International Marketing
• Czinkota & Ronkainen
• Winter 2010
• Web Slides
• Ch. 9-15, 17
Chapter 9
Chapter 9
Market Entry
and Expansion
Market Entry and
Expansion
Why Firms go International
Proactive Stimuli
• Profit advantage
• Unique products
• Technological
advantages
• Exclusive information
• Economies of scale
• Market size
Reactive Stimuli
• Competitive pressures
• Overproduction
• Stable or declining
domestic sales
• Excess capacity
• Saturated domestic
markets
• Proximity to customers
and ports
Foreign Market Entry Strategies – 1/2.
(A)
Exporting (Casual, Indirect, Direct)
(B)
Contractual Agreements

Licensing (patents, technology, trade secrets)

Franchising (brand, managerial know-how)

Subcontracting (from prime contractors)

Contract manufacturing (for foreign brands)

Turnkey Operations

Co-production Agreements

Management Contracts
(IK)
Foreign Market Entry Strategies – 2/2.
(C)
(D)
Joint Ventures (minority/majority equity)
Wholly-Owned Subsidiaries
» Local
» Local
» Local
» Local
Sales only
Assembly & Sales
Production & Sales
Production, Sales & Export
• Start-up of new operations
– Merger with an existing enterprise
– Acquisition of an existing enterprise
– Greenfield investment
Exporting
• Export management companies (EMCs)
– Domestic firms that perform international
marketing services as commission
representatives or distributors for other firms.
– Two primary forms of operation
• Take title to goods and operate
internationally.
• Perform services as agents.
Exporting
• Trading companies
– The most famous trading companies are the
sogoshosha of Japan.
– Reasons for the success of the Japanese sogoshosha:
• gather, evaluate, and translate market information
into business opportunities.
• Their vast transaction volume provides them with cost
advantages.
• serve large markets around the world and have
transaction advantages.
• access to capital, both within Japan and in the
international capital markets.
Exporting
• Export trading companies Act (ETCs)
– Designed to improve the export performance
of small- and medium-sized firms.
– Permits bank participation in trading
companies to allow better access to capital.
– Reduces the antitrust threat to joint export
efforts to enable firms to share the cost of
international market entry.
– Must balance the demands of the market and
the supply of the members to be successful.
Going International
• E-commerce
– Various methods to market products over the
internet:
• Development of corporate websites.
• Business-to-consumer and consumer-to-business
forums.
Going International
• E-commerce concerns - Firms must be
ready to:
– Provide 24-hour order taking and customer
support service.
– Have the regulatory and customs-handling
expertise to deliver internationally.
– Have an understanding of global marketing
environments for further development of
business relationships.
Licensing and Franchising
Advantages of licensing
– Capital investment or knowledge or marketing strength is not
required.
– Additional return on R&D investments already incurred.
– Reduces the risk of R&D failures
– Ongoing licensing cooperation and support enables the Licensee
benefits from new developments.
– Allows a firm to test a foreign market without major investment of
capital or management time.
– Preempts a market for competition, especially if the licensor’s
resources permit full-scale involvement only in selected markets.
– Increases protection of intellectual property rights.
Licensing and Franchising
– Disadvantages of licensing
• Licensor gets limited expertise.
• Licensor creates its own competitor.
• Allows multinational corporations (MNCs) to
capitalize on older technology.
Foreign Direct Investment
• Types of ownership - Joint ventures
– Two or more organizations form a new entity
for some specific business.
– Partners share assets, risks, and profits, in
proportion of their respective ownership of the
JV.
– Reasons for joint ventures are governmental
and commercial.
Foreign Direct Investment
Advantages of joint
ventures
– Pooling of resources.
– Better relationships with
local organizations.
– The partner’s
knowledge of the local
market.
– Minimize exposure to
political risk.
– Tap local capital
markets.
Disadvantages of joint
ventures
– Different levels of
control are required.
– Difficulty in maintaining
the relationship.
– Disagreements over
business decisions.
– Disagreements over
profit accumulation and
distribution (profit
repatriation).
Foreign Direct Investment
• Firms are categorized as:
– Resource seekers - Search for natural and
human resources.
– Market seekers - Search for better
opportunities to enter and expand within
markets.
– Efficiency seekers - Attempt to obtain the most
economic sources of production.
Foreign Direct Investment
• Positive perspectives on foreign direct
investors
– Bring in capital, economic activity, and
employment.
– Transfer technology and managerial skills.
– Encourage competition, market choice, and
competitiveness.
Foreign Direct Investment
• Negative perspectives on foreign direct
investors
– Drain resources from host countries.
– Starve smaller capital markets.
– Discourage local technology development.
– Bring in outmoded technology.
– Create new competition for local firms.
Chapter 10 Chapter 10
Product
Adaptation
Product Adaptation
Product Variables
• Products can be differentiated by their
composition, country of origin, tangible
features such as packaging or quality, or
augmented features such as warranty.
