Introduction to International Marketing
Definition of International Marketing:
“The marketing of goods and services across national
borders”
Or
Marketing in an internationally competitive environment, no
matter whether the market is home or foreign.
Or
"At its simplest level, international marketing involves the firm in making one or more marketing mix decisions across national boundaries. At its most complex level, it involves the firm in establishing manufacturing facilities overseas and coordinating marketing strategies across the globe."
The marketing operations of an organization that sells
and/or produces within a given country when:
a. that
organization is part of, or associated with, an enterprise which also operates
in other countries; and
b. there
is some degree of influence on or control of the organization’s, marketing
activities from outside the country in which it sells and/or produces.
Different Orientations of International Marketing
There are 4 different types of orientations or dimensions of
International Marketing known as EPRG framework;
- Ethnocentrism (home country orientation)
- Polycentrism (host country orientation)
- Regiocentrism (regional orientism)
- Geocentrism (world orientation)
- Ethnocentric Orientation: In the ethnocentric operations are viewed as secondary to domestic operations and primarily as a means of disposing of ‘surplus’ domestic production. Plans for overseas markets are developed in the home office, utilizing policies and procedures identical to those employed in the domestic market. Overseas marketing is most commonly administered by an export department or international division, and the marketing personnel by an export department or international division. The ethnocentric position appears to be appropriate for a small company just entering international operations, or for companies with minimal international commitments because this approach entails a minimal risk and commitment to overseas markets - no international investment is required and no additional selling cost incurred, with the possible exception of higher distribution costs.
- Polycentric Orientation: As the company begins to recognize the importance of inherent differences in overseas markets, a polycentric attitude emerges. The prevalent philosophy at this stage is that local personnel and techniques are best suited to deal with local market conditions. Subsidiaries are established in overseas markets and each subsidiary operates independently of the others and establishes its own marketing objectives and plans.
- Regiocentric and Geocentric Orientations: A regiocentric company views different regions as different markets. A particular region with certain important common marketing characteristics is regarded as a single market, ignoring national boundaries. Objectives are set by negotiation between headquarters and regional HQ on the one hand and between regional HQ and individual subsidiaries on the other. A geocentric company views the entire world as a single market and develops standardized marketing mix, projecting a uniform image of the company and its products, for the global market.
In general, the desirability of a particular international
orientation – E, P, R, G – tends to depend on several factors, such as the size
of the firm, the experience gained in a given market, the size of the potential
market, and the type of the product and its cultural dependency.
INTERNATIONALISATION STAGES
Domestic Company: Most international companies have
their origin as domestic companies. The orientation of a domestic company
essentially is ethnocentric. A purely domestic company “operates domestically
because it never considers the alternative of going international. The growing
stage-one company, when it reaches growth limits in its primary market,
diversifies into new markets, products and technologies instead of focusing on
penetrating international markets.
A domestic company may extend its products to foreign
markets by exporting licensing and franchising. The company, however is
primarily domestic and the orientation essentially is ethnocentric.
International Company: International company is
normally the second stage in the development of a company towards the
transnational corporation. The orientation of the company is basically
ethnocentric and the marketing strategy is extension, i.e, the marketing mix
‘developed’ for the home market is extended into the foreign markets.
Multinational Company: When the orientation shifts
from ethnocentric to polycentric, the international company becomes
multinational. In other words, “when a company decides to respond to market
differences, it evolves into a stage-three company is multinational that
pursues a multi-domestic strategy. The focus of the stage-three company is
multinational or, in strategic terms, multi-domestic (that is, the company
formulates a unique strategy for each country in which it conducts business).
Global/Transnational Company: According to Keegan,
global company represents stage four and transnational company stage five in
the evolution of companies.
According to Keegan, the global company will
have either a global marketing strategy or a global sourcing strategy but not
both. It will either focus on global markets and source from the home or a
single country to supply these markets, or it will focus on domestic market and
source from the world to supply its domestic channel.
The Transnational Corporation is much
more than a company with sales, investments and operations in many countries.
This company, which is increasingly dominating markets and industries around
the world, is an integrated world enterprise that links global resources with
global markets at a profit.
International marketing Decisions
(i)
International Business Decision: The first
decision a company has to make, of course, is whether to take up international
business or not. This decision is based on serious consideration of a number of
important factors, such as the present and future overseas opportunities,
present and future domestic market opportunities the resources of the company,
company objectives etc.
(ii)
Market Selection Decision: The next important
step is the selection of the most appropriate market. For this purpose, a
thorough analysis of the potentials of the various overseas markets and their
respective marketing environments is essential. Company resources and
objectives may not permit a company to do business in all the overseas markets.
A proper selection of the overseas market(s), therefore, is very important.
(iii)
Entry and Operating Decisions: The next
important task after the market selection decision is to determine the
appropriate mode of entering the foreign market.
(iv)
Marketing Mix Decisions: The foreign market is
characterized by a number of uncontrollable and controllable variables. The
marketing mix consists of internal factors which are controllable. The success
of International marketing, therefore, depends to a large extent on the
appropriateness of the marketing mix. The elements of the marketing mix should
be suitably designed so that may be adapted to the characteristics of the
overseas market.
(v)
International Organization Decision: A company
which wants to do direct exporting has also to decide about its organizational
structure, so that the exporting function may be properly performed. This
decision should necessarily be based on a careful consideration of such factors
as the expected volume of export business, the nature of overseas market,
product, size and resources and length of its export experience.
Future of International Marketing
1.
Globalization of supply chain and operations management
2.
International Investments
3.
Information surge and consumer choice
4.
World growth
5.
Domination of the world economy
6.
Trade cycle decison rule
7.
Pervasiveness of
free markets
8.
Accelerating growth of global markets
9.
The rise of the Internet and Information technology
INTERNATIONAL MARKETING ENVIRONMENT
The various environments that can be termed important for
International marketing are:
P – Political
E – Economical
S – Social
T – Technological
E – Environmental
L – Legal
D - Demographic
International Marketing and Price
How
should we set prices for international markets?
This lesson considers the basics of
pricing for international marketing. As with all of the international marketing
lessons, every country and culture within it will influence price. So here we
are going to look at some of the common influences upon pricing
decision-making, the impact of grey markets, international approaches to
pricing, and more mainstream marketing approaches to pricing that can be
applied to an international context.
Influences
on pricing for international marketing.
- The cost of manufacturing, distributing and marketing
your product.
- The physical location of production plants might
influence price. For example, Toyota has plants in their European market,
in the United Kingdom and Turkey.
- Of course fluctuations in foreign currencies affect
pricing. Many companies are benefiting from a relatively low US Dollar
price during the 2010s. This make imports to the United States expensive,
but exports relatively cheap to other nations. However fluctuations make
it very difficult for companies to make long-term decisions - such as
building large factories in global markets i.e. costs of production are
cheap today, but could be expensive in the future, impacting upon the
price that your business is forced to charge.
- The price that the international consumer is willing to
pay for your product.
- Your own business objectives will influence price. For
example, large international companies such as Starbucks may operate at a
loss in some locations but still need a local presence in order to
maintain their economies of scale, as well as their reputation as a global
player.
- The price that competitors in international markets are
already charging.
- Business environment factors such as government policy
and taxation.
Grey
Markets
A business can expect problems with grey
markets where it trades across national boundaries. So if Company Y is
English it will trade in Stirling or Pound notes. If it trades in the United
States during the 2010s, to be competitive it will need to sell at a reduced
price in the US. However, there is little to stop an entrepreneur from
traveling to the US, filling up a transport container with products, which have
been exported from Company Y in England, then returning them back to England
and marketing the same product at a lower price than Company Y is willing to
trade. This is an example of parallel trade, which is legal - just. Therefore
it is known as grey marketing.
International
Pricing Approaches
- Export Pricing
- a price is set for by the home-based marketing managers for the
international market. The pricing approach is based upon a whole series of
factors which are driven by the influences on pricing listed above. Then
mainstream approaches to pricing may be implemented - see below.
- Non-cash payments
- less and less popular these days, non-cash payments include
counter-trade where goods are exchanged for goods between companies from
different parts of the World.
- Transfer Pricing
- prices are set in the home market, and goods are effectively sold to the
international subsidiary which then attaches its own margin based upon the
best price that local managers decide that they could achieve. Then
mainstream approaches to pricing may be implemented - see below.
- Standardization versus adaptation - do you use a standard, common approach to pricing in
each market, or do you decide to adapt the price to local conditions?
Countertrade:
Countertrade is an
umbrella term used to describe many different types of transactions each in
“which the seller provides a buyer with goods or services and promises in
return to purchase goods or services from the buyer”.
Types
of Countertrade
Ø Barter
Ø Counter
purchase:
Parties pay cash of goods
Seller agrees to buy products/services unrelated to its business
Seller then sells products to third parties
Ø Offset:
Usually large projects, often
involving expenditure of buying government’s money
A % of the selling price is required to be purchased or sourced from the
buying country
Ø Switch
Trading:
Buyer pays hard currency for unwanted goods/services from seller
Broker buys unwanted goods
Broker sells goods to third parties
Ø Compensation
or Buyback: The seller agrees to buy a
negotiated quantity of the output from the buyer’s output.
Ø
Barter
The direct exchange of
goods between traders. Barter requires a double coincidence of wants.
A clearinghouse
arrangement is a form of barter in which the traders agree to buy a certain
amount of goods from each other.
They set up accounts
with each other that are debited and credited as needed. At the maturity of the
arrangement, the parties settle up in cash or merchandise.
A switch trade is the
purchase by a third party of one country’s clearing agreement balance for hard
currency.
A buy-back transaction
involves a technology transfer via the sale of a manufacturing plant.
The seller of the plant
agrees to buy back some of the output of the plant once it is constructed.
A counterpurchase
trade agreement is similar to a buy-back transaction, but differs in
that
The output that the
seller of the plant agrees to buy is unrelated to the plant.
An offset
transaction can be viewed as a counter purchase trade agreement involving
the aerospace/defense industry.
Advantages:
Countertrade conserves
cash and hard currency.
Advantages also include
the improvement of trade imbalances, the maintenance of export prices, enhanced
economic development, increased employment, technology transfer, market
expansion, increased profitability, less costly sourcing of supply reduction of
surplus goods from inventory, and the development of marketing expertise.
Terms of sale
The delivery
and payment
terms agreed between a buyer and a seller.In international trade, terms of sale also set out the rights and obligations of buyers and sellers as applicable in the transportation of goods. Thirteen major terms of sale (called Incoterms) have been standardized by the International Chamber Of Commerce (ICC) for world-wide use.
Payment
methods as a means of financing:
As in the domestic market, there are
many different ways of receiving payment for goods sold to buyers. The payment
method you use may have a significant effect on the financing you require and
the level of risk to which you are exposed. We will now discuss the most common
payment methods in exporting:
This is an agreement you would
really only enter into with a very good client - one that you trust. With an
open account, you agree to supply the goods to the importer and, once you have
done so, you then invoice the buyer. Once the buyer receives the invoice he or
she effects payment.
