International Business

Introduction to International Marketing

Definition of International Marketing:

“The marketing of goods and services across national borders”

Marketing in an internationally competitive environment, no matter whether the market is home or foreign.

"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."

Doole and Lowe (2001).

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.

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:

Open account

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.

The Global Market Place

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.

Political and Legal Influences

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

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.

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.

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

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.

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 Franchises
In 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.

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.

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.

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.

Chapter Objectives

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.

Structure

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.

Basic concepts

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.

Product design

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".

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.

Production decisions

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.

Branding and trademarks

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 Warranties

Product 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:

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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PSX Phillips 66 Greg C. Garland 2014 $24,508,433
TRW TRW Automotive Holdings Corp John C. Plant 2013 $24,466,286
HOLX Hologic Inc Stephen P. Macmillan 2014 $24,458,289
AMP Ameriprise Financial Inc James M. Cracchiolo 2014 $24,455,192
CELG Celgene Corp Robert J. Hugin 2014 $24,236,113
MSTR Microstrategy Inc Michael J. Saylor 2014 $24,101,665
LB L Brands, Inc. Leslie H. Wexner 2014 $24,094,036
OMC Omnicom Group Inc. John D. Wren 2014 $24,014,697
LADR Ladder Capital Corp Brian Harris 2014 $24,003,492
T AT&T Inc. R. Stephenson 2014 $23,984,315
BLK BlackRock Inc. Laurence D. Fink 2014 $23,862,458
CVC Cablevision Systems Corp James L. Dolan 2014 $23,702,403
PFE Pfizer Inc I. Read 2014 $23,283,048
MS Morgan Stanley James P. Gorman 2014 $23,270,044
CPRT Copart Inc A. Jayson Adair 2014 $22,878,001
AXP American Express Co K.I. Chenault 2014 $22,796,083
ROP Roper Industries Inc Brian D. Jellison 2014 $22,689,220
PEP Pepsico Inc Indra K. Nooyi 2014 $22,485,574
HES Hess Corp John B Hess 2014 $22,459,530
XRX Xerox Corp Ursula M. Burns 2014 $22,205,362
GS Goldman Sachs Group Inc Lloyd C. Blankfein 2014 $22,162,912
AFSI Amtrust Financial Services, Inc. Barry D. Zyskind 2014 $22,130,044
ENDP Endo International Plc Rajiv De Silva 2014 $22,071,596
F Ford Motor Co Alan Mulally 2014 $22,042,128
ABBV Abbvie Inc. Richard A. Gonzalez 2014 $22,006,271
PCLN Priceline Group Inc. Darren Huston 2014 $21,966,094
NOC Northrop Grumman Corp Wesley G. Bush 2014 $21,795,703
PPG PPG Industries Inc C. E. Bunch 2014 $21,628,081
DVN Devon Energy Corp John Richels 2014 $21,611,030
SBUX Starbucks Corp Howard Schultz 2014 $21,466,454
WFC Wells Fargo & Company John G. Stumpf 2014 $21,426,391
MDLZ Mondelez International, Inc. Irene Rosenfeld 2014 $21,039,946
TSO Tesoro Corp Gregory J. Goff 2014 $20,855,549
APC Anadarko Petroleum Corp R. A. Walker 2014 $20,720,187
D Dominion Resources Inc Thomas F. Farrell, II 2014 $20,612,945
ALXN Alexion Pharmaceuticals Inc Leonard Bell, M.D. 2014 $20,570,703

Pages

International Business

Introduction to International Marketing

Different Orientations of International Marketing

INTERNATIONALISATION STAGES

International marketing Decisions

Future of International Marketing

INTERNATIONAL MARKETING ENVIRONMENT

Tariffs

Advantages of exporting

Disadvantages of exporting

Manufacturer Franchise Structure

Product Franchise Structure

Business Format Franchise Structure

Single-Unit Franchise Ownership

Multi-Unit & Area Development Franchise Ownership

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