer segment in a few companies. It suitable for the starting companies and significantly matches with the investment needs of the market and limited resources of the enterprise - Country concentration and segment diversification- a company serves many markets in a few countries. European and American companies that diversify within the local market follow this strategy. - Market concentration and country diversification is a classic global strategy for a company seeks a global market for a product. It is a desirable strategy as it helps to serve the global consumers for the sake of achieving high accumulated volume at lowest possible cost. Well managed companies use this strategy to meet the customer’s needs - Market and Country diversification is a market strategy of multi-business companies like Matsushita. By level of involvement and resources, one of the above strategy selected. Chapter 10: Branding and product decisions in global marketing 1. What are brands, and what are their functions in global marketing? How do brands develop their image, identity, and equity? Are global product and global brands the same? A brand is a complex bundle of image and experiences in the customers mind. Brand perform two important function: firs, a brand represents a promise by a particular company regarding a particular product, it is a type of quality certification. Second, brands enable customers to better organize their shopping experience by helping them seek out and find a particular product. Customers integrate all their experience of observing, using or consuming a product with everything they hear and read about it. Perceptions can be based on price, after-sale service, distribution, and a variety of other experiences. The sum of these impressions is a brand image, defined as perceptions about a brand as reflected by brand associations that consumers hold in their memories. Another important band concept is brand equity, which represent the total value that accrues to a product as a result of a company cumulative investment in the marketing of the brand. Global product and global brands are not the same. A global product is a standardized product that is marketed the same way in different countries, while a global brand is a brand that is recognized and valued in multiple countries, and whose identity and image are consistent across different markets. A global brand can have different product offerings in different countries, but the core brand identity remains the same. Building a successful global brand requires a deep understanding of cultural differences and adapting brand strategies to fit local markets. 2. Describe the guidelines that can assist marketing managers in their efforts to establish global brand leadership. Six guidelines to help establish global brand leadership. (1) Creating a compelling value proposition for consumers in every market entered, beginning with the home-country market; (2) Before going international, thinking about all elements related to brand such as brand identity, names, marks, symbols and labels which have potential for globalization (3) Developing a company-wide communication system to share and leverage knowledge and information about marketing programs and customers in different countries; (4) Developing a consistent planning process across markets and products (5) Assigning specific responsibility for managing branding issues to ensure that local brand managers accept global best practices (6) Executing brand-building strategies that leverage global strengths and respond to relevant local differences. 3. Explain the differences between "product adaptation-communication extension" and "product-communication adaptation" strategies. Give examples. Product adaptation- communication extention: A third approach to global product planning is to adapt the product to local use or preference Conditions while extending, with minimal change, the basic home-market communications strategy or brand name. This third strategy option is known as product adaptation-communication Extension. For example: A new Cadillac model, the BLS, is built in Sweden; it is 6 inches shorter than the current CTS. A 4-cylinder engine is standard; buyers can also choose an available diesel engine. Product-communication adaptation: Product-communication adaptation strategy is a combination of the adaptations needed for changes in the environmental conditions and consumer preferences. For example: Nike global shoes and “Just Do It” approach didn’t work in China. Less expensive shoes created in country and ads featuring Chinese athletes in line with cultural principles of harmony and respect for authority 4. Describe the factors that should be considered in developing new products for international markets with particular emphasis on the consequences for not adequately testing new products - the size of the market for the product at various prices; - the expected competition; - market possibilities through existing structures - changes to be made in order to market the product; - estimates of potential demand; - The compatibility of the idea with the corporation’s goals and objectives. Chapter 11: Pricing Dicisions 1- Why is compensation trading also called a "buyback?" How does it differ from switch trading? Compensation trading, also called buyback, is a form of countertrade that involves two separate and parallel contracts. In one contract, the supplier agrees to build a plant or provide plant equipment, patents or licenses, or technical, managerial, or distribution expertise for a hardcurrency down payment at the time of delivery. In the other contract, the supplier company agrees to take payment in the form of the plant's output equal to its investment (minus interest) for a period of As many as 20 years. The success of compensation trading rests on the willingness of each firm both a buyer and a seller, The People's Republic of China has used compensation trading extensively Egypt also used this approach to develop an aluminum plant. Switch Trading Also called triangular trade and swap, switch trading is a mechanism that can be applied to barter or countertrade. In this arrangement, a third party steps into a simple barter or other countertrade arrangement when one of the parties is not willing to accept all the goods received in a transaction. The third party may be a professional switch trader, switch trading house, or a bank. The switching mechanism provides a "secondary market" for countertraded or bartered goods and reduces the inflexibility inherent in barter and countertrade. Fees charged by switch traders range from 5% of market value for commodities to 30% for high-technology items. Switch traders develop their own network of firms and personal contacts. 