TM 89
Product Design Strategy Standardization vs. Customization
Standardization vs. Customization:
Decision Criteria
•
•
•
•
•
•
•
•
•
•
(IK)
Nature of Product
Technology Differences
Weights & Measures
Physical Environment
Cost/Benefit Relationship
Legal Requirements
Competition
Support Systems
Cultural differences
Market Conditions
Exhibit 10.2 - Standardization versus
Adaptation
Factors encouraging
standardization
– Economies of scale in
production
– Economies in product R&D
– Economies in marketing
– “Shrinking” of the world
marketplace/economic
integration
– Global competition
Factors encouraging adaptation
– Differing use conditions
– Government and regulatory
influences
– Differing consumer
behavior patterns
– Local competition
– True to the marketing
concept
Government Influences on
Adaptation
• Government regulations
– Political agendas
– Firms can influence these regulations by lobbying
directly or through industry associations.
– Economic integration reduces discretionary
governmental regulations to some extent.
• Nontariff barriers
– Include product standards, testing or approval
procedures, subsidies for local products, and
bureaucratic red tape.
Customer Variables
• Customer characteristics, expectations, and preferences
– Physical size, local behaviors, tastes, attitudes, and
traditions….
– Consumption patterns, psychosocial characteristics,
general cultural criteria …
– Product positioning - Consumers’ perception of a
brand as compared with that of competitors’ brands.
Economic Conditions
• Economic development
– Affects demand characteristics and helps
determine potentials for selling certain kinds
of products and services.
– Backward innovation of the product may be
required to meet local requirements.
Competition, Environment
• Competitive offerings - Monitoring
competitors’ product features is critical in
adjusting the product for competitive
advantage.
• Climate and geography – influence core
product; tangible elements (mainly packaging);
and the augmented features.
Global Brand Development
• Questions to ask when management
seeks to build a global brand:
– Will anticipated scale economies materialize?
– How difficult will it be to develop a global
brand team?
– Can a single brand be imposed on all markets
successfully?
Global Brand Development
• Create a compelling value proposition (warranty
can also be a value proposition)
• Think about all elements of brand identity and
select names, marks, and symbols that have the
potential for globalization
• Research the alternatives of extending a
national brand versus adopting a new brand
identity globally
• Develop a company-wide communication
system
Packaging Considerations
– three major functions: protection, promotion, user
convenience.
– Materials: vary by transportation mode, transit conditions,
storage, display, length of time in transit, regulations...
– The promotional aspect of packaging relates mostly to
labeling.
– User convenience. Containers must withstand logistics
challenge, and yet must be easy for customers to open.
– Package aesthetics: prudent choice of colors and package
shapes.
– Package size: varies by purchasing patterns and market
conditions.
Country of Origin (COO)
– The origin of a product may have a strong
effect on consumer perceptions and biases.
– This effect reduces as:
• Customers become more informed.
• Countries develop the necessary bases to
manufacture products.
Product Counterfeiting
• Counterfeit goods – Goods bearing an unauthorized
representation of a trademark, patented invention,
or copyrighted work that is legally protected in the
country where it is marketed.
• The European Union estimates that trade in
counterfeit goods accounts for 2 percent of total
world trade.
• The largest number of counterfeit goods are
sourced from China, Brazil, Taiwan, Korea, and
India.
Combating Counterfeiting
• Some acts, agreements, and alliances that help combat
counterfeiting include:
– The Omnibus Tariff and Trade Act of 1984
– The Trademark Counterfeiting Act of 1984
– The Intellectual Property Rights Improvement Act
– The Trade-Related Aspects of Intellectual Property
Rights (TRIPS) agreement
– The International Anti-Counterfeiting Coalition (1978)
– Counterfeit Intelligence and Investigating Bureau
Chapter 11
Chapter 11
Export Pricing
Export Pricing
Price Dynamics
• The alternatives strategies for first-time pricing:
– Skimming - Achieve the highest possible contribution
in a short initial time period, and then gradually lower
the price as more segments are targeted and more
products are available.
– Market pricing – Determined based on competitive
prices; production and marketing is adjusted to the
price.
– Penetration pricing – Offer products at a low price to
generate volume sales and achieve high market
share, to compensate for lower per unit return.
The Setting of Export Prices
• Export pricing strategy
– The standard worldwide price may be the
same regardless of the buyer or may be
based on average unit costs of fixed, variable,
and export-related costs.
– Dual pricing differentiates between domestic
and export prices.
Export pricing strategy
– The two approaches to pricing products for
exports are
• Cost plus method – Is the true cost, fully allocating
domestic and foreign costs to the product; ensures
profit margins; however, the firm’s competitiveness
is compromised.
• Marginal cost method - Considers the direct costs
of producing and selling products for export as the
floor beneath which prices cannot be set.
