Marketing Management
Of International Trade
October - December 2011
Ing. Ilona Bergquist, MBA
A little bit about me….
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OBJECTIVES… KEY TOPICS… REQUIREMENTS
The goal of the subject:

To gain a good understanding of international trade aspects, the forces and issues
related to conducting business abroad.

To acquire knowledge about strategic marketing activities and HR-related activities
needed for managing international business operations.
Key topic areas:

International trade development, role in the economy, benefits for companies

Entry modes for international business and developing international strategies

International marketing

Marketing Research; Creating and leveraging knowledge

Managing business plans; Managing HR
Requirements:
•
Each student to participate in a group case study presentation
•
Each student to prepare a paper on a selected topic
•
Final exam based on material covered
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
 Unit 1: Role of international trade in the economy
– Benefits for the country
– Structures of international trade
– Environmental forces: cultural, economic, political, legal,
technological, competitive
– International trade organizations
 Unit 2: Motivation of companies to expand abroad
– Opportunities and barriers of int’l trade
– International, multinational, global and transnational mentality
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Unit 1: International trade and its role in the economy
Benefits for the country:

Effectivity - focusing on key product categories where the country has competitive
advantage can save on labor work (i.e. Japan – electronics, cars, optics)

Proportionality - only few countries can manage on its own all resources/ has enough
industrial base (US, BRIC)

Demonstration effect - how developed the economy is (technology, trends, design….)

Supports cooperation of countries and lowers a risk of a conflict

Helps in educational growth - export forces to study technology news/ advances,
ways of trade development, languages cultural learnings
Governments’ approach:

Passive - protectionalism of trade

Active - liberalism, makes export key driver of economic growth of the country
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Growth of world export

Volume of int’l trade has been growing since the end of WWII

Growth rate of int’l trade/export has been exceeding the growth rate of world
production since 1950 (export 6.2%, GDP 3.8%)

The share of int’l export on world production:
– In 1945: 5.5%
– In 1990: 20%

Int’l trade today, includes not only trade with commodity and goods,
but also software, services and capital

Share of regions on world export has been changing

Int’l trade created the phenomenon of globalization
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Territorial structure of international trade

The world export has very concentrated territorial structure: 20% of economies
involved in world trade create 90% of the volume
Exports, in USD bil.
1948
2006
Imports, in USD bil.
1948
2006
World
59 bil.
11 783 bil.
World
62 bil.
11 113 bil
North America
Of which US
28%
22%
14%
9%
North America
Of which US
19%
21%
South/Central America
11%
4%
South/Central America
10%
3%
Europe
- Germany
- France
- GB
35%
1%
3%
11%
42%
9%
4%
4%
Europe
- Germany
- France
- GB
45%
2%
13%
6%
43%
8%
5%
4%
Asia
- China
- Japan
- India
- Australia/NZ
14%
1%
0.4%
2%
4%
28%
6%
5.5%
1%
1%
Asia
- China
- Japan
- India
- Australia/NZ
14%
1%
1%
2%
3%
25%
7%
5%
1%
1%
Others: Russia, Africa,
Middle East
11%
12%
Others: Russia, Africa,
Middle East
12%
8%
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Commodity structure of international trade
 Trade with goods/commodities 81%, trade with services 19% of world
trade value
– Int’l transportation services and storage (25%)
– Tourism services (25%)
– Other: Insurance, Banking, Patents, Know-how, Franchising, Leasing, Factoring,
IT, telco, cultural services (50%)
 The growth rate of value of goods/commodities exceeds the rate of volume
about twice
– Influencing factors – USD depreciation and inflation, increasing size of value
added products
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Environmental forces in global markets
 Successful int’l mktg strategy requires in-depth environmental analysis as
forces can differ dramatically in countries
1. Cultural and social forces – beliefs and values regarding family, religion,
education, health, recreation (Hofstede’s Five Dimensions of Nat’l Culture)
 Implications – for product development/offering, advertising, packaging,
pricing….as well as biz negotiations (i.e.. gifts – introduction to
negotiations vs. bribe), decision-making process, internal management
practices, etc
2. Economic forces – economic indicators, such as GDP, growth rates,
unemployment, corporate bankruptcies, currency, trade imbalance, financial
systems
 Implications – projections for business potential, risk prevention
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Environmental forces in global markets
3. Political, legal and regulatory forces – laws and regulatory have direct
effects on firm, political has indirect effect (politicians directly effect the
legislation or industry associations – i.e. SUKL)
 Implications – be aware of import tariffs, a quota, embargo, or any
industry specific regulations
4. Ethical, social responsibility forces – use of bribes, standards regarding
intellectual property (China, Vietnam!), pirated/counterfeit products are
estimated to represent 5-7% of worldwide merchandise trade
 Implications – consider company code of ethics and cultural practices of
the country you are in as well as your home country. BSR/Business for
social responsibility – globally based resource system

Starbucks – global code of ethics strives to protect agricultural workers who harvest
coffee beans
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Environmental forces in global markets
5. Technological forces – advances in technology are making marketing
easier (internet, smart phones…). The majority of young adults, age 16-24,
in Europe prefer ads on the web over any other media vehicle
 Implications – leverage technology in marketing activities, both in
R&D/product innovations and in communications
6. Competitive forces – each country has a unique competitive aspects, i.e.
cheaper labor, technology/know-how
 Implications – understand the advantages and leverage to make your
business most effective and efficient
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Select International Trade Associations

European Union (est. 1958)

World Trade Organizations (WTO, est. 1995, successor of GATT est. 1947)

North American Free Trade Associations (NAFTA, est. 1994)

Asia-Pacific Economic Cooperation (APEC, est. 1989, now 21 members)

Common Market of the Southern Cone (MERCOSUR, est. 1991)
Typical goals of TA:

Lower / eliminate tariffs on goods produced and traded among member states –
improve economic efficiency and stimulate growth

EU: work towards standardizing business regulations and requirements, import duties,
VAT, eliminating customs checks, creating a standardized currency
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
 Unit 1: Role of international trade in the economy
– Benefits for the country
– Structures of international trade
– Environmental forces: cultural, economic, political, legal,
technological, competitive
– International trade organizations
 Unit 2: Motivation of companies to expand abroad
– Opportunities and barriers of int’l trade
– International, multinational, global and transnational mentality
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Unit 2: Motivation of companies to expand abroad
Early motives:

Investing abroad to secure key supplies / acquire resources (Standard Oil, Goodyear)

Market seeking behavior:
a) leverage competitive advantages in off shore markets ….resulted in economies of
scale and scope (Nokia)
b) seeking new markets as domestic markets matures (Nestle, Bayer, Ford)
c) diversifying … protection from one country down-turn

Desire to access low cost factors of production, esp. labor and capital (government
investment subsidy), grew in the 60’ties as tariff barriers declined
Emerging motivations:

Increasing scale economies, high R&D investment, shortening product life cycles –
transformed many industries into global … making worldwide scope of activities a
prerequisite to survive
–
Gillette's MAC: $ 200M in R&D, $ 550M in capital, $ 300M in marketing efforts
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Emerging motivations (cont’d)

Global scanning & learning capability – huge informational advantage (locating more
efficient sources, more advanced products or processes, new needs…)

Competitive positioning (cross-subsidization of markets – controversial, Kagome )
In summary, three conditions must be met for the existence of MNC:

Foreign country must offer some location-specific advantage (Motivation)

The company must have some strategic competencies / advantages to counteract its
disadvantages of its relative unfamiliarity with foreign market
 Expending internally (owned subsidiaries) vs. external mechanisms/contracts or
licenses
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Model for internationalization:
a) Gradually committing resources and building knowledge
b) Acquiring local partners to shortcut the process of building up local knowledge
- buying chain Asda in UK
- subcontracting to local partners (in Canada, manages all from US,
but ships thu Canadian Postal service)
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Level of control over foreign activities
Approaches to Foreign Market Entry
Wholly
owned
subsidiary
Franchising
Joint venture
with local
partner
Licensing
Export through
agent or
distributor
Indirect
export
Amount of resources committed to foreign market
Three-pronged strategy for int’l markets:
1. company owned stores, 2. JV, 3. Licensees
1. Owned breweries, 2. JV,
in USA, keeps importing
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
Risks in international business:

Market risks – business results will not be achieved, lower sales or lower profits
Protection measures: possible in contracts to negotiate flexible pricing to some
extent, based on costs of raw material

Commercial risks – commitments from suppliers not fulfilled or with defects, payment
delayed or not realized, etc. Protection measures: good partner selection and welldefined contracts with payment terms, building long term partners / trust

Logistical risks – lost or damaged goods during transportation. Protection measures:
insurance of transportation, reliable insurance company and appropriate ins. level

Territorial risks (barriers) – resulting from political and economical situation of the
foreign country, local administrative measures (increased taxation, tariffs), natural
disasters, etc. Protection measures: building knowledge about the markets,
understanding ratings of states (provided by rating agencies), possibility of insuring
territorial risks

Exchange rates risks. Important to select a stable, strong currency. Possible to use
factoring and other financial instruments.
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
The Evolving Mentality: International to Transnational


International Mentality
–
Overseas operations viewed as distant outposts, supporting the parent company through
incremental sales / profits
–
Products are developed for the domestic market and subsequently sold abroad, technology
is transferred from the parent co. to overseas operations, offshore manufacturing is seen as
way to protect home market
–
Managers assigned to overseas operations – domestic misfits who happen to know the
foreign language or previously lived abroad
–
Decisions related to foreign operations – made in an opportunistic or ad hoc manner
Multinational Mentality
–
Typically comes with growing importance of sales / profits from foreign operations
–
Companies modify their products / services / management practices country by country
–
Building multiple, nationally responsive strategies of companies’ subsidiaries + very
responsive mktg approaches in each market
–
Managers tend to be highly independent entrepreneurs, often nationals of the host country,
able to build up significant local growth and independence from HQ
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
The Evolving Mentality: International to Transnational


Global Mentality
–
Multinational mentality can lead to many inefficiencies (production, logistics, design, distribution,
etc)
–
Global mentality: “assumption that national tastes and preferences are more similar than
different or that they can be made similar by providing customers with standardized products
with adequate cost and quality advantages over local products”
–
Many Japanese companies – creating products for the world market and manufacturing them on
a global scale in highly efficient plants …. Very successful model thru the 80ties
–
Requires more central coordination and control. R&D typically managed from HQ and most
strategic decisions also taken at the center
Transnational Mentality
–
Many host governments viewed these global co. as threatening …and increased the restrictions
and demands on them – requiring them to invest, transfer technology, meet local content
requirement
–
Customers refused homogenized global products asserting national preferences, but w/o
sacrificing the high-quality level and lower cost of global products
–
EMERGING REQUIREMENT: be responsive to local needs while retaining global efficiency
–
Activities neither centralized or decentralized (dispersed but specialized), shared decision making
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LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
The Evolving Mentality: International to Transnational

Depending on the industry, company’s strategic position and other factors
a company might reasonably operate with any one of these strategic mentalities

Most companies will exhibits some attributes of each of these different strategic
approaches
Menu adopted to local tastes
Nationally adapted products
Regional centers
Global brands
HQ decisions
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Next Session
Key topic areas:

International trade development, role in the economy, benefits for companies

Entry modes for international business and developing international strategies

International marketing

Marketing Research; Creating and leveraging knowledge

Managing business plans; Managing HR
Home work - Assessment papers due:
1. The globalization of markets.
2. Global strategy in a world of nations.
3. Why strategic alliances?
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