There may be some credit terms
associated with an open account. In other words, you will agree with the buyer
that he/she only needs to pay say 30 days after receiving your invoice. With an
open account, you, as the exporter, carry all the risk associated with the
sale. You may need to arrange financing yourself to pay for the credit period,
but banks may be reluctant to finance you solely on the strength of the open
account as they have no guarantee that the importer will pay. Instead you may
have to offer other forms of guarantee.
Payments in advance
This is certainly the most preferred
form of payment from the exporter's point of view. Unfortunately, importers are
seldom willing to pay for goods in advance. However, if you are in a very
strong negotiating position (for example, you are the only supplier of the
goods or the only company that has stock currently), you may be able to
negotiate payment in advance for all or part of the shipment.
Alternatively, an understanding
importer may be prepared to pay for part of the contract price in advance as
evidence of goodwill. This provides you with some security that you will be paid
and helps to fund the cost of your production and shipping. At the same time,
it allows the buyer the opportunity to check the quality of the goods before
parting with the rest of their money. This will need to be negotiated with the
importer.
With payment in advance, you have no
risks and bear none of the financing costs. There is no additional cost to you
beyond the costs involved in any export transaction. Payment or part payment in
advance is typically used for low value sales to individuals or new customers.
Payment in advance is also common when selling over the Internet. If you wish
to buy a book from Amazon.com, you would by credit card and only once you have
paid, would the books be dispatched to you. It is a realistic alternative
payment method for small exporters that sell rather unique items such as art
work, and most overseas buyers will be willing to use this method of payment
because the amounts involved are small (and hence, the risk is small).
For any individual transaction, the
most appropriate method will depend on the level of risk involved, how strong
your negotiating position is and how the cost of financing compares for you and
your customer.
What are documentary collections?
Documentary collections allow you to
keep control of the goods and to raise additional finance as a result. How
documentary collections work is that an overseas bank, acting on your bank's
behalf, will only release the documents necessary for your customer (i.e. the
importer) to take possession of the goods once they formally accept the terms
of a bill of exchange. In accepting the bill of exchange, the customer
essentially pays the overseas bank (i.e. they essentially "buy" the
bill of exchange from the bank).
Bills of Exchange
A bill of exchange is a written document
in which 'the drawer' requires 'the drawee' to pay a specified amount. The
drawer is yourself, while the drawee is usually your customer.
If a bill is being used with a term
letter of credit, the drawee is usually the customer's bank. The bill will also
specify when payment should be made. The bill can either request immediate
payment ('at sight' or 'on demand'), or it can specify payment at a later date
("the term"), e.g. 30 days after sight. The terms of the contract
usually require your customer to accept the bill immediately if it is for later
payment. New exporters may find that their bank is not initially willing to
provide them with term bills. Drawees become legally liable for payment once
they 'accept' (agree to pay) the bill. A bill is often referred to as a
"draft" until it has been accepted. 'Negotiable' bills specify
payment 'to the order of' the drawer. This allows you to negotiate the bill, ie
to sell it to another party (usually your bank) to raise finance.
Should the bill of exchange not be
accepted by the customer, you will still have ownership and control of the
goods, but in your customer's country. There is also a risk that you may not
receive payment, unless the bill has been guaranteed by the bank
("avalised"). You will have a strong basis for pursuing legal action
against the customer but in the foreign country.
The bill of exchange can specify any
credit period that you negotiate with your customer. For example, you can
specify immediate payment, payment after a set number of days, or payment by a
given date. Once the bill has been accepted, you can use the bill of exchange
to raise additional finance.
You should be aware that in the case
of a bill of exchange, both your bank and the overseas bank will charge a
commission. Your terms of trade with your customer must specify who is
responsible for paying these charges. Documentary collections are typically
used for exports to customers you have an established relationship with.
What are documentary credits?
Also known as "letters of
credit", documentary credits are amongst the safest methods of payment in
exporting (other than payment in advance). Your customer arranges a letter of
credit with its bank (known as the "issuing bank"). In this letter of
credit will stand all the instructions that you must follow and documentary
evidence that you must supply to a correspondent bank (which will normally be
specified in the letter of credit) in South Africa (known as the "advising
bank"). The correspondent bank may be a different bank to your own bank
(it is in fact the local representative of the overseas issuing bank) As the
exporter, you will receive a copy of the letter of credit, as will the South
African advising bank.
THE POLITICAL AND LEGAL ENVIRONMENT FACING BUSINESS
I. INTRODUCTION
For a multinational
enterprise to succeed in countries with different political and legal
environments, its management must carefully analyze the fit between its
corporate policies and the political and legal conditions of each particular
nation in which it operates.
II. THE POLITICAL ENVIRONMENT
A political
system is the complete set of institutions, political organizations, and
interest groups, the relationships among those institutions, and the political
norms and rules that govern their activities. Thus, it integrates the
various parts of a society into a viable, functioning entity. It also
influences the extent to which government intervenes in business and the way in
which business is conducted both domestically and internationally. The
ultimate test of any political system is its ability to hold a society
together.
A. Individualism versus Collectivism
It is
useful to profile the similarities and differences among political systems
according to the general orientation within a society about the primacy of the
rights and role of the individual versus that of the larger community.
Under an individualistic paradigm (e.g., the United States), political
officials and agencies play a limited role in society. The relationship
between government and business tends to be adversarial; government may
intervene in the economy to deal with market defects, but generally it promotes
marketplace competition. Under a collectivist paradigm, the
government defines economic needs and priorities, and it partners with business
in major ways. Government is highly connected to and interdependent with
business; the relationship is cooperative.
B. Political Ideology
A political
ideology is the body of goals, theories, and aims that constitute a
sociopolitical program (e.g., liberalism or conservatism). Pluralism
indicates the coexistence of a variety of ideologies within a particular
society. Although shared ideologies create bonds within and between
countries, differing ideologies tend to split societies apart. The two
extremes on the political spectrum are democracy and totalitarianism.
1. Democracy.
A democracy represents a political system in which
citizens participate in the decision-making and governance process, either
directly or through elected representatives. Contemporary democracies
share the following characteristics: freedom of opinion, expression, press,
religion, association and access to information; freedom to organize; free
elections; an independent and fair court system; a nonpolitical bureaucracy and
defense infrastructure; and citizen access to the decision-making process. [See
Table 3.1] In decentralized democracies, e.g., Canada and the United States,
companies may face different and sometimes even conflicting laws from one state
or province to another. The defining characteristic of democracy is
freedom. Measures of political rights and civil liberties have been
developed to assess levels of freedom; a country may be rated as free,
partly free, or not free.
2.
Totalitarianism.
Totalitarianism
represents a political system in which citizens seldom, if ever, participate in
the decision-making and governance process; power is monopolized by a single
agent and opposition is neither recognized nor tolerated. In theocratic
totalitarianism, religious leaders are also the political leaders. In
secular totalitarianism, the government maintains power through the
authority of the state. Other variants of totalitarianism include authoritarianism
and fascism.
C.
Trends in Political Systems.
Several factors have powered the democratization of the
world. First, many totalitarian regimes failed to improve the economic
lives of their citizens, who eventually challenged the right of the state to
govern. Second, vastly improved communications technology weakened the
ability of regimes to control people’s access to information. Third, many
people who champion democracy truly believe that greater political freedom
leads to economic freedom and higher standards of living. Although the
world is experiencing general movements towards democracy and more open
economies, this does not necessarily indicate an increasing homogenization of
political systems. Not all nations embrace the concept of
"democracy" as defined by Western standards. China and Russia are two
examples of countries with different views of democratic governance.
There is a clear link
between political and economic freedom and economic growth. However,
democracy does not necessarily mean stability; in fact, in a transition economy
political risk is often quite high. The emergent democracies of the
1990s, especially those of the former Soviet bloc, still wrestle with domestic
unrest and security threats. Although challenges to democracy are
many, terrorism stands out above all others. Some people argue that if a
country is to flourish as a democracy, certain preconditions such as economic
development must be present. However, others argue that democracy is the
result of having political leaders who exhibit both the determination and the
skills required to assure that democratization occurs. Still others feel
that indirect support may flow from Asia’s alternative conception of democracy,
where economic freedom is progressing more rapidly than political freedom.
China is a case in point. With a totalitarian democratic system, China
has focused on economic growth in the belief that growth solves most problems.
China's success with "freedom stagnation" throws into question
Western ideals of democracy. If democracy proves resilient and resourceful,
then managers will face the task of adjusting their operations during periods
of economic crisis, but if democracy falters, then managers will face the task of
rethinking their operations in a world of increasing state control and
repression.
D. Political Risk.
Political risk is the possibility that political decisions,
events, or conditions will affect a country's business environment in ways that
will cost investors some or all of the value of their investment or force them
to accept lower than projected rates of return. Leading sources of political
risk are: expropriation or nationalization, international war or civil
strife, unilateral breach of contract, destructive government actions, harmful
actions against people, and restrictions on the repatriation of profits,
differing points of view, and discriminatory taxation policies. The
following types of political risk range from the least to the most destructive.
1. Systemic Political Risk. Systemic
political risk creates risks that affect all firms because of a change in
public policy. However, such changes do not necessarily reduce potential
profits.
2. Procedural Political Risk.
Procedural political risk reflects the costs of getting things done
because of such problems as government corruption, labor disputes, and/or a
partisan judicial system.
3. Distributive Political
Risk. Distributive political risk reflects revisions in such items as
tax codes, regulatory structure, and monetary policy imposed by governments in
order to capture greater benefits from the activities of foreign firms.
4. Catastrophic Political Risk.
Catastrophic political risk includes those random political developments
that adversely affect the operations of all firms in a country.
III. THE LEGAL
ENVIRONMENT
A legal
system is the mechanism for creating, interpreting, and enforcing the
laws in a specified jurisdiction. The three components of modern legal systems
are common law, civil law, and commercial law.
A.
Legal Systems. A legal system is the means and methods a country uses to
regulate business practices, define how companies conduct business
transactions, specify the rights and obligations of those engaged in business
transactions, and spell out the methods of legal redress for those who believe
they have been wronged.
B.
Types of Legal Systems. Generally, legal systems fall into one of the
following categories:
1.
Common law. Common law is based upon tradition, judge-made
precedent, custom, and usage; therefore, courts play an important role in
interpreting the law. Common-law nations include Australia, Canada, New
Zealand, and the United States.
2.
Civil law. Civil law is based upon a detailed set of laws that
comprise a code that includes rules for conducting business; therefore, courts
play an important role in applying the law. Civil law nations include France,
Germany, and Japan.
3. Theocratic law. Theocratic law
is based upon religious precepts; ultimate legal authority is conferred upon
religious leaders who govern society. The best example is Islamic law, or
Shari’a, which is based on the Koran, the Sunnah, the
writings of Islamic scholars, and the consensus of Muslim countries’ legal
communities.
4. Customary law. Customary law
anchors itself in the wisdom of daily experience or great spiritual or
philosophical traditions. Customary law may play a significant role in
matters of personal conduct in countries with mixed legal systems.
5. Mixed System. A mixed legal system
emerges when two or more legal systems are used within a single country.
Although the majority of such countries are found in Africa and Asia, the
United States’ legal system combines both common and civil law.
C. The Diffusion of Legal Systems
The
evolution and diffusion of the civil and common law systems gives managers a
sense of the degree of current and likely convergence across countries.
The diffusion of the common law system is embedded in the colonization of the
British Commonwealth. Other European countries followed the lead of the
Romans in developing their own civil law traditions and then influenced the
legal systems of many neighboring, African, and North and South American
countries. More recently, successful efforts to standardize laws,
particularly with respect to the conduct of business, can be seen in the
actions of the European Union and in the development of worldwide standards in
accounting, disclosure, and bankruptcy. [See Fig. 3.5]
D.
Trends in Legal Systems.
1. The Preference for Stability
- the backlash against democracy shows a
General preference for political stability. This preference will shape the
way a Country’s leaders regulate business activity.
2. The Influence of National
Legacies - the suddenness of economic growth
In non-democratic countries causes us to consider the importance of national Legacy
on the development of legal systems.
E.
Understanding Bases of Rule – Countries can be classified as following the rule
of man or the rule of law. The rule of man places
ultimate power in the hands of one person and is the cornerstone of
totalitarian governments. The rule of law is the hallmark of democratic
governments and holds that authority comes from written and transparent laws.
F.
Implications for Managers – Rule of law flourishes in well-to-do
industrialized countries such as the United States, Japan, and most of Europe.
When managers from these countries conduct business in emerging markets they
may expect to find perplexing and inconsistent legal systems.
IV. LEGAL ISSUES IN INTERNATIONAL BUSINESS
Two
major areas of concern to international business concerning legal issues are
operational concerns and strategic matters.
A. Operational Concerns
Efforts to start a
business, to enter and enforce contracts, to hire and fire employees, and to
close a business are all affected by national laws and regulations. While
there appears to be an inverse relationship between a country’s per capita
income and its tendency to regulate business, the legal systems of the more
highly developed countries tend to regulate the major operational features of
business activity more consistently than do the less developed nations. Further, those countries that
make it easy to start a business also tend to impose fewer and simpler
regulations to hire and fire workers and impose less regulation in their courts
and bankruptcy systems.
B.
Strategic Concerns
Many legal issues affect
the process of value creation. The following legal contingencies often
shape an international competitor’s strategic plans.
1. Product Safety and Liability. Often
products must be customized in order to comply with local standards, which may
be higher than those found in a firm’s home market. While product
liability laws are very stringent in markets such as the United States, they
are spotty, absent, and at times even arbitrary in many less developed countries.
2. Marketplace Behavior. National laws
determine permissible practices in pricing, distribution, advertising, and the
promotion of products, and they vary widely from one country to another.
3. Product Origin and Local Content.
Local content is important to all nations, and most countries push foreign
firms to add value locally. In addition, product origin determines
applicable fees and may be subject to quantitative restrictions as well.
4. Legal Jurisdiction. Every country
specifies which law should apply and where litigation should occur when agents
are involved—whether they are legal residents of the same or different
countries.
5. Arbitration. Most arbitration
is governed by the New York Convention, a protocol specified in 1958 that allows
parties to choose their own mediators and resolve disputes on neutral
ground.
C. Intellectual Property Rights
Intellectual
property rights consist of ownership rights to intangible assets, i.e., the
right to control and derive the benefits from writing and other creative art
forms (copyright), inventions (patents), and identifiers (trademarks).
Problems arise because intellectual property, whether in the form of
literature, music, design, software, scientific patents, or brand names, is
difficult to create but easy to duplicate. Cross-national and
cross-cultural legal differences complicate specifying, regulating, and
enforcing intellectual property rights. The costs of piracy,
whether in terms of lost sales and royalties or future creativity, are very
high for registered owners.
1. The Chinese Connection; or, “We
Can Copy Everything except Your Mother. Of particular concern in the area
of intellectual property rights is China. It is believed that the problem is
greater in China due to cultural structure, the legacy of a rule-of-man basis
of rule, weak legal enforcement, and the country's size.
2. International Property Rights. IPRs
constitute a legally enforceable but limited monopoly granted by a country to
an innovator. Enforcement of IPRs is difficult due to the fact that there is no
way to globally register a patent, trademark, or copyright.
3.
Role of Local Attitudes. Piracy is rooted in fundamental legal,
economic, and cultural
forces. While some countries may impose prohibitions on piracy, local
authorities may actually encourage violations.
Many of these problems stem from legal legacies in
emerging markets where the rule of
man applies.
4.
Level of Economic Development. Generally, less developed countries
provide weaker legal protection for
intellectual property than do industrialized nations. While
less developed nations feel they have little to gain by protecting
intellectual property, developed nations feel it is critical to assuring continuing
creativity.
5.
National Cultural Attitudes. Countries with a more individualistic
orientation view
intellectual property as intrinsically legitimate. In contrast, countries
with a more collectivist orientation extol the virtues of shared
ownership.
Globalization
of Markets and Competition: Trade is increasingly global in scope today. There are
several reasons for this. One significant reason is technological—because of
improved transportation and communication opportunities today, trade is now
more practical. Thus, consumers and businesses now have access to the very best
products from many different countries. Increasingly rapid technology lifecycles
also increases the competition among countries as to who can produce the newest
in technology. In part to accommodate these realities, countries in the last
several decades have taken increasing steps to promote global trade through
agreements such as the General Treaty on Trade and Tariffs, and trade
organizations such as the World Trade Organization (WTO), North American Free
Trade Agreement (NAFTA), and the European Union (EU).
Stages
in the International Involvement of a Firm. We discussed several stages through which a
firm may go as it becomes increasingly involved across borders. A purely
domestic firm focuses only on its home market, has no current ambitions of
expanding abroad, and does not perceive any significant competitive threat from
abroad. Such a firm may eventually get some orders from abroad, which are seen
either as an irritation (for small orders, there may be a great deal of effort
and cost involved in obtaining relatively modest revenue) or as "icing on
the cake." As the firm begins to export more, it enters the export stage,
where little effort is made to market the product abroad, although an
increasing number of foreign orders are filled. In the international stage, as
certain country markets begin to appear especially attractive with more foreign
orders originating there, the firm may go into countries on an ad hoc
basis—that is, each country may be entered sequentially, but with relatively
little learning and marketing efforts being shared across countries. In the
multi-national stage, some efficiencies are pursued by standardizing across a
region (e.g., Central America, West Africa, or Northern Europe). Finally, in
the global stage, the focus centers on the entire World market, with decisions
made optimize the product’s position across markets—the home country is no
longer the center of the product. An example of a truly global company is Coca
Cola.
Note
that these stages represent points on a continuum from a purely domestic
orientation to a truly global one; companies may fall in between these discrete
stages, and different parts of the firm may have characteristics of various
stages—for example, the pickup truck division of an auto-manufacturer may be
largely domestically focused, while the passenger car division is globally focused.
Although a global focus is generally appropriate for most large firms, note
that it may not be ideal for all companies to pursue the global stage. For
example, manufacturers of ice cubes may do well as domestic, or even locally
centered, firms.
Some
forces in international trade. The text contains a rather long-winded
appendix discussing some relatively simple ideas. Comparative advantage,
discussed in more detail in the economics notes, suggests trade between
countries is beneficial because these countries differ in their relative
economic strengths—some have more advanced technology and some have lower
costs. The International Product Life Cycle suggests that countries will differ
in their timing of the demand for various products. Products tend to be adopted
more quickly in the United States and Japan, for example, so once the demand
for a product (say, VCRs) is in the decline in these markets, an increasing
market potential might exist in other countries (e.g., Europe and the rest of
Asia). Internalization/transaction costs refers to the fact that developing
certain very large scale projects, such as an automobile intended for the World
market, may entail such large costs that these must be spread over several
countries.
The
political situation.
The political relations between a firm’s country of headquarters (or other
significant operations) and another one may, through no fault of the firm’s,
become a major issue. For example, oil companies which invested in Iraq
or Libya became victims of these countries’ misconduct that led to bans on
trade. Similarly, American firms may be disliked in parts of Latin
America or Iran where the U.S. either had a colonial history or supported
unpopular leaders such as the former shah.
Certain
issues in the political environment are particularly significant. Some
countries, such as Russia, have relatively unstable governments, whose policies
may change dramatically if new leaders come to power by democratic or other
means. Some countries have little tradition of democracy, and thus it may
be difficult to implement. For example, even though Russia is supposed to
become a democratic country, the history of dictatorships by the communists and
the czars has left country of corruption and strong influence of criminal
elements.
Laws
across borders.
When laws of two countries differ, it may be possible in a contract to specify
in advance which laws will apply, although this agreement may not be
consistently enforceable. Alternatively, jurisdiction may be settled by
treaties, and some governments, such as that of the U.S., often apply their
laws to actions, such as anti-competitive behavior, perpetrated outside their
borders (extra-territorial application). By the doctrine known as compulsion,
a firm that violates U.S. law abroad may be able to claim as a defense that it
was forced to do so by the local government; such violations must, however, be
compelled—that they are merely legal or accepted in the host country is not
sufficient.
The
reality of legal systems. Some legal systems, such as that of the U.S., are
relatively “transparent”—that is, the law tends to be what its plain meaning
would suggest. In some countries, however, there are laws on the books
which are not enforced (e.g., although Japan has antitrust laws similar to
those of the U.S., collusion is openly tolerated). Further, the amount of
discretion left to government officials tends to vary. In Japan, through
the doctrine of administrative guidance, great latitude is left to
government officials, who effectively make up the laws.
One
serious problem in some countries is a limited access to the legal systems as a
means to redress grievances against other parties. While the U.S. may
rely excessively on lawsuits, the inability to effectively hold contractual
partners to their agreement tends to inhibit business deals. In many
jurisdictions, pre-trial discovery is limited, making it difficult to make a
case against a firm whose internal documents would reveal guilt. This is
one reason why personal relationships in some cultures are considered more
significant than in the U.S.—since enforcing contracts may be difficult, you
must be sure in advance that you can trust the other party.
Legal
systems of the World.
There are four main approaches to law across the World, with some differences
within each:
- Common law, the system in effect in the U.S., is based on a legal
tradition of precedent. Each case that raises new issues is
considered on its own merits, and then becomes a precedent for future
decisions on that same issue. Although the legislature can override
judicial decisions by changing the law or passing specific standards
through legislation, reasonable court decisions tend to stand by default.
- Code law, which is common in Europe, gives considerably shorter
leeway to judges, who are charged with “matching” specific laws to
situations—they cannot come up with innovative solutions when new issues
such as patentability of biotechnology come up. There are also
certain differences in standards. For example, in the U.S. a
supplier whose factory is hit with a strike is expected to deliver on
provisions of a contract, while in code law this responsibility may be
nullified by such an “act of God.”
- Islamic law is based on the teachings of the Koran, which puts
forward mandates such as a prohibition of usury, or excessive interest
rates. This has led some Islamic countries to ban interest entirely;
in others, it may be tolerated within reason. Islamic law is
ultimately based on the need to please God, so “getting around” the law is
generally not acceptable. Attorneys may be consulted about what
might please God rather than what is an explicit requirements of the
government.
- Socialist law is based on the premise that “the government is always
right” and typically has not developed a sophisticated framework of
contracts (you do what the governments tells you to do) or intellectual
property protection (royalties are unwarranted since the government
ultimately owns everything). Former communist countries such as
those of Eastern Europe and Russia are trying to advance their legal
systems to accommodate issues in a free market.
U.S.
laws of particular interest to firms doing business abroad.
Anti-trust. U.S. antitrust laws
are generally enforced in U.S. courts even if the alleged transgression
occurred outside U.S. jurisdiction. For example, if two Japanese firms
collude to limit the World supply of VCRs, they may be sued by the U.S.
government (or injured third parties) in U.S. courts, and may have their U.S.
assets seized.
- The Foreign Corrupt Influences
Act came about as Congress was upset with U.S. firms’
bribery of foreign officials. Although most if not all countries ban
the payment of bribes, such laws are widely flaunted in many countries,
and it is often useful to pay a bribe to get foreign government officials
to act favorably. Firms engaging in this behavior, even if it takes
place entirely outside the U.S., can be prosecuted in U.S. courts, and
many executives have served long prison sentences for giving in to
temptation. In contrast, in the past some European firms could
actually deduct the cost of foreign bribes from their taxes! There
are some gray areas here—it may be legal to pay certain “tips” –known as
“facilitating payments”—to low level government workers in some countries
who rely on such payments as part of their salary so long as these
payments are intended only to speed up actions that would be taken anyway.
For example, it may be acceptable to give a reasonable (not large)
facilitating payment to get customs workers to process a shipment faster,
but it would not be legal to pay these individuals to change the
classification of a product into one that carries a lower tariff.
- Anti-boycott laws. Many Arab countries maintain a boycott of
Israel, and foreigners that want to do business with them may be asked to
join in this boycott by stopping any deals they do with Israel and
certifying that they do not trade with that country. It is illegal
for U.S. firms to make this certification even if they have not dropped
any actual deals with Israel to get a deal with boycotters.
- Trading With the Enemy.
It is illegal for U.S. firms to
trade with certain countries that are viewed to be hostile to the
U.S.—e.g., Libya and Iraq.
Culture
is part of the external influences that impact the consumer. That
is, culture represents influences that are imposed on the consumer by other
individuals.
The
definition of culture offered one text is “That complex whole which includes
knowledge, belief, art, morals, custom, and any other capabilities and habits
acquired by man person as a member of society.” From this definition, we
make the following observations:
- Culture, as a “complex whole,”
is a system of interdependent components.
- Knowledge and beliefs are
important parts. In the U.S., we know and believe that a person who
is skilled and works hard will get ahead. In other countries, it may be
believed that differences in outcome result more from luck.
“Chunking,” the name for China in Chinese literally means “The Middle
Kingdom.” The belief among ancient Chinese that they were in the
center of the universe greatly influenced their thinking.
- Other issues are
relevant. Art, for example, may be reflected in the rather arbitrary
practice of wearing ties in some countries and wearing turbans in
others. Morality may be exhibited in the view in the United States
that one should not be naked in public. In Japan, on the other hand,
groups of men and women may take steam baths together without perceived as
improper. On the other extreme, women in some Arab countries are not
even allowed to reveal their faces. Notice, by the way, that what at
least some countries view as moral may in fact be highly immoral by the
standards of another country.
Culture
has several important characteristics: (1) Culture is comprehensive.
This means that all parts must fit together in some logical fashion. For
example, bowing and a strong desire to avoid the loss of face are unified in
their manifestation of the importance of respect. (2) Culture is learned
rather than being something we are born with. We will consider the
mechanics of learning later in the course. (3) Culture is
manifested within boundaries of acceptable behavior. For example,
in American society, one cannot show up to class naked, but wearing anything
from a suit and tie to shorts and a T-shirt would usually be acceptable.
Failure to behave within the prescribed norms may lead to sanctions, ranging
from being hauled off by the police for indecent exposure to being laughed at
by others for wearing a suit at the beach. (4) Conscious awareness
of cultural standards is limited. One American spy was intercepted by the
Germans during World War II simply because of the way he held his knife and
fork while eating. (5) Cultures fall somewhere on a continuum
between static and dynamic depending on how quickly they accept change.
For example, American culture has changed a great deal since the 1950s, while
the culture of Saudi Arabia has changed much less.
Dealing
with culture.
Culture is a problematic issue for many marketers since it is inherently
nebulous and often difficult to understand. One may violate the cultural
norms of another country without being informed of this, and people from
different cultures may feel uncomfortable in each other’s presence without
knowing exactly why (for example, two speakers may unconsciously continue to
attempt to adjust to reach an incompatible preferred interpersonal distance).
Warning
about stereotyping.
When observing a culture, one must be careful not to over-generalize about
traits that one sees. Research in social psychology has suggested a
strong tendency for people to perceive an “outgroup” as more homogenous than an
“ingroup,” even when they knew what members had been assigned to each group
purely by chance. When there is often a “grain of truth” to some of the
perceived differences, the temptation to over-generalize is often strong.
Note that there are often significant individual differences within
cultures.
Cultural
lessons.
We considered several cultural lessons in class; the important thing here is
the big picture. For example, within the Muslim tradition, the dog is
considered a “dirty” animal, so portraying it as “man’s best friend” in an
advertisement is counter-productive. Packaging, seen as a reflection of
the quality of the “real” product, is considerably more important in Asia than
in the U.S., where there is a tendency to focus on the contents which “really
count.” Many cultures observe significantly greater levels of formality
than that typical in the U.S., and Japanese negotiator tend to observe long
silent pauses as a speaker’s point is considered.
Cultural characteristics as a continuum. There is a tendency to stereotype cultures as being one way or another (e.g., individualistic rather than collectivistic). Note, however, countries fall on a continuum of cultural traits. Hofstede’s research demonstrates a wide range between the most individualistic and collectivistic countries, for example—some fall in the middle.
Cultural characteristics as a continuum. There is a tendency to stereotype cultures as being one way or another (e.g., individualistic rather than collectivistic). Note, however, countries fall on a continuum of cultural traits. Hofstede’s research demonstrates a wide range between the most individualistic and collectivistic countries, for example—some fall in the middle.
Hofstede’s
Dimensions.
Gert Hofstede, a Dutch researcher, was able to interview a large number of IBM
executives in various countries, and found that cultural differences tended to
center around four key dimensions:
- Individualism vs. collectivism: To what extent do people believe in individual
responsibility and reward rather than having these measures aimed at the
larger group? Contrary to the stereotype, Japan actually ranks in
the middle of this dimension, while Indonesia and West Africa rank toward
the collectivistic side. The U.S., Britain, and the Netherlands rate
toward individualism.
- Power distance: To what extent is there a strong separation of
individuals based on rank? Power distance tends to be particularly
high in Arab countries and some Latin American ones, while it is more
modest in Northern Europe and the U.S.
- Masculinity vs. femininity involves a somewhat more nebulous
concept. “Masculine” values involve competition and
“conquering” nature by means such as large construction projects, while
“feminine” values involve harmony and environmental
protection. Japan is one of the more masculine countries,
while the Netherlands rank relatively low. The U.S. is close to the
middle, slightly toward the masculine side. ( The fact that these values
are thought of as “masculine” or “feminine” does not mean that they
are consistently held by members of each respective gender—there are very
large “within-group” differences. There is, however, often a large
correlation of these cultural values with the status of women.)
- Uncertainty avoidance involves the extent to which a “structured” situation
with clear rules is preferred to a more ambiguous one; in general,
countries with lower uncertainty avoidance tend to be more tolerant of
risk. Japan ranks very high. Few countries are very low in any
absolute sense, but relatively speaking, Britain and Hong Kong are lower,
and the U.S. is in the lower range of the distribution.
Although
Hofstede’s original work did not address this, a fifth dimension of long
term vs. short term orientation has been proposed. In the
U.S., managers like to see quick results, while Japanese managers are known for
take a long term view, often accepting long periods before profitability is
obtained.
High
vs. low context cultures: In some cultures, “what you see is what you
get”—the speaker is expected to make his or her points clear and limit
ambiguity. This is the case in the U.S.—if you have something on your
mind, you are expected to say it directly, subject to some reasonable standards
of diplomacy. In Japan, in contrast, facial expressions and what is not
said may be an important clue to understanding a speaker’s meaning. Thus,
it may be very difficult for Japanese speakers to understand another’s written
communication. The nature of languages may exacerbate this phenomenon—while
the German language is very precise, Chinese lacks many grammatical features,
and the meaning of words may be somewhat less precise. English ranks
somewhere in the middle of this continuum.
Ethnocentrism
and the self-reference criterion. The self-reference criterion
refers to the tendency of individuals, often unconsciously, to use the
standards of one’s own culture to evaluate others. For example, Americans
may perceive more traditional societies to be “backward” and “unmotivated”
because they fail to adopt new technologies or social customs, seeking instead
to preserve traditional values. In the 1960s, a supposedly well read
American psychology professor referred to India’s culture of “sick” because,
despite severe food shortages, the Hindu religion did not allow the eating of
cows. The psychologist expressed disgust that the cows were allowed to
roam free in villages, although it turns out that they provided valuable
functions by offering milk and fertilizing fields. Ethnocentrism
is the tendency to view one’s culture to be superior to others. The
important thing here is to consider how these biases may come in the way in
dealing with members of other cultures.
It
should be noted that there is a tendency of outsiders to a culture to overstate
the similarity of members of that culture to each other. In the United
States, we are well aware that there is a great deal of heterogeneity within
our culture; however, we often underestimate the diversity within other
cultures. For example, in Latin America, there are great differences
between people who live in coastal and mountainous areas; there are also great
differences between social classes.
Language
issues.
Language is an important element of culture. It should be realized that
regional differences may be subtle. For example, one word may mean one
thing in one Latin American country, but something off-color in another.
It should also be kept in mind that much information is carried in non-verbal
communication. In some cultures, we nod to signify “yes” and shake our
heads to signify “no;” in other cultures, the practice is reversed.
Within the context of language:
- There are often large
variations in regional dialects of a given language. The differences
between U.S., Australian, and British English are actually modest compared
to differences between dialects of Spanish and German.
- Idioms involve “figures of speech” that may not be used,
literally translated, in other languages. For example, baseball is a
predominantly North and South American sport, so the notion of “in the
ball park” makes sense here, but the term does not carry the same meaning
in cultures where the sport is less popular.
- Neologisms involve terms that have come into language relatively
recently as technology or society involved. With the proliferation
of computer technology, for example, the idea of an “add-on” became widely
known. It may take longer for such terms to “diffuse” into other
regions of the world. In parts of the World where English is heavily
studied in schools, the emphasis is often on grammar and traditional
language rather than on current terminology, so neologisms have a wide
potential not to be understood.
- Slang exists within most languages. Again, regional
variations are common and not all people in a region where slang is used
will necessarily understand this. There are often significant
generation gaps in the use of slang.
Writing
patterns, or the socially accepted ways of writing, will differs significantly
between cultures.
In
English and Northern European languages, there is an emphasis on organization
and conciseness. Here, a point is made by building up to it through background.
An introduction will often foreshadow what is to be said. In Romance
languages such as Spanish, French, and Portuguese, this style is often
considered “boring” and “inelegant.” Detours are expected and are
considered a sign of class, not of poor organization. In Asian languages,
there is often a great deal of circularity. Because of concerns about
potential loss of face, opinions may not be expressed directly. Instead,
speakers may hint at ideas or indicate what others have said, waiting for feedback
from the other speaker before committing to a point of view.
Because
of differences in values, assumptions, and language structure, it is not
possible to meaningfully translate “word-for-word” from one language to
another. A translator must keep “unspoken understandings” and assumptions
in mind in translating. The intended meaning of a word may also differ
from its literal translation. For example, the Japanese word hai
is literally translated as “yes.” To Americans, that would imply “Yes, I
agree.” To the Japanese speaker, however, the word may mean “Yes, I hear
what you are saying” (without any agreement expressed) or even “Yes, I hear you
are saying something even though I am not sure exactly what you are
saying.”
Differences
in cultural values result in different preferred methods of speech. In
American English, where the individual is assumed to be more in control of his
or her destiny than is the case in many other cultures, there is a preference
for the “active” tense (e.g., “I wrote the marketing plan”) as opposed to the
passive (e.g., “The marketing plan was written by me.”)
Because
of the potential for misunderstandings in translations, it is dangerous to rely
on a translation from one language to another made by one person. In the
“decentering” method, multiple translators are used. The text is first
translated by one translator—say, from German to Mandarin Chinese. A
second translator, who does not know what the original German text said, will
then translate back to German from Mandarin Chinese translation. The text
is then compared. If the meaning is not similar, a third translator,
keeping in mind this feedback, will then translate from German to
Mandarin. The process is continued until the translated meaning appears
to be satisfactory.
Different
perspectives exist in different cultures on several issues; e.g.:
- Monochronic cultures tend to value precise scheduling and doing
one thing at a time; in polychronic cultures, in contrast,
promptness is valued less, and multiple tasks may be performed
simultaneously. (See text for more detail).
- Space is perceived differently. Americans will feel
crowded where people from more densely populated countries will be
comfortable.
- Symbols differ in meaning. For example, while white
symbols purity in the U.S., it is a symbol of death in China. Colors
that are considered masculine and feminine also differ by culture.
- Americans have a lot of quite
shallow friends toward whom little obligation is felt; people in European
and some Asian cultures have fewer, but more significant friends.
For example, one Ph.D. student from India, with limited income, felt
obligated to try buy an airline ticket for a friend to go back to India
when a relative had died.
- In the U.S. and much of Europe,
agreements are typically rather precise and contractual in nature; in
Asia, there is a greater tendency to settle issues as they come up.
As a result, building a relationship of trust is more important in Asia,
since you must be able to count on your partner being reasonable.
- In terms of etiquette, some
cultures have more rigid procedures than others. In some countries,
for example, there are explicit standards as to how a gift should be
presented. In some cultures, gifts should be presented in private to
avoid embarrassing the recipient; in others, the gift should be made
publicly to ensure that no perception of secret bribery could be made.
Export
The term export is derived from the
conceptual meaning as to ship the goods and services out of the port of a
country. The seller of such goods and services is referred to as an
"exporter" who is based in the country of export whereas the overseas
based buyer is referred to as an "importer". In International Trade,
"exports" refers to selling goods and services produced in home
country to other markets.
“Foreign demand for goods produced by home
country"
An export of a good occurs when there is a change of
ownership from a resident to a non-resident; this does not necessarily imply
that the good in question physically crosses the frontier. However, in specific
cases national accounts impute changes of ownership even though in legal terms
no change of ownership takes place (e.g. cross border financial leasing,
cross border deliveries between affiliates of the same enterprise, goods
crossing the border for significant processing to order or repair). Also
smuggled goods must be included in the export measurement.
Trade
barriers:
Trade barriers
are generally defined as government laws, regulations, policy, or practices that either protect
domestic products from foreign competition or artificially stimulate exports of particular domestic
products. While restrictive
business practices sometimes have a similar effect, they are not
usually regarded as trade barriers. The most common foreign trade barriers are
government-imposed measures and policies that restrict, prevent, or impede
the international
exchange of goods and services.
Tariffs
A tariff is a tax placed
on a specific good or set of goods exported from or imported to a country,
creating an economic barrier to trade.
Usually the tactic is used when a country's domestic output of the good is falling and imports from foreign competitors are rising, particularly if there exist strategic reasons for retaining a domestic production capability.
Some failing industries receive a protection with an effect similar to a subsidies in that by placing the tariff on the industry, the industry is less enticed to produce goods in a quicker, cheaper, and more productive fashion. The third reason for a tariff involves addressing the issue of dumping. Dumping involves a country producing highly excessive amounts of goods and dumping the goods on another foreign country, producing the effect of prices that are "too low". Too low can refer to either pricing the good from the foreign market at a price lower than charged in the domestic market of the country of origin. The other reference to dumping relates or refers to the producer selling the product at a price in which there is no profit or a loss. The purpose (and expected outcome) of the tariff is to encourage spending on domestic goods and services.
Usually the tactic is used when a country's domestic output of the good is falling and imports from foreign competitors are rising, particularly if there exist strategic reasons for retaining a domestic production capability.
Some failing industries receive a protection with an effect similar to a subsidies in that by placing the tariff on the industry, the industry is less enticed to produce goods in a quicker, cheaper, and more productive fashion. The third reason for a tariff involves addressing the issue of dumping. Dumping involves a country producing highly excessive amounts of goods and dumping the goods on another foreign country, producing the effect of prices that are "too low". Too low can refer to either pricing the good from the foreign market at a price lower than charged in the domestic market of the country of origin. The other reference to dumping relates or refers to the producer selling the product at a price in which there is no profit or a loss. The purpose (and expected outcome) of the tariff is to encourage spending on domestic goods and services.
Advantages of exporting
Ownership advantages are the firm's specific assets, international experience, and the ability to
develop either low-cost
or differentiated
products within the contacts of its value chain. The locational advantages of a
particular market are a combination of market potential
and investment risk. Internationalization
advantages are the benefits of retaining a core competence within the company and
threading it though the value chain rather than obtain to license, outsource, or sell it. In relation to the Eclectic paradigm, companies that have low
levels of ownership advantages either do not enter foreign markets. If the
company and its products are equipped with ownership advantage and internalization
advantage, they enter through low-risk modes such as exporting. Exporting
requires significantly lower level of investment than other modes of
international expansion, such as FDI.
As you might expect, the lower risk of export typically results in a lower rate of return on sales than possible
though other modes of international
business. In other words, the usual return on export sales may not
be tremendous, but neither is the risk. Exporting allows managers to exercise
operation control but does not provide them the option to exercise as much
marketing control. An exporter usually resides far from the end consumer and
often enlists various intermediaries to manage marketing
activities.
Disadvantages of
exporting
For Small-and-Medium
Enterprises (SME) with less than 250 employees,
selling goods and services to foreign markets seems to be more difficult than
serving the domestic market. The lack of knowledge for trade regulations, cultural differences, different languages and foreign-exchange situations as well as the strain of resources and staff
interact like a block for exporting. Indeed there are some SME's which are
exporting, but nearly two-third of them sell in only to one foreign market. The
following assumption shows the main disadvantages:
- Financial management effort: To minimize the risk of exchange-rate fluctuation and transactions processes of export
activity the financial management needs more capacity to cope the major effort
- Customer demand:
International customers demand more services from their vendor like
installation and startup of equipment, maintenance or more delivery
services.
- Communication technologies improvement: The improvement of communication technologies in
recent years enable the customer to interact with more suppliers while
receiving more information and cheaper communications cost at the same
time like 20 years ago. This leads to more transparency. The vendor is in
duty to follow the real-time demand and to submit all transaction details.
- Management mistakes:
The management might tap in some of the organizational pitfalls, like poor
selection of oversea agents or distributors or chaotic global
organization.
Licensing
Definition: A business arrangement in which one company gives
another company permission to manufacture its product for a specified payment
There are few faster or more profitable ways to grow your business than by
licensing patents, trademarks, copyrights, designs, and other intellectual
property to others. Licensing lets you instantly tap the existing production,
distribution and marketing systems that other companies may have spent decades
building. In return, you get a percentage of the revenue from products or
services sold under your license. Licensing fees typically amount to a small
percentage of the sales price but can add up quickly.For example, about 90 percent of the $160 million a year in sales at Calvin Klein Inc. comes from licensing the designer's name to makers of underwear, jeans and perfume. The only merchandise the New York-based company makes itself, in fact, are its women's apparel lines. Many large corporations, such as the Walt Disney Co., generate less significant proportions of their revenue from licenses. IBM, after energizing its efforts to license its thousands of technology patents a few years ago, now attributes $1 billion a year of its corporate sales to licensing. The downside of licensing is that you settle for a smaller piece of the pie. Calvin Klein-branded products, for example, generate $5 billion in sales a year, the vast majority of which goes to licensees and retailers. At the same time, licensing revenue tends to be high-margin, with almost all the fees from licensing flowing straight to the bottom line.
On the other side of the coin, you could be the one with the interest in licensing the high-recognition brand name of another company. To many, it might seem like the key to a gold mine: Putting a Notre Dame logo, a Lion King character or a Star Wars graphic on your product means guaranteed success, right?
For a sure thing, prepare for a frustrating search. But if you're willing to put some time and effort into making your product work, buying the licensing rights to a well-known product or name can substantially increase your chances for success.
Licensing is a billion-dollar retail market worldwide. But a license isn't a prescription for instant success. It gives you the borrowed interest of a name that is either unique or has some consumer acceptance, but it still takes good selling and marketing to succeed. A license is, in essence, a tool, and when used well, it's an extremely cost-effective marketing tool.
Licensing offers three major advantages. First, it may mean you have something unique your competitors don't. Second, it may mean getting a little better margin because it's unique. And third, it may mean that 10 percent of the retailers you call on that you've never been able to sell to will finally take a look because you have something different. And when that happens, you can sell the rest of your line.
Licensing means renting or leasing of an intangible asset. Examples of
intangible assets include a song (Somewhere over the Rainbow), a character (Donald Duck), a name (Michael Jordan) or a brand (The Ritz-Carlton). An arrangement to license a brand
requires a licensing agreement. A licensing agreement authorizes a company
which markets a product or service (a licensee) to lease or rent a brand from a
brand owner who operates a licensing program.
Brand licensing
Brand licensing is the process of creating and managing contracts between the owner of a brand
and a company or individual who wants to use the brand in association with a
product, for an agreed period of time, within an agreed territory. Licensing is
used by brand owners to extend a trademark or character onto products of a
completely different nature.
The liberalisation of the Indian economy in 1992 brought a slew of
international brands to India. Many of these brands have been licensed to
Indian companies. Arvind
Brands represent Wrangler, Arrow, Nautica, Jansport and Kipling. The
Murjani Group
is the licensee for FCUK and Tommy Hilfiger. Beverly Hills Polo Club (BHPC) is
licensed to Spencer’s Retail. Extend
Brands represent the No Rules brand in India.
Cross licensing:
A cross-licensing agreement is a contract between two or more parties where each
party grants rights to their intellectual property
to the other parties.
Music licensing:
Music licensing is the licensed use of copyrighted music.
Music licensing is intended to ensure that the creators of musical works get paid
for their work. A purchaser of recorded music owns the media on which the music
is stored, not the music itself. A purchaser has limited rights to use and
reproduce the recorded work.
Software license:
A software license (or software
license in commonwealth usage) is a legal instrument (usually by way of contract law) governing the usage or
redistribution of software. All software is copyright protected, except material in the
public domain. Contractual confidentiality is another way of protecting
software. A typical software license grants an end-user permission to use one
or more copies of software in ways where such a use would otherwise potentially
constitute copyright infringement of the software owner's exclusive rights
under copyright law.
Joint venture:
Joint ventures are considered to be a quick way of entering a new market.
With globalization, there has been an increase in the number of cross-border
joint ventures. In this article we will discuss the advantages and
disadvantages of joint ventures in general, and cross-border joint-ventures in
particular. I have also added examples of some successful, not-so successful
and clearly unsuccessful cross-border joint ventures in recent times.
Introduction
After
the dawn of globalization, there has been a great rush towards joint ventures
as it has opened up the vast third world market to the developed western
industrial houses. Be it hardware industries like steel, automobile or software
development and service industries like hotel and BPO industries, there has
been a great deal of cross border joint ventures. India has been regarded as
the most lucrative target for these industrial houses of the West. But these
joint ventures are not all boon. They have created many problems in the host
country also. The following points are to be taken up in the presentation.
Definition:
A
joint venture is a strategic alliance between two or more individuals or
entities to engage in a specific project or undertaking. Partnerships and joint
ventures can be similar but in fact can have significantly different
implications for those involved. A partnership usually involves a continuing,
long-term business relationship, whereas a joint venture is based on a single
business project.
Parties
enter Joint Ventures to gain individual benefits, usually a share of the
project objective. This may be to develop a product or intellectual property
rather than joint or collective profits, as is the case with a general or
limited partnership.
A
joint venture, like a general partnership is not a separate legal entity.
Revenues, expenses and asset ownership usually flow through the joint venture
to the participants, since the joint venture itself has no legal status. Once
the Joint venture has met it’s goals the entity ceases to exist.
Advantages:
Provide
companies with the opportunity to gain new capacity and expertise.
Allow
companies to enter related businesses or new geographic markets or gain new
technological knowledge.
Access
to greater resources, including specialised staff and technology.
Sharing
risks with a venture partner.
Joint
ventures can be flexible. For example, a joint venture can have a limited life
span and only cover part of what you do, thus limiting both your commitment and
the business' exposure.
In
the era of divestiture and consolidation, JV’s offer a creative way for
companies to exit from non-core businesses.
Companies
can gradually separate a business from the rest of the organisation, and
eventually, sell it to the other parent company. Roughly 80% of all joint
ventures end in a sale by one partner to the other.
Disadvantages:
It
takes time and effort to build the right relationship and partnering with
another business can be challenging. Problems are likely to arise if:
The
objectives of the venture are not 100 per cent clear and communicated to
everyone involved.
There
is an imbalance in levels of expertise, investment or assets brought into the
venture by the different partners.
Different
cultures and management styles result in poor integration and co-operation.
The
partners don't provide enough leadership and support in the early stages.
Success
in a joint venture depends on thorough research and analysis of the objectives.
Not
considering the benefits of all the stake holders especially the persons who
are displaced for big manufacturing concerns.
Not
so successful cross border ventures.
Mahindra-Renault
joint venture
Franchise :
A franchise is the agreement or license between two legally independent parties which gives:
• a person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business (franchisor)
• the franchisee the right to market a product or service using the operating methods of the franchisor
• the franchisee the obligation to pay the franchisor fees for these rights
• the franchisor the obligation to provide rights and support to franchisees
Franchise :
A franchise is the agreement or license between two legally independent parties which gives:
• a person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business (franchisor)
• the franchisee the right to market a product or service using the operating methods of the franchisor
• the franchisee the obligation to pay the franchisor fees for these rights
• the franchisor the obligation to provide rights and support to franchisees
Manufacturer Franchise Structure
- One of the lesser-known franchise structures is called a manufacturer franchise. The focus of this type of franchise, as the name suggests, is on the manufacturing phase of a product's lifecycle. Owners of a manufacturer franchise have the right to manufacture a franchisor's product. In some cases, he also may have the right to sell and distribute the products as well.
Product Franchise Structure
- Those who buy into a business structured as a product franchise are purchasing the right to sell and/or distribute a particular product from a manufacturer. For example, an auto repair shop owner may decide that he wants to sell tires in order to add a revenue stream for the business. In order to have inventory on hand, selected tire manufacturers may require that the auto shop become a product franchisee before it allows the shop to carry its tires.
- Product Distribution FranchisesIn a product distribution franchise, the franchisee typically sells products that are manufactured by their franchisor. The industries where you most often find product distribution franchising are soft drinks, automobiles and trucks, mobile homes, automobile accessories, and gasoline.
Business Format Franchise Structure
- The most common type of franchise structure is the business format franchise. In this type of franchise, the franchisee is buying the right to more than just producing and distributing a franchisor's product as in the manufacturer type of franchise, and more than simply selling a franchisor's product as in the product type of franchise. Instead, entrepreneurs who choose the franchise business format are really purchasing the franchisor's strategic business operation model, which has proven to be effective; and the right to produce, distribute and/or sell the franchisor's goods and/or services comes along with that purchase.
Single-Unit Franchise Ownership
- As stated earlier, types of franchises are categorized not only by the structure but also by ownership. The most common type of franchise ownership is one that is offered as a single-unit franchise. This type of franchisee purchases the right to own and operate one franchise location. Most entrepreneurs who invest in a franchise---whether as a business format franchisee, a product franchisee or a manufacturer franchisee---buy into the franchise as this type of franchise owner.
Multi-Unit & Area Development Franchise Ownership
- Aggressive or experienced franchisees may opt for a more involved type of franchise ownership such as multi-unit franchise ownership or area development franchise ownership. The two types of franchise ownership types are similar in that the franchise owner has more to manage than a single-unit franchise owner and they differ only in how and what is managed. The multi-unit franchise owner manages multiple franchise locations while the area development franchise owner typically owns a single franchise that has the right to do business across a vast area---multiple cities or states, for instance.
Products, its importance & Decisions:
Decisions regarding the product,
price, promotion and distribution channels are decisions on the elements of the
"marketing mix". It can be argued that product decisions are probably
the most crucial as the product is the very epitome of marketing planning.
Errors in product decisions are legion. These can include the imposition of a
global standardized product where it is inapplicable, for example large
horsepower tractors may be totally unsuitable for areas where small scale
farming exists and where incomes are low; devolving decisions to affiliated
countries which may let quality slip; and the attempt to sell products into a
country without cognizance of cultural adaptation needs. The decision whether
to sell globally standardized or adapted products is too simplistic for today's
market place. Many product decisions lie between these two extremes. Cognizance
has also to be taken of the stage in the international life cycle, the organization’s
own product portfolio, its strengths and weaknesses and its global objectives.
Unfortunately, most developing countries are in no position to compete on the
world stage with many manufactured value-added products. Quality, or lack of
it, is often the major letdown. As indicated earlier, most developing countries
are likely to be exporting raw materials or basic and high value agricultural
produce for some time to come.
The objectives of this chapter are
To examine the basic concepts of
"the product" and the importance of this concept in marketing
To give an understanding of the
features of product design and the factors which shape the "standardization"
versus "adaptation" decisions
To describe the production process
and how value can be added in the process
To describe the major product
strategies.
The chapter starts by examining the
basic concepts of the "product" including its physical (or objective)
features and its image (or subjective) features. Once the product is put into
the design stage based on consumer research, then a decision has to be made on
its form - either globally standardized or adapted to local conditions. Of
course, with many agricultural cash and food crops its form may stay the same
(standard), for example an orange, or it may be adapted (frozen orange juice)
to meet different market needs and conditions. The chapter concludes by looking
at the different types of product strategies, varying from a global approach to
a micro-marketing approach at national level.
A product can be defined as a
collection of physical, service and symbolic attributes which yield
satisfaction or benefits to a user or buyer. A product is a combination of physical
attributes say, size and shape; and subjective attributes say image or
"quality". A customer purchases on both dimensions. As cited earlier,
an avocado pear is similar the world over in terms of physical characteristics,
but once the label CARMEL, for example, is put on it, the product's physical
properties are enhanced by the image CARMEL creates. In
"postmodernisation" it is increasingly important that the product
fulfills the image which the producer is wishing to project. This may involve organizations
producing symbolic offerings represented by meaning laden products that chase
stimulation-loving consumers who seek experience - producing situations. So,
for example, selling mineral water may not be enough. It may have to be
"Antarctic" in source, and flavored. This opens up a wealth of new
marketing opportunities for producers.
A product's physical properties are characterized
the same the world over. They can be convenience or shopping goods or durables
and nondurables; however, one can classify products according to their degree
of potential for global marketing:
i)
Local products - seen as only suitable in one single market.
ii) International products - seen as having extension
potential into other markets.
iii) Multinational products - products adapted to the
perceived unique characteristics of national markets.
iv) Global products - products designed to meet global
segments.
Quality, method of operation or use
and maintenance (if necessary) are catchwords in international marketing. A
failure to maintain these will lead to consumer dissatisfaction. This is
typified by agricultural machinery where the lack of spares and/or foreign
exchange can lead to lengthy downtimes. It is becoming increasingly important
to maintain quality products based on the ISO 9000 standard, as a prerequisite
to export marketing.
Consumer beliefs or perceptions also
affect the "world brand" concept. World brands are based on the same
strategic principles, same positioning and same marketing mix but there may be
changes in message or other image. World brands in agriculture are legion. In
fertilizers, brands like Norsk Hydro are universal; in tractors, Massey
Ferguson; in soups, Heinz; in tobacco, BAT; in chemicals, Bayer. These world
brand names have been built up over the years with great investments in
marketing and production. Few world brands, however, have originated from
developing countries. This is hardly surprising given the lack of resources. In
some markets product saturation has been reached, yet surprisingly the same
product may not have reached saturation in other similar markets. Whilst France
has long been saturated by avocadoes, the UK market is not yet, hence raising
the opportunity to enter deeper into this market.
Changes in design are largely
dictated by whether they would improve the prospects of greater sales, and
this, over the accompanying costs. Changes in design are also subject to
cultural pressures. The more culture-bound the product is, for example food,
the more adaptation is necessary. Most products fall in between the spectrum of
"standardization" to "adaptation" extremes. The application
the product is put to also affect the design. In the UK, railway engines were
designed from the outset to be sophisticated because of the degree of
competition, but in the US this was not the case. In order to burn the abundant
wood and move the prairie debris, large smoke stacks and cowcatchers were
necessary. In agricultural implements a mechanized cultivator may be a
convenience item in a UK garden, but in India and Africa it may be essential
equipment. As stated earlier "perceptions" of the product's benefits
may also dictate the design. A
refrigerator in Africa is a very necessary and functional item, kept in the
kitchen or the bar. In Mexico, the same item is a status symbol and, therefore,
kept in the living room.
Factors encouraging standardization are:
i)
economies of scale in production and marketing
ii) consumer mobility - the more consumers travel the more is the demand
iii) technology
iv) image, for example "Japanese", "made in".
ii) consumer mobility - the more consumers travel the more is the demand
iii) technology
iv) image, for example "Japanese", "made in".
The latter can be a factor both to
aid or to hinder global marketing development. Nagashima (1977) found the
"made in USA" image has lost ground to the "made in Japan"
image. In some cases "foreign made" gives advantage over domestic
products. In Zimbabwe one sees many advertisements for "imported",
which gives the product, advertised a perceived advantage over domestic
products. Often a price premium is charged to reinforce the "imported
means quality" image. If the foreign source is negative in effect,
attempts are made to disguise or hide the fact through, say, packaging or labeling.
Mexicans are loathe to take products from Brazil. By putting a "made in
elsewhere" label on the product this can be overcome, provided the
products are manufactured elsewhere even though its company maybe Brazilian.
Factors encouraging adaptation are:
i) Differing usage conditions. These
may be due to climate, skills, level of literacy, culture or physical
conditions. Maize, for example, would never sell in Europe rolled and milled as
in Africa. It is only eaten whole, on or off the cob. In Zimbabwe, kapenta fish
can be used as a relish, but wilt always be eaten as a "starter" to a
meal in the developed countries.
ii) General market factors -
incomes, tastes etc. Canned asparagus may be very affordable in the developed
world, but may not sell well in the developing world.
iii) Government - taxation, import
quotas, non tariff barriers, labelling, health requirements. Non tariff
barriers are an attempt, despite their supposed impartiality, at restricting or
eliminating competition. A good example of this is the Florida tomato growers,
cited earlier, who successfully got the US Department of Agriculture to issue
regulations establishing a minimum size of tomatoes marketed in the United
States. The effect of this was to eliminate the Mexican tomato industry which
grew a tomato that fell under the minimum size specified. Some non-tariff
barriers may be legitimate attempts to protect the consumer, for example the
ever stricter restrictions on horticultural produce insecticides and pesticides
use may cause African growers a headache, but they are deemed to be for the
public good.
iv) History. Sometimes, as a result
of colonialism, production facilities have been established overseas. Eastern
and Southern Africa is littered with examples. In Kenya, the tea industry is a
colonial legacy, as is the sugar industry of Zimbabwe and the coffee industry
of Malawi. These facilities have long been adapted to local conditions.
v) Financial considerations. In
order to maximize sales or profits the organization may have no choice but to
adapt its products to local conditions.
vi) Pressure. Sometimes, as in the
case of the EU, suppliers are forced to adapt to the rules and regulations
imposed on them if they wish to enter into the market.
In decisions on producing or
providing products and services in the international market it is essential
that the production of the product or service is well planned and coordinated,
both within and with other functional area of the firm, particularly marketing.
For example, in horticulture, it is essential that any supplier or any of his
"out grower" (sub-contractor) can supply what he says he can. This is
especially vital when contracts for supply are finalized, as failure to supply
could incur large penalties. The main elements to consider are the production
process itself, specifications, culture, the physical product, packaging, labeling,
branding, warranty and service.
Production process
The key question is, can we ensure
continuity of supply? In manufactured products this may include decisions on
the type of manufacturing process - artisanal, job, batch, and flow line or
group technology. However in many agricultural commodities factors like
seasonality, perish ability and supply and demand have to be taken into
consideration. Table 8.1 gives a checklist of questions on product requirements
for horticultural products as an example
Table 8.1 Checklist of questions on
product requirements by market
Existing
sources of supply
|
Recommendations
for new suppliers, or increased supply
|
Current important suppliers?
Seasonality of supply, start of season, peak season and end of season? Packaging specifications, weight of produce per packaging unit, type of packaging? Grading and quality standards? Prices obtained and net profit returned to farmer, average price, maximum and minimum prices, effect of different quality standards on price? Problems with existing suppliers and produce? Volumes sold daily, monthly, annually? Popularity trend? Types of buyers and consumers? Use of crop? Factors affecting sales, e.g. weather, special festivals, day of arrival in market? Is the crop stored; if so where and by whom? |
Best period of supply?
Type and size of packaging material?
Grading and quality standards:
*acceptable size ranges?
*whether different sized produce should be packed separately or jumble-packed? *state of ripeness and should produce of the same ripeness be packed together? *acceptable level of blemishes? *important appearance characteristics such as color, variety, shape, presence of stalks, bunch size?
Budget gross and net prices?
Volumes required? Frequency of shipment, best day and arrival time on market? Transport arrangements, e.g. whose responsibility is it to arrange transport? Storage arrangements, if any? Potential and techniques for developing sales? |
Quantity and quality of
horticultural crops are affected by a number of things. These include input
supplies (or lack of them), finance and credit availability, variety (choice),
sowing dates, product range and investment advice. Many of these items will be
catered for in the contract of supply.
Specification
Specification is very important in
agricultural products. Some markets will not take produce unless it is within
their specification. Specifications are often set by the customer, but agents,
standard authorities (like the EU or ITC Geneva) and trade associations can be
useful sources. Quality requirements often vary considerably. In the Middle
East, red apples are preferred over green apples. In one example French red
apples, well boxed, are sold at 55 dinars per box, whilst not so attractive
Iranian greens are sold for 28 dinars per box. In export the quality standards
are set by the importer. In Africa, Maritim (1991), found, generally, that
there are no consistent standards for product quality and grading, making it
difficult to do international trade regionally.
Culture
Product packaging, labeling,
physical characteristics and marketing have to adapt to the cultural requirements
when necessary. Religion, values, aesthetics, language and material culture all
affect production decisions. Effects of culture on production decisions have
been dealt with already in chapter three.
Physical product
The physical product is made up of a
variety of elements. These elements include the physical product and the
subjective image of the product. Consumers are looking for benefits and these
must be conveyed in the total product package. Physical characteristics include
range, shape, size, color, quality, quantity and compatibility. Subjective
attributes are determined by advertising, self image, labeling and packaging.
In manufacturing or selling produce, cognizance has to be taken of cost and
country legal requirements.
Again a number of these
characteristics is governed by the customer or agent. For example, in beef
products sold to the EU there are very strict quality requirements to be
observed. In fish products, the Japanese demand more "exotic" types
than, say, would be sold in the UK. None of the dried fish products produced by
the Zambians on Lake Kariba, and sold into the Lusaka market, would ever pass
the hygiene laws if sold internationally. In sophisticated markets like seeds,
the variety and range is so large that constant watch has to be kept on the new
strains and varieties in order to be competitive.
Packaging
Packaging serves many purposes. It
protects the product from damage which could be incurred in handling and
transportation and also has a promotional aspect. It can be very expensive.
Size, unit type, weight and volume are very important in packaging. For
aircraft cargo the package needs to be light but strong, for sea cargo
containers are often the best form. The customer may also decide the best form
of packaging. In horticultural produce, the developed countries often demand
blister packs for mangetouts, beans, strawberries and so on, whilst for
products like pineapples a sea container may suffice. Costs of packaging have
always to be weighed against the advantage gained by it.
Increasingly, environmental aspects
are coming into play. Packaging which is non-degradable - plastic, for example
- is less in demanded. Bio-degradable, recyclable, reusable packaging is now
the order of the day. This can be both expensive and demanding for many
developing countries.
Labeling
Labelling not only serves to express
the contents of the product, but may be promotional (symbols for example Cashel
Valley Zimbabwe; HJ Heinz, Africafe, Tanzania). The EU is now putting very stringent
regulations in force on labeling, even to the degree that the pesticides and
insecticides used on horticultural produce have to be listed. This could be
very demanding for producers, especially small scale, ones where production
techniques may not be standardized. Government labeling regulations vary from
country to country. Bar codes are not widespread in Africa, but do assist in
stock control. Labels may have to be multilingual, especially if the product is
a world brand. Translation could be a problem with many words being translated
with difficulty. Again labeling is expensive, and in promotion terms
non-standard labels are more expensive than standard ones. Requirements for
crate labeling, etc. for international transportation will be dealt with later
under documentation.
As mentioned in chapter four, it is
difficult to protect a trademark or brand, unless all countries are members of
a convention. Brand "piracy" is widespread in many developing
countries.
Other aspects of branding include
the promotional aspects. A family brand of products under the Zeneca (ex ICI)
label or Sterling Health are likely to be recognized worldwide, and hence
enhance the "subjective" product characteristics.
Warranty
Many large value agricultural
products like machinery require warranties. Unfortunately not everyone upholds
them. It is common practice in Africa that if the original equipment has not
been bought through an authorized dealer in the country, that dealer refuses to
honour the warranty. This is unfortunate, because not only may the equipment
have been legitimately bought overseas; it also actually builds up consumer
resistance to the dealer. When the consumer is eventually offered a choice, the
reticent. Dealer will suffer. For example when new dealers spring up.
Packaging, Labeling and WarrantiesProduct packaging:
Product packaging is the art and science of creating boxes, covers, tubes, bags and other containers that
are sturdy enough to protect the product inside, and that are effective promotional pieces in themselves.
To a very large degree, the quality of design work on the package affects how well your products sell.