The Setting of Export Prices
• Market-differentiated pricing
– based on the dynamic conditions of the
marketplace.
– prices change frequently due to changes in
competition, exchange rate, or environment.
The Setting of Export Prices
• Export-related costs
– Unique export-related costs include:
• Cost of modifying a product for a foreign market.
• Operational costs of exporting.
• Cost incurred in entering the foreign market.
• Price escalation
– A combined effect of clear-cut and hidden costs
results in an increase in export prices over and above
the domestic prices.
Price Escalation Thru Exporting
(see Exhibit 11-4 in your text)
Domestic:
- Shipping and insurance
- wholesaler margin
- retailer margin
Exported:
- higher shipping & insurance costs
- Tariff
- Importer, wholesaler and jobber’s margins
- VAT at each value-added level
If manufacturer’s price is $6.00 then domestic customer’s
price may be $12.00 to $14.00 and foreign customer’s price
may be anywhere from $20.00 to $45.00
Mitigating export-related costs
• Reorganize
the channel of distribution.
• Product adaptation.
• Use new or more economical tariff or
tax classifications.
• Assemble or produce overseas.
Incoterms
(First issued by ICC in 1936, revised 6 times since then)
These delivery terms influence the quoted export price
EXW (…named place)
FCA FREE CARRIAGE (…named place)
FAS (…named port of shipment)
FOB (…named port of shipment)
CFR OR C&F (…named port of destination)
CIF (…named port of destination)
CPT CARRIAGE PAID TO (…named place of destination)
CIP CARRIAGE AND INSURANCE PAID TO (…named place of destination)
DAF DELIVERED AT FRONTIER (…named place)
DES DELIVERED EX SHIP (…named port of destination)
DDU DELIVERED DUTY UNPAID (…named place of destination)
DDP DELIVERED DUTY PAID (…named place of destination)
Terms of Payment
• Cash in advance
– Relieves the exporter of all risks and allows
for immediate use of the money.
– Used for first time transactions or situations
where the exporter doubts the importer’s
solvency.
Terms of Payment
• Letter of credit (lc) (Opener, Issuer, Beneficiary)
– An instrument issued by the bank at the request of
the buyer.
– The bank promises to pay money on presentation of
specified documents like the bill of lading, consular
invoice, and description of the goods.
– Classified as irrevocable versus revocable, confirmed
versus unconfirmed, and revolving versus nonrevolving.
Terms of Payment
• Drafts (Drawer, Drawee, Payee)
– Similar to personal check; an order by one party to
pay another.
– Buyer must obtain shipping documents before
obtaining possession of the goods involved in the
transaction.
• Documentary collection
– The seller ships the goods, and the shipping
documents and the draft are presented to the
importer through banks acting as the seller’s agent.
– The draft , also known as the bill of exchange, may be
either a sight draft, time draft or arrival draft.
Terms of Payment
• Banker’s acceptance - A time draft drawn on and
accepted by a bank; it is sold in the short-term money
market.
• Discounting - Selling a draft to the bank at a discount
from face value; it can be with recourse or without
recourse.
• Open account - The normal manner of doing business in
the domestic market; also known as open terms.
• Consignment selling – Allows the importer to defer
payment until goods are actually sold.
Payment Risks
• Commercial risk
– Refers to the insolvency of, or protracted payment
default by, an overseas buyer.
– Results from deterioration of conditions in the buyer’s
market, fluctuations in demand, unanticipated
competition, or technological changes.
• Political risk
– Can neither be controlled by the buyer nor the seller.
Complications in assessing the buyer’s
Creditworthiness:
– Credit reports may not be reliable.
– Audited reports may not be available.
– Financial reports may have been prepared according to a
different format.
– Many governments require that assets be annually reevaluated upward, which can distort results.
– Statements are in local currency.
– The buyer may have the financial resources in local
currency but may be precluded from converting to dollars
because of exchange controls and other government
actions.
Managing Foreign Exchange Risk
• To prevent currency related risks, the exporter can:
– Shift the risk through foreign currency contractual
hedging.
– Modify the risk by manipulating prices and other
elements of a marketing strategy.
• Forward exchange market
– The exporter gets the bank to agree to a rate at
which it will buy the foreign currency the exporter
receives when the importer makes payment.
– The rate is either a premium or a discount on the
current spot rate.
Foreign Exchange Risk & Price Adjustments
– Pass through – Make no change in the price, resulting
in a less favorable price in foreign currencies and,
most likely, lower sales.
– Absorption - Decrease the export price in conjunction
with increases in the value of the currency to maintain
stable export prices in foreign currencies.
– Partial pass-through only a portion of the increase.
– Pricing-to-market - Destination-specific adjustment of
mark-ups in response to exchange-rate changes.
Sources of Export Financing
• Commercial banks
– Provide assistance to only first rate credit
risks.
– Provide enhanced services which help
exporters monitor and expedite their
international transactions.