2- In recent years, in light of the technological developments, many exporters have been forced to finance international transactions by taking full or partial payment in some form other than money. A number of alternative forms of payments known as countertrade are widely used. How does a countertrade transaction work? How do barter transactions differ from offset? (page 374) In a countertrade transaction, a sale results in product flowing in one direction to a buyer with a separate stream of products and services often flowing in the opposite direction. For example, the countries in the former Soviet bloc have historically relied heavily on countertrade. Countertrade flourishes when hard currency is scarce. Since exchange controls may prevent a company from expatriating earnings, the company may be forced to spend money in-country following products that are then exported and sold in third-country markets. The reasons importing nations may demand countertrade include the priority attached to the Western import. The second condition may be the value of the transactions. 3- A working knowledge of Incoterms can be a source of competitive advantage to anyone seeking an entry-level job in global marketing. What are "Incoterms," and how are they classified? How are Incoterms applied in global marketing?(Page 359) The internationally accepted terms of trade are known as "Incoterms." They are classified into four different categories . *Ex-works (EXW) refers to a transaction in which the buyer takes delivery at the premises of the seller the buyer bears all risks and expenses from that point on. *Another category of Incoterms is known as F-Terms in which there are different sets of terminologies. Free carrier (FCA) is a widely used term in global sales since it is suited for all modes of transport. Under FCA, transfer from seller to buyer is affected when the goods are delivered to a specified carrier at a specified destination. FAS (free alongside ship) are the Incoterm for a transaction in which the seller places the shipment alongside, or available to, the vessel upon which the goods will be transported out of the country. The seller pays all charges up to that point. With free on board (FOB), the responsibility and liability of the seller do not end until the goods have cleared the ship's rail. Several other Incoterms are known as "C-Terms" such as when goods are shipped (CIF). Cost, insurance, and freight represents the risk of loss or damage to goods that is transferred to the buyer once the goods have passed the ship's rail. In this sense, CIF is similar to FOB. If the terms of the sale are cost and freight (CFR), the seller is not responsible for risk or loss at any point outside the factory. A currency adjustment factor (CAF) is assessed to protect the seller from possible losses from disadvantageous shift in the currency exchange rates. All import charges are assessed against the landed price of the shipment (CIF value). Thus, these terminologies help in identifying who is responsible for what prices and at what point of exchange. In fact, different Incoterms for larger orders are used as incentives. 4- The currency fluctuations in global markets have a big impact on international transactions. What actions can be adapted if the domestic currency is strong? Currency fluctuations complicate the task of setting prices. A weakening of the home-country currency swings exchange rates in a favorable direction if the currency in the country of business is strong. An equally opposite effect can happen when the currency is strong. In responding to currency fluctuations, global marketers can utilize other elements of the marketing mix besides price. Other actions that can be taken if the domestic currency is strong are: (1) Engaging in non-price competition by improving the quality of the products, delivery methods, or after-sale services 2) Improving productivity by taking actions that may result in cost reduction (3) If possible, sourcing can be shifted outside the home country (4) Giving priority to exports to countries, either temporarily or permanently, with stronger currencies (5) Trimming profit margins and using marginal-cost pricing (6) Keeping the foreign-earned income in host country as well as slowing down collections (7) Maximizing expenditures in the local currency of the host-country (8) Buying needed services aboard and paying them in local currencies (9) Billing foreign customers in the domestic currency. 5- Suppose that a book publisher sells a textbook for $150 each to its domestic distributor. The same publisher sells the same edition of the textbook to a distributor in Thailand for $85 since the affordable prices by Thai students may be much less than in the domestic market. The textbook finds its way back into the domestic market since the Thai distributor sold it back to another marketer who sells in the domestic market for $85. What is this type of pricing known as, and what are the consequences of such transactions to global marketers, if any? This practice is known as parallel importing, and the goods are referred to as gray market goods. Gray market goods are trademarked products that are exported from one country to another where they are sold by unauthorized persons or organizations. This practice occurs when companies employ a polycentric, multinational pricing policy that calls for setting different prices in different country markets. Gray markets can flourish when a product is in short supply, when producers employ skimming strategies in certain markets, or when the goods are subject to substantial markups. Gray markets impose several costs of consequences on global marketers. These include: - Dilution of exclusivity. Authorized dealers are no longer the sole distributors. The product is often available from multiple sources and margins are threatened. - Free Riding: If the manufacturer ignores complaints from authorized channel members, those members many engage in free riding; that is they may opt to take various actions to offset downward pressure on margins. These options include cutting back on presale service, customer education, and sales salesperson training - Damage to channel relationship: Competition from gray markets products can lead to channel conflict as authorized distributors attempt to cut costs, complain to manufacturers, and file lawsuits against the gray marketers. - Undermining segmented pricing schemes: As noted earlier, gray markets can emerge because of price differentials that result from multinational pricing policies. However a variety of forces – including falling trade barriers, the information explosion on the internet, and modern distribution capabilities, hamper a company’s ability to pursue local pricing strategies - Reputation and legal liability. Even though gray market goods carry the same trademarks as goods sold through authorized channels, they may differ in quality, ingredients, or some other way. Gray market products can compromise a manufacturer’s reputation and dilute brand equity, as when prescription drugs are sold past their expiration dates or electronics equipment is sold in markets where it is not approved for use or where manufactures do not honor warranties