When shopping, you reach for products whose packaging is attractive and looks professional, and you
instinctively shy away from unattractively packaged products. The design of the container along with
the images, logos, marketing text, ingredients and fine print, all go into creating something people will
feel confident to buy. Therefore it is essential that packaging be of the highest quality so that it acts as
your in-store salesperson.
Issues in packaging in international markets:
International marketers need to take into account the following factors for deciding appropriate
packaging in various international markets;
• changes in climates across countries
• lengthy & difficult transportation
• lengthy periods on shelves
• varying sizes of packaging
• different consumer preferences in packaging
• some standardization needed to make the product recognizable
• growing environmental consciousness
• different types of channels of distribution
• different cost pressures
• environmental concerns
Issues in labeling:
International marketers also need to design appropriate labeling for various markets, to cater for the
market differences as well as to adhere to regulations. In the following are the list of issues marketers
face in labeling in international markets;
- different languages of foreign markets
- information details to be provided
- instructions for use
- different price or currencies
- different promotions
- consumer preferences in various markets (color, wording style etc..)
- rules and regulations of foreign countries
Issues in warranty and service policies:
International marketers also face issues, whether to standardize or to localize warranty and service
policies in international markets. Factors favoring standardization or localization of warranty and
service policies in international markets are listed below;
•
Factors favoring standardization
– presence of multinational customer
– goods purchased in one market but consumed elsewhere
– products affecting human health and safety
– standardized products
•
Factors favoring localization
– different competitive situation
– different quality levels in different markets
– different use conditions
– lack of international service network
– stronger guarantees when the company is entering in new market (marketing tactic)
– barriers to import of replacement parts and traveling of foreign staff
– availability of human resources & ability of local distributors
Strategies to cope with negative country of origin (COO) stereotypes:
Marketers of products from developing world often face negative attitudes from the customers in
developed countries. There are ways in which international marketers attempt to address this issue
though product policy, pricing, distribution and communication;
Product Policy:
- Select a brand name that disguises the country of origin or even involves a favorable COO (Giordano
Bossini)
- Sheer innovation & drive for superior quality also help firms to overcome COO biases in the long
run.
Pricing:
- Selling the product at a relatively low price will attract value-conscious customers who are less
concerned about the brand’s country of origin.
- For product categories where price plays a signal of quality - high price may help.
Distribution:
- Companies could influence consumer attitudes by using highly respected retailers.
Legal Forms of Organization
There are three basic legal forms to choose from when starting a business. Each has
advantages and disadvantages. Many businesses start in one form then change to
others at different stages of their life.
Sole Proprietorships are the most
common form by far. However, Corporations account for the largest percent of
sales receipts
Issues in Legal Ownership
When choosing your form of business you must weigh several factors for their importance to you and your goals. Consider risks, your long term plans and your resources.
Your legal form will make a big
difference for sources of financing, personal and financial risk, taxes,
workload, signing contracts, buying a business or selling one, debt and
liability issues and more.
Consider each factor below then
consider which form of organization best meets your needs.
- Liability
- Taxes and tax status
- Sharing Profits and Losses
- Control and Decision Making
- Co-mingling and Division of Assets
- Workloads
- Litigation
- Agency
- Expenses
- Starting and Stopping
- Continuity and Growing
- Paperwork
Sole Proprietorships
Sole proprietorships and
partnerships are forms of business ownership that mingle the owner's rights,
liabilities and responsibilities with the business' rights, liabilities and
responsibilities.
Sole Proprietorships - One owner and the owner and the business are the same legally. It is the most common form of business. An individual owns, manages the business and is responsible for all transactions and activities. Key characteristics of a sole proprietorship include:
Sole Proprietorships - One owner and the owner and the business are the same legally. It is the most common form of business. An individual owns, manages the business and is responsible for all transactions and activities. Key characteristics of a sole proprietorship include:
- Own and operate for any duration of time
- sell it, close it whenever the owner wants to
- pass the business to heirs
- no specific business taxes; all profit is personal
income
- comply with all license and permits necessary fir a
business to operate legally; no special "sole proprietor"
paperwork or requirements - need dba, business license if required, etc.
as any business would
- personally responsible for all debts and liabilities of
the business, even after it closes until its affairs are completed
- unlimited personal liability; liability for acts
committed by employees
- pay self-employment taxes (Medicare. social security);
business expense
- the IRS and most states expect self-employed
individuals to pay income tax throughout the year, usually quarterly
estimates; failure to so so results in fines and interest payments
- no salary expense
- eligible for Keogh plan and other tax deferred
retirement plans
Start by engaging in business: buy,
sell, open business bank account, and so on. They are usually started with
loans in combination with personal assets and cash form savings contributed to
the business operations by the sole owner.
Advantages of a
Proprietorship
- Easy and inexpensive to start and stop legally
- Generally less expensive to start
- No profit sharing
- No business tax
- Owner is in charge and makes decisions
- sell or transfer business at your discretion
- Speed in decision making
Disadvantages of a Proprietorship
- Unlimited personal liability
- Owner's limitations (skills, time, etc) limit business
- Harder to access capital
- Continuity of business - re-establish all contracts and
relationships is sold or transferred; terminates with death of owner
- Personal assets subject to lien
Partnerships
Partnerships - established with written or oral Agreement. Assumed to exist if:
- clearly perceived intention to be one
- co-ownership or co-interest in the business
- profit/loss is shared
- May be implied by actions
Operates under Uniform Partnership
Act, as modified by any partner agreements. Partnerships follow default legal
guidelines but these guidelines may be modified by a partnership agreement.
Partnership Legal
Defaults
1. Mutual Agency - any partner can act on behalf of the other partners; all partners fully represent the business for any action or transaction.
2. Unlimited Liability - each partner is fully responsible and liable for the
business and the acts of the partners.
3. Three types of partnerships:
- General
- Limited
- at least one general partner
- plus one or more limited partners
- liability limited to investment for limited partners;
unlimited liability for general partners
- no management participation for limited partners
- requires a certificate of limited partnership and a
written partnership agreement
- can allocate profits and losses
- interests are freely transferable
- Joint Venture
4. Limited Life of the Legal Partnership: The partnership ends and its affairs must be concluded:
- accomplish the partnership objective
- admit a new partner
- withdrawal of partner
- death of partner
- personal bankruptcy
- time or date set for dissolution
- partner incapacity (need court decree)
- Misconduct…
5. Continuity of the Business: The partnership as a legal entity is a form of ownership
for a business but is not the business. A legal partnership may end but the
business may continue with supplier/customer agreement and business contracts
and relationships reestablished or modified to continue an existing
partnership.
6. Co-Ownership of Property - all property, whether donated, purchased with capital or
gained through profit and growth is co-mingled. It is considered fully owned by
each partner and subject to each partners discretion for use as an asset of the
business.
7. Non Taxable Entity - the partnership itself is not subject to taxes. The
owners each pay personal income tax based upon their respective shares of
profits and at their individual tax rates. Each partnerships profit or loss is
personal taxable income or loss.
8. Profits/Losses equally divided - unless modified in a partnership agreement, all profit or
loss is equally divided proportionally amongst the number of partners (3
partners, three equal shares)
9. Entered into by any combination
of individuals or legal business entities
- A partnership can be any combination of individuals, other partnerships, or
corporations.
Partnerships agreements and terms
for modifying partnerships
A partnership agreement should be
put into writing as a contract between the partners. Partnerships operate under
the Federal Uniform Partnership Act as adopted and modified by each state.
Partnership agreements should be filed at the Secretary of State's office in
the State Capital.
The following are common terms that
should be clearly spelled out unless you want to operate under the default laws
of partnership as stated above.
- Name & Term
- Purpose
- Contributions - cash, services, property
- Profits, Losses, Draws
- Payback of Loans by partners
- Authority & Decisions Making
- Management Responsibilities
- Partners' Outside Business Activities
- Departure of Partner - Buyouts
- Continuity of Partnership
- Non-Competition of Departing Partner
- Control of Partnership Name
- Resolving Partnership Disputes
- Changes in Your Partnership
- Distribution of Assets upon dissolution
Advantages of a
Partnership
- Easy and inexpensive to start legally
- Greater access to capital
- no business tax
- informal management and structure
- Greater access to skills, time, money, an so on.
- no written agreement required (but advisable)
Disadvantages of a
Partnership
- Unlimited liability of general partners
- Joint and several liability
- Harder to keep profit in the business for growth
(Capital Accumulation)
- More difficult to raise capital
- Changing the partnership agreement may dissolve the
partnership or be difficult
- Interest is not freely transferable
- Personal and authority conflicts
- Decision making is slow, shared, and partners are bound
by the law of agency
- difficult or expensive to dissolve
Corporations
A corporation is a legal entity,
separate from its owners, with many of the rights of an individual: a name,
enter contracts, own property, sue & be sued and so on. (It can't get a
Driver's License or Register to vote). General characteristics of corporations
include:
- Dividends
- Double taxation
- Shielded from personal liability as "owner"
(stockholders)
- Salary is expense
- Can offer fringe benefits
- Stock:
- common
- preferred: 1st dividends & claim to assets, no
vote
- many other types of stock are possible
- Ownerships (shares of stock) freely transferable
- Domestic, Foreign, Alien (Domestic = in state; foreign
= other state; alien = other country)
- Articles of Incorporation and Bylaws
- More difficult to start and operate in terms of effort,
paperwork, organizational structure and meetings
- Perpetual life
- Legal requirements include Board of Director meetings,
shareholder participation and annual reports, etc.
Types of Corporations
"C" or Close Corporations
- Less than 35 stockholders
- One kind of stock
- No qualifications of securities
- Private offering - no public advertising
"S" Corporation - a close corporation of individuals, trusts, estates.
Created by legislation to ease corporate tax burdens; treated as a partnership
for taxation.
- Deduct tax losses personally
- No double taxation on dividends
- Spread income within family
- Limited to 100 shareholders
- Can Have 1 shareholder
- All shareholders must consent to S format
- No corporate or foreign investors (individuals only)
- Must be domestic
- can't own> 79% of another corporation
"LLC" - Limited Liability
Corporation - 1 or more "members"
in California (most states allow a single member) and has the tax advantage
of being treated like partnership by the IRS; all advantages of an S Corp
including personal liability and debt protection. Unlike a corporation it is
free of legal requirements such as annual reports, director meetings,
shareholder requirements and so on.
- No limit on number of members
- Allows foreign and corporate members
- Pass-through tax entity - can allocate profit and loss
any way they wish to members on individual tax returns regardless of share
of ownership
- No business tax
- Limited liability for all
- Owners can participate in management
- LLCs can hire a management group that includes members,
nonmembers or a combination
- Fixed 30 year term
- Requires an operating agreement
- Some states require at least two members
- Interests may not be freely transferable
- difficult to raise capital
- No automatic termination for death or withdrawal
- S corporation may be more tax friendly
- Can pay salary and fringe benefits
- Members don't pay Self-employment Tax
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