MODES OF ENTRY INTO FOREIGN MARKETS (foreign mkt entry strategies) Selecting the mode of entry into a foreign

market is a task of critical importance. It has major implications concerning the firms entire marketing mix and the firms own control over it. In broad terms, a company has three types of entry possibilities. 1. !. $. Indirect export sales to domestic intermediaries who resell the prod ct to c stomers overseas. "irect export sales to a c stomer overseas who may be a reseller or an end# ser. %verseas &an fact rer either independently or in some form of joint vent re.

CRITERIA FOR SE ECTING MODE OF ENTRY 'he appropriateness of partic lar modes of entry varies both among firms and for any individ al firm across markets and time. In choosing an entry method for a partic lar market a firm sho ld eval ate the following criteria. 1. ! (%&)*+, %-./('I0/S in relation to vol me timescale and segmental coverage. 'h s, for small or short#term vol mes overseas prod ction is probably inappropriate. (%&)*+, SI1/. Small firms are nlikely to possess s fficient reso rces to facilitate prod ction abroad. &%"/ *0*I2*-2I2I',. "ifferent markets re3 ire different modes. India, for example is generally hostile toward foreign prod cers wishing to locate there. &%"/ 56*2I',. It may be that all modes are possible for a partic lar market b t some are of 3 estionable 3 ality. 'h s an absence of s itably 3 alified intermediaries wo ld precl de indirect or direct exporting of say, high technology goods. I+0/S'&/+' 8/56I8/&/+'S. 'hese will be highest for overseas prod ction which may th s be precl ded. /ven so, investment may be re3 ired to finance say overseas intermediaries stocks. %)/8*'I+: (%S'S. 'he rec rring costs of entry m st be eval ated. +otably, the man fact rers incremental marketing costs rise in the se3 ence r nning from indirect, thro gh direct exporting to overseas prod ction. *"&I+IS'8*'I0/ "6'I/S. 'hese are costly and inconvenient and they vary across entry modes. 'h s, administrative tasks are far fewer for indirect exporters than for direct exporters. )/8S%++/2 8/56I8/&+'S. 'hese vary across entry modes. 'h s when I& staff are in short s pply it may be better to opt for indirect exporting. />)/8I/+(/ 8/56I8/&/+'S. ?irms become better at I& the more experienced they are at it. 'his arg es against the mode of indirect exporting. 8IS@S. Some risks favo r indirect exporting Afor exampleB political risks of expropriations. %ther risks favo r direct exporting or foreign prod ction Afor exampleB risk of losing to ch with c stomers.

$. 4

7.

9.

;.

<.

1=. 11.

1!.

(%+'8%2. (ontrol over the distrib tion channel varies enormo sly by mode of entry. ?or example, overseas prod ction by a wholly owned s bsidiary provides absol te control while indirect exporting gives little or no control. ?irms I& orientation whether domestic market extension orientation, m ltidomestic orientation or global orientation.

1$.

E!"ORTING /xporting is the easiest and most common means for entering a new foreign market and it is a low risk strategy. &any firms Cdrift into nplanned exporting by accepting chance orders. Dowever, systematically planned exporting to selected target markets is also common and it gives rise to several advantages. 1. !. $. 4. 7. It enables firms to develop and test their marketing plans and strategies before risking s bstantial investments in overseas plant. It facilitates small#scale I& It allows firms to engage in I& despite them lacking the know#how and experience to Cgo it alone. It avoids many types of risk and allows firms to limit operating costs, administrative d ties and personnel needs. )erhaps the principal benefit, however, is that exporters are able to concentrate prod ction in a single location and this facilitates important economies of scale, other cost savings and prod ct 3 ality advantages.

* common b t fallacio s view is that exporting is a low#investment option. It does not, of co rse, re3 ire investment in foreign prod ction. Dowever, effective exporting does re3 ire significant investment in marketing reso rce, in strategy form lation and implementing the marketing mix. ?or example, the initial s ccess of the .apanese entry into the 6S* and other co ntries car markets was based on very extensive and expensive research and planning. INDIRECT E!"ORT Eith indirect export the firms goods are sold abroad witho t the firm cond cting any partic lar actions for the p rpose thereof. 'he firms o tp ts are exported by other organiFations. *ltho gh it is exporting, the company does not behave like a tr e international marketing firm. Indirect export is made possible in fo r man waysG thro gh export ho sesH via a specialist export managerH thro gh 6@ b ying offices of foreign storesH and thro gh complementary exporting.

E!"ORT #O$SES 'hese are firms which facilitate exporting on behalf of the prod cer. 'hey fall into three main gro psG AaB AbB AcB /xporting &erchants these act as export principals, b ying and selling the goods they export. (onfirming Do ses also act as principals and their main f nctions to provide credit for foreign c stomers when the prod cer is nwilling to do so. /xport *gents sell abroad for the prod cer in his own name or the prod cers. 6s ally cover a partic lar gro p of related prod cts Afor exampleB tableware. 8em neration by commission.

Advantages of trading via these three are similar to each other 1. !. 'he prod cer gains the benefit of the merchants market knowledge and contracts. De is relieved of the need to finance the export transaction and of the credit risk, export doc mentation, shipping and ins rance. /tc. 'his does not apply tho gh when an export agent is sed. 'he man fact rer does not bear the overhead costs of export marketing. Dence, he does not need to lay o t investment f nds. &any merchants and agents have specialist skills re3 ired for co nter trade, switch trading and so on. In some cases merchants receive preferential treatment from instit tional and organiFational c stomers. In the case of export agents, the man fact rer retains m ch control over the market when the sale is made in his own name.

$. 4. 7. 9.