– Marketers should assess the overseas reach
of banks to avail greater market coverage.
Sources of Export Financing
• Forfeiting
– Provides the exporter with cash at the time of
shipment.
– The importer uses bills of exchange or
promissory notes to pay the exporter at the
time of shipment.
– The exporter sells them to a third party at a
discount from their face value for immediate
cash.
Sources of Export Financing
• Benefits accrued by the exporter through
forfaiting:
•
•
•
•
Reduction of risk.
Simplicity of documentation.
Cent percent coverage.
Helps to avoid content or country restrictions.
• Major issues: availability and cost.
Sources of Export Financing
• Factoring houses
– May purchase an exporter’s receivables for a
discounted price.
– Provide the exporter with a complete financial
package that combines credit protection,
accounts-receivable bookkeeping, and
collection services.
Sources of Export Financing
• Differences between forfeiting and factoring:
– Factors usually want a large percentage of the
exporter’s business, while most forfeiters work on a
one-shot basis.
– Factors usually do not have strong capabilities in the
developing countries, forfeiters do.
– Forfeiters work with capital goods, factors typically
with consumer goods.
– Forfeiters work with medium-term receivables, while
factors work with short-term receivables.
Government Export Financing
• Official trade financing can take the form of either a loan
or a guarantee, including credit insurance.
• Advantages of trade financing by the government:
– Protection in the riskiest part of an exporter’s business.
– Protection against political and commercial risks over
which the exporter does not have control.
– Encouragement to exporters to make competitive offers by
extending terms of payment.
– Broadening of potential markets by minimizing exporter
risks.
– Possibility of leveraging exporter accounts receivable.
– Opportunity for commercial banks to remain active in the
international finance arena.
Price Negotiations
• Pricing is the most sensitive issue in business
negotiations; the exporter should discuss it as part of a
comprehensive package and should avoid price
concessions early on in the negotiations.
• Carefully consider concessions that reduce price or
profitability; example: discounts, payment terms, product
features.
• Revisit competitive prices to ascertain that the price
reflects market conditions accurately.
• Focus negotiations first on substantive issues (quality
and delivery), then on price.
Leasing
• Trade liberalization is expected to benefit lessors
both through expected growth in target
economies and eradication of country laws and
regulations hampering outside lessors.
• Allows market penetration for the firm’s products,
which is not possible through outright sale.
• Total net income from leasing is often higher than
it would be if the unit was sold.
Dumping
• Selling goods overseas at a price lower than in the
exporter’s home market or below the cost of production,
or both.
• Ranges of dumping
– Predatory dumping – Intentionally selling at a loss in
another country in order to increase its market share
at the expense of domestic producers.
– Unintentional dumping - Result of time lags between
the dates of sales transaction, shipment, and arrival.
Remedies for dumping
– Antidumping duty - Levied on imported goods sold at
less than fair market value.
– Countervailing duties - Imposed on imports which are
subsidized in the exporter’s home country.
• To minimize the risk of being accused of dumping, focus
on value-added products and increase differentiation by
including services in the product offering
• Keep excellent records
Chapter 17
Chapter 17
Global Pricing
Global Pricing
Transfer Pricing Objectives
• Transfer pricing is established to :
–
–
–
–
–
–
Be competitive in various markets
Reduce taxes and tariffs
Manage cash flows
Minimize exposure to foreign exchange risks
Avoid conflicts with home and host governments
Internal concerns such as goal congruence and
motivation of subsidiary managers
Transfer Pricing Philosophies
The three philosophies are cost-based, market-based,
and arm’s-length price.
– Transfer at cost to increase the profits of affiliates
– Derive transfer prices from the local market conditions
– Use arm’s-length pricing to ensure proper
intracompany pricing and to minimize government
interference
Arm’s Length Pricing for IRS
The six methods of determining an arm’s-length price.
• The comparable uncontrolled price method (sales
between unrelated parties)
• The resale price method (sold to subsidiary for resale; price
determined by similar product being sold by the MNC)
• The cost-plus method (best for parts & components, apply
uniform markup)
• The comparable profits method; Profit split method
(compare profits of seller vs. total organization; split profits between
the two)
• Any other reasonable method
Pricing Within Individual Markets
• Pricing within the individual markets in which the
company operates is determined by:
–
–
–
–
–
Corporate objectives
Costs
Customer behavior and market conditions
Market structure and competition
Environmental constraints
Pricing Within Individual Markets
Corporate objectives: to undersell a major competitor.
– to improve their efficiency and/or shift production bases.
Costs: Easily measured, Varying inflation rates
When prices cannot be changed, try value pricing, stripping down
products, introducing innovative products at a modest premium, and
getting close to customers by using new technologies.
Demand and market factors: Price elasticity, customer
perception of the product
Market structure and competition: Distribution structure, trade
discounts, etc.
Environmental constraints: Government policies. Try non-price
measures, emphasize other marketing mix elements
The Euro and Marketing Strategy
• The potential advantages of a single-currency Europe
include a more competitive market both internally and
externally.
• The euro pushes national markets closer together.
• The single currency has made prices transparent for
buyers.
• Marketers can enhance the value of product and service
offerings selectively, and thereby maintain price
differentials across Europe.
Countertrade
• Countertrade is a sale that encompasses more
than an exchange of goods, services, or ideas
for money.
• Conditions that support countertrade are lack of
money, lack of value of money, lack of
acceptability of money as an exchange medium,
or greater ease of transaction by using goods.
Forms of Countertrade.
-
Straight barter
Counterpurchase agreement (with the government,
smaller deals)
Offset (with the government, larger, longer-term deals)
Buyback (from plant output)
Triangular Compensation {A (goods) →B (goods) → C
(cash) → A}
Clearing agreements (Accounts cleared periodically)
Switch trading (one company sells to another its obligation to
make a purchase in a given country)
• Blocked currencies (Typically soft currencies)
Why Use Countertrade?
• Merits:
– Permits the covert reduction of prices and therefore
allows firms and governments to circumvent price and
exchange controls.
– An excellent mechanism to gain entry into new markets.
– Provides stability for long-term sales.
• Limitations:
– Requires that accounts be settled on a country-bycountry or even transaction-by-transaction basis..
Chapter 16 Chapter 16
Global Logistics and
Global
Logistics and
Materials Management
Materials
Management
A Definition of International
Logistics
• International logistics - The design and management
of a system that controls the flow of materials into,
through, and out of the international corporation.
• The systems approach helps the firm explicitly recognize
the linkages among the traditionally separate logistics
components within and outside of the corporation.
• Interaction with outside organizations, suppliers, and
customers helps build on commonality of purpose in the
areas of performance, quality, and timing.
A Definition of International
Logistics
• The systems approach also ensures
– JIT - Just-in-time.
– EDI - Electronic data interchange (more efficient
order processing).
– ESI - Early supplier involvement.
– ECR - Efficient customer response systems
(tracks sales at retail level, allows manufacturer to coordinate
production to shelf-replacement needs).
Phases of international logistics
– Materials management - Timely movement of
raw materials, parts, and supplies through the
firm.
– Physical distribution - Movement of the firm’s
product to its customers.
Logistics: major concepts
– Systems concept - The extensive and complex
materials-flow activities within and outside the firm
must be considered in the context of their interaction.
– Total-cost concept - Minimize overall logistics cost by
identifying activity-based costs that impact after-tax
profits.
– Trade-off concept - Recognizes the linkages within
logistics systems that result from the interaction of
their components.
Supply Chain Management
An integration of the three-system concepts.
1. planning and management of all activities involved in
sourcing and procurement, conversion, and logistics.
2. coordination and collaboration with channel partners.
3. Integration of supply and demand management within
and across companies.
Basic differences between domestic and
international logistics
– Distance - Presence of firms in more than one
country.
– Currency variations and exchange rate
differences.
– Transportation modes - Reliability on carriers
may be different; computation of freight rates
may be different.
International Transportation
Issues
• Choice of transportation determines how
and when goods will be received.
• Transportation issue can be divided into
three components:
– Transportation modes/infrastructure
– Availability of modes
– Choice of modes.
International Shipping Transportation modes - 1
1. Air: (wide body jets)
2. Truck: Truck trains
3. Rail: Gauges, technology, unit trains
4. Inland Waterways: Barges (motorized, non-motorized)
5. Ocean: Container ships, Ro-Ro ships, Lighter aboard
ships, Supertankers, Ore carriers, LNG carriers
(Trades, Conferences, Lines, Liner/Tramp, rates, flags,
Insurance: General/Particular average)
6. Pipelines: Liquid, gas, domestic, transnational
7. Intermodal
IK
Choice of Transportation Modes
is influenced by:
– Transit time
– Predictability (Air is more predictable than
ocean)
– Cost
– Noneconomic factors (government
involvement)
The International Shipment
• Involves multiple types of carriers.
• Documentation is sometimes considered
to be a trade barrier.
• Trading regions such as the European
Union have greatly simplified their required
documentation for shipments.
Exhibit 16.6 - Documentation for an
International Shipment
Packaging for International Shipping
•
Customer Requirements
•
Shipper Requirements
•
Distributor Requirements
•
Climate
•
Customs and traditions
•
Government Requirements
•
Cost (shipping, insurance, pilferage)
•
Physical hazards (acceleration, deceleration, dropping,
pitching, rolling, vibrations, etc.)
Management of International
Logistics
• Centralized logistics management - Headquarters retain
decision-making power and control over logistic activities
affecting international subsidiaries.
• Decentralized logistics management
– Each subsidiary is made a profit center which carries
responsibility for its performance.
– Leads to greater local management satisfaction and better
adaptation to local market condition.
– Required by firms operating in a number of international markets
that are diverse in nature.
Management of International
Logistics
• Contract logistics
– Outsourcing logistical management by employing
outside logistical expertise.
– Helps firms to achieve improved service at equal or
lower cost.
– Allows marketers to take advantage of an existing
network, complete with resources and experience.
– Leads to loss of the firm’s control in the supply chain.
The Supply Chain and the
Internet
• Global net e-commerce revenue is expected to surpass
the $1 trillion dollar mark by 2012.
• Companies enter e-commerce through hub sites (also
known as virtual malls or digital intermediaries) which
bring together buyers, sellers, distributors, and
transaction payment processors in a marketplace (e Bay,
Priceline, Amazon etc.).
• Companies using e-commerce need to be prepared for
24-hour order-taking and customer service.
Logistics and Security
• Logistics systems are vulnerable to terrorist
attacks and piracy; to prevent them,
governments impose security measures
(screening of shipments and shippers).
• Security measures:
– Affect the firm’s ability to plan their international
shipments and distributions.
– Increases the cost of supply chain activities.
Logistics and Security
• Strategies employed for reducing security costs:
– Replace international shipments with domestic.
– Eliminate the use of vulnerable international
transportation.
– Redesign the logistics strategies to incorporate the
effects of substantial and long-term interruptions of
supplies and operations.
Recycling and Reverse
Logistics
• The firm’s ability to develop reverse logistics is a key
determinant for market acceptance and profitability.
• Reverse distribution
– Ensures that a firm can retrieve a product from the market for
subsequent use, recycling, or disposal.
– Is a complex customer service, inventory control, information
management, cost accounting, and disposal process.
– Reverse logistics management is highly specialized.
Chapter 12 Chapter 12
Marketing
Communication
Marketing Communication
Exhibit 12.1 - The Marketing
Communication Process
Sender
(Encodes
Message)
Message
Channel
Message
Noise
Feedback
Communication
Outcome
Receiver
(Decodes
Message)
International Negotiations
• The two biggest dangers faced in
international negotiations:
– Parochialism - The misleading perception that
the world of business is becoming ever more
American and that everyone will behave
accordingly.
– Stereotyping - Generalizations about any
given group, both positive and negative.
International Negotiations Process
• Five-stage negotiated selling process:
– Offer
• Initiated by either the seller or the buyer . Allows the parties
to assess each other’s needs and commitment.
– Informal meetings
• To discuss the terms and get acquainted.
• It may be necessary to utilize facilitators (such as consultants
or agents) to establish the contact.
– Strategy formulation
• Review and assess all factors to be negotiated, and
• Prepare for actual give-and-take of the negotiation.
International Negotiations
– Negotiations details
• Two approaches are used: competitive and collaborative.
• Depend on the cultural background and business traditions
prevailing in different countries.
– Outcomes
• The choice of location for the negotiations and the negotiator
characteristics play a role in the outcome.
Negotiating in other Countries 1/2
• A combination of attitudes, expectations, and habitual
behavior influences negotiation style.
• Approaches used for adjusting to the style of the hostcountry negotiators:
– Team assistance (using specialists to allow all points to be
considered)
– Traditions and customs (status relations & business procedures)
– Language capability (a culturally and linguistically competent
interpreter may be needed)
– Determination of authority limits (US & European negotiators
have much greater authority the Asians)
– Patience
Negotiating in other Countries 2/2
– Negotiation ethics (may be different and, sometimes, seem
unethical to US & Europeans)
– Silence (must be interpreted correctly. It not always negative)
– Persistence (insisting on quick answers may be seen as a threat.
Let things develop as per local culture)
– Holistic view (concessions should come at the end of bargaining
after all other issues have been discussed)
– The meaning of agreements (written, legal contracts
may not be needed or even be negative)
Negotiating over the Internet
• The use of Internet allows the exporter to:
– Overcome distances.
– Minimize social barriers.
– Obtain instant feedback.
– Negotiate from a home base.
– Negotiate with a number of customers
simultaneously.
The Internet
– Helps a company increase its presence in the
marketplace.
– Allows 24-hour access to customers and prospects.
– Improves customer service.
– Allows the exporter to gather market information.
– Provides an opportunity to close sales and communicate
with internal constituents, apart from customers.
The promotional mix
– Advertising
– Personal selling
– Publicity
– Sales promotion
– Sponsorship.
• The choice of tools leads to either a push or a
pull emphasis in marketing communications.
Push & Pull Strategies
• Push strategies - Focuses on personal selling;
considered useful for marketing industrial goods
which have shorter channels of distribution.
• Pull strategies - Depend on mass communications
to reach target audiences over long distribution
channels.
• Integrated marketing communications Coordinated use of a broad range of promotional
tools to reach a target market.
Direct marketing
– Establishes relationship with a customer in order
to initiate immediate and measurable responses.
– Accomplished through direct-response
advertising (direct mail literature and catalogs),
telemarketing (telephone via call centers), and direct
selling (database marketing to create individual relationships with
each customer).
– All these can be highly personalized tools if the
target audience can be identified and defined
narrowly.
Trade Shows and Missions
Trade shows may be general (horizontal) or
specialized (vertical). They provide:
– Opportunity to introduce, promote, and demonstrate new
products.
– Goodwill and contacts.
– Locate trade intermediaries and suppliers.
– Meet government officials and decision makers.
– Collecting market research and competitive intelligence.
– Reach sizable sales prospects in a brief time period at a
reasonable cost per contact.
Reasons for not participating in trade fairs
– High cost.
– Difficulty in choosing the appropriate trade fairs
– Coordination.
• Other promotional events that the exporter can
use are trade missions, seminar missions, solo
exhibitions, virtual trade shows, etc.
Personal selling
– Involves high costs per contact.
– Provides immediate feedback on customer
reaction as well as information on markets.
– Can be used for consumer selling in low-wage
markets
Chapter 13 Chapter 13
Distribution
Management
Distribution Management
Channel Structure
• Channels can vary from direct (producer-to-consumer types)
to elaborate (multilevel channels employing many types of
intermediaries).
• Channel configurations for the same product will vary within
industries, even within the same firm, because national
markets quite often have unique features.
• Channel structures are designed to manage multidirectional
connections for:
• Physical movement of goods and services.
• Transactional title flows.
• Information communications flows.
Channel Strategies
• The general distribution systems used by
companies include:
– Direct sales to customers through a firm’s own field
sales force or through electronic commerce.
– Indirect sales through independent intermediaries at
the local level.
– Indirect sales through an outside distribution system
having a regional or global coverage.
Channel Design Influences
• Customer characteristics
– The demographic and psychographic
characteristics of targeted customers form the
basis for channel design decisions.
– Focusing on customer needs: why, when, and
how they buy helps to generate a competitive
advantage.
Channel Design Influences
• Culture
• The existing channel structures or the distribution
culture.
• The functions performed by the various types of
intermediaries.
• Foreign legislation affecting distributors and agents
Channel Design Influences
• Competition
– Channels used by competitors may be the only
product distribution system that is accepted by both
the trade and consumers.
– If distribution channels used by competitors are not
satisfactory, the exporter can:
• Form jointly owned sales companies with distributors to
exercise more control.
• Seek a good company fit in terms of goals and objectives.
Channel Design Criteria
• Company objectives: market share and profitability
• Nature of the product: consumer, industrial
• Capital: financial requirements for setting up a channel
system
•
•
•
•
•
Cost: of maintaining a channel
Coverage: intensive, selective, exclusive
Control: depends on company plans for the future
Continuity: expressed thru visible market commitment
Communication: for channel coordination
Selection of Intermediaries
• Two basic decisions:
– Determining the type of intermediary relationship
• Distributorship
• Agency relationship
– Determining the type of exporting function
• Indirect exporting
• Direct exporting
• Integrated distribution
The distributor agreement
– Some important terms to be included:
•
•
•
•
•
•
Contract duration.
Geographic and customer boundaries.
Method of compensation.
Products and conditions of sale.
Means of communication between parties.
Process of dispute resolution/dissolution
Gray Markets
• Gray markets (parallel importation)
– Authentic and legitimately manufactured trademark
items that are produced and purchased abroad but
imported or diverted to the market by bypassing
designated channels.
– Fuelled by price segmentation and exchange rate
fluctuation.
– They under-cut local marketing plans, erode longterm brand images, eat up costly promotion funds,
and sour manufacturer–intermediary relations.
Gray Markets
• Arguments for gray markets:
– The right to “free trade.”
– Consumers benefit from lower prices.
– Discount distributors find a profitable market
niche.
Gray Markets
• Arguments against gray markets:
– Hurts the legitimate owners of trademarks.
– Reduces incentive among trademark owners to
undertake product development.
– Take unfair advantage of the trademark owners’
marketing and promotional activities.
– Can deceive consumers by not meeting product
standards or their normal expectations of aftersale service.
Gray Markets
• Solutions to the gray market problem:
– A contractual relationship that ties businesses
together.
– A one-price policy.
– Producing different versions of products for
different markets.
– Conducting educational and promotional
campaigns.
Chapter 14
Chapter 14
Global Product
Global Product
Management
Management and Branding
and Branding
Global Product Development
• The goal of the product development
process is to build adaptability into
products and product lines to achieve
worldwide appeal.
Global Product Development
• Stages of the product development
process
– Idea generation
– Screening
– Product and process development
– Scale-up
– Commercialization
Global Product Development
• Sources for idea generation:
– Company
– Customers
– Lead users
– Procurement requisitions from governments
and supranational organizations
– Facilitating agents, such as advertising
agencies or market research organizations
Screening Product Ideas
• Product ideas are screened on the basis
of market, technical, and financial criteria.
Global Product Development
• The use of computer aided design (CAD)
allows inexpensive adaptation of the
product designs for future markets.
• The product development process can be
initiated by any unit of the organization, in
the parent country or abroad.
Global Product Development
• The assignment of product development
responsibility may be based on a combination
of special (market and technical) knowledge as
well as long-term or political considerations.
• Though product development activity takes
place in the parent country, the affected units
participate in the development and market
planning for a new product.
Global Product Development
• Reasons for investing in R&D activities abroad:
– Aids technology transfer from parent to subsidiary.
– Develops new and improved products for foreign
markets.
– Develops new products and processes for
simultaneous application in world markets of the firm.
– Generates new technology of a long-term exploratory
nature.
– Curries favor with host-country governments
Global Product Development
– Multidisciplinary teams in an organization
• Maximize the payoff from R&D by streamlining decision
making.
• Reduce development time of a new product.
• Reduce overall material costs.
• Trim manufacturing processes.
– Companies increase communication and exchange of
personnel to reduce language and cultural barriers
among R&D teams.
– R&D consortia have been established provide the
benefits and face the challenges of any strategic
alliance.
Global Product Development
• Testing of new product concepts for performance
and customer acceptance
– Is the final stage of product development.
– Ranges from reliability tests to mini-launches.
– Is undertaken to avoid high rate of product failure.
• Reasons for product failure:
– Relying on instinct or hunch rather than testing and
research.
– Lack of product distinctiveness.
– Unexpected technical problems.
International product testing
– Laboratory test markets - Captures consumer reactions
in a controlled environment.
– Micro test-marketing - Uses a permanent panel of
consumers and assesses their willingness to buy after
exposure to media and purchase incentives.
– Forced distribution tests - Relies on the continuous
report of consumer reactions to new products already in
the market.
Global Product Launch
– Introducing the product into countries in three or more
regions within a narrow timeframe.
– Measures undertaken for successful launches:
• Involvement of country managers.
• Pre-launch attention to localization and translation
requirements.
• Increased education and support of the sales channel.
– Benefits of a successful global launch:
• Permits the company to showcase the product.
• Removes old models at once.
• Captures new product’s higher margins.
Management of the Product and Brand
Portfolio
• Should have a balanced product and market portfolio—
a proper mix of new, growing, and mature products to
provide a sustainable competitive advantage.
• Product portfolio analysis
– Is based on growth rates and market share positions.
– Is used to analyze:
• Business entities, product lines, or individual products.
• Market, product, and business interlinkages.
Management of the Product and
Brand Portfolio
Advantages of product
portfolio approach
– A global view of competitive
structures.
– A guide for formulation of global
marketing strategy based on
allocation of scarce resources.
– A guide for formulation of
marketing objectives based on
the role of product lines in the
markets served.
– A convenient visual
communication goal.
Disadvantages of product
portfolio approach
– Foreign competition does not
follow the same rules as
domestic competition.
– Relationships between market
share and profitability may vary.
– Government regulations.
– Local content laws.
– Different production sites impact
perceptions of risk and quality.
Branding Policies
Three choices of branding:
• Use of the corporate name.
• Use family brands for a wide product line.
• Use individual brands for each item in the product line.
– Global brands are a key way of creating consistency and impact.
May be completely standardized or some elements of the
product may be adapted to local conditions.
– Characteristics of global brands
•
•
•
•
Carry a strong quality signal and compete on emotion.
Cater to the need of feeling cosmopolitan.
Reflect the professional and personal status of the user.
Use their monetary and human resources to benefit society
Branding Policies
• Private branding
– The intermediaries’ own branded products or “store
brands.”
– Methods used for private branding:
• Umbrella branding with the intermediary’s name.
• Separate brand names for individual products or product
lines.
– Private brand goods have achieved a significant
penetration in many countries due to increase in price
sensitivity and decrease in brand loyalty.
Exhibit 14.7 - Private Brand Strategies
Strategy
Rationale
Circumstance
No participation
Refusal to produce
private label
Heavily branded markets; high
distinctiveness; technological
advantage
Capacity filling
Market control
Opportunistic
High brand shares where
Influence category sales distinctiveness is less; more
switching by consumers
Competitive leverage
Stake in both markets
Chief source of business Major focus
Dedicated producer
Leading cost position
Little or no differentiation by
consumers
SOURCES: Adapted from Sabine Bonnot, Emma Carr and Michael J. Reyner, “Fighting Brawn with Brain,” The McKinsey Quarterly 40 (no 2. 2000): 85-92; and Francois
Glemet and Rafael Mira, “The Brand Leader’s Dilemma,” The Mckinsey Quarterly 33 (no 2. 1993):4.
MKT-421 Winter 2010
End of Class Slides