Disadvantages of exporting via export houses: 1. !. $. 4. :enerally and critically, the prod cer has little or no control over his market Aexcept regarding export agentsB and his prod ct may be dropped whenever the merchant decides. *ny goodwill created in the market is s ally the merchants and not the man fact rers. 'here are problems in sec ring the merchants effort and loyalty vis#I#vis other items in his prod ct line. &erchants and agents are best s ited to short#term arrangements they tend not to be motivated toward long#term relationships.

SE"CIA IST E!"ORT MANAGERS 'hese firms, known as (ombination /xport &anagers, in the 6S*, offer a f ll export management service. In essence, they become the prod cers export department, acting in his name and sing his letterhead. Dis rem neration is normally by way of commission on sales. Advantages of using a specialist export manager are the same as for export merchants plus: 1. !. $. 'he prod cer immediately gains his own export department witho t inc rring the overheads. 'he prod cer retains f ll market control. De can expect a contin ing long#term relationship.

Disadvantages: 1. !. $. -eing independent, the specialist export manager can drop the prod cer at will. 'he prod cer does not b ild his own export experience and this affects his f t re strategy choices. 'he specialist export manager may not have s fficient knowledge of all the prod cers target markets.

%$YING OFFICES OF FOREIGN STORES &any of the leading departmental stores in the advanced nations maintain b ying offices in 2ondon. ?or example, the top ten .apanese department stores are so represented in 2ondon as are two of the top fo r :erman ones. In addition, b yers from similar stores aro nd the world reg larly visit -ritain to b y. COM" EMENTARY E!"ORTING %ften called Cpiggy#back exporting, this occ rs when one prod cer Athe carrierB ses his own established I& channels to market the o tp ts of another prod cer Athe riderB alongside his own. 'he carrier mayG AaB AbB AcB &erely transport the riders goods sing his own spare capacity. Sell the carriers goods for a commission. - y and sell the riders goods.

The carriers advantages are: 1 !. Increased profits from f rther spreading overheads. * more attractive prod ct range.

'he riders advantage is that he obtains simple, established, &o'()ost an* &o'(risk market entry+

DIRECT E!"ORT In direct exporting, the prod cer himself performs the export task rather than delegating it to others. 'he man fact rer sells directly to c stomers overseas who may be final sers or resellers. "irect exporting is facilitated by sellingH directly to the final serH thro gh agenciesH to distrib tors and stockistsH thro gh branch offices. SA ES TO FINA $SER Dere, the man fact rer c ts o t any kind of intermediary and goes direct to c stomers. 'hese might beG ind strial sersH government or reached by mail order, cons mers. In these cases marketing is m ch the same as in the home market, altho gh there are of co rse the added diffic lties ens ing from foreignness, distance, time, etc. AGENCIES *n overseas export agent is a person or firm hired to facilitate as sales contact between his principal and a c stomer. ?ormally, agents do not take title and their rem neration is normally a commission on sales. Sometimes in practice, however, the term agent is sed loosely and then it incl des distrib tors. Some agents do more than merely arrange sales. Some, for example, hold stocks for the principal or carry o t servicing on his behalf. Advantages of overseas agents include the following: 1. !. $. 4. 7. 'hey provide extensive knowledge and experience of local needs, c stomers and environment. 'heir existing prod ct lines are s ally complementary to the principals goods and this helps with market penetration. 'he exporter is involved in little or no investment o tlay. *gents can be a highly effective means of market penetration. 'here is little or no political risk.

There are some disadvantages of hiring agents: 1. !. $. 4. 'here are problems in obtaining the agents f ll commitment since he carriers other prod cts too. *gents often want immediate res lts and will not actively promote slow#selling goods even if they do not drop them. &any agents are too small to f lly exploit a major market many serve only limited geographical segments. If the market grows to a large siFe it is more economic to se a branch office of a s bsidiary d e to the scale economies associated with these.

DISTRI%$TORS AND STOCKISTS "IS'8I-6'%8S are c stomers with preferential rights to b y and resell a range of a firms goods in a specific geographical area. "istrib tors then, earn profits, they are not paid commission. 'hey perform the s al distrib tion f nctions and they differ from ordinary wholesalers only in the matter of their geographical excl sivity.

S'%(@IS'S are simply distrib tors that receive more favo rable financial rewards for carrying a certain minim m level of stock level of stock. "espite the differences in terms of the methods of their rem neration the advantages and disadvantages of distrib tors are very like those associated with overseas agents. COM"ANY %RANC# OFFICE 'his is merely and extension of the firm into the foreign market for the p rpose of cond cting marketing and distrib tion. Advantages are: 1. !. $. 4. 7. Ehen vol me has reached an efficient level they are less costly than sing a local intermediary. 'his is why, and often it is when, many branch offices are opened. Sales performance sho ld increase since marketing effort will be foc sed excl sively on the firms own prod cts. 'he firm retains absol te marketing control 'he firm sho ld ac3 ire more and better market information. ( stomer Service sho ld improve since intermediaries are notorio sly bad at this.

Disadvantages of a branch office are: 1. !. $. Investment re3 irements and on#going overheads. 8isk of AmodestB losses d e to expropriation. %ften there are legal re3 irements concerning the minim m n mber of local staff that m st be employed, how these can be dismissed, trade nion membership etc.

O,ERSEAS "ROD$CTION ?irms that are strongly committed to I& are often drawn into overseas man fact re. 'his gives rise to some major benefitsG 1. !. $. 4. 7. 9. ;. 2ocation abroad allows firms to better nderstand c stomer needs. Some markets, partic larly regional markets s ch as +orth *merica, are large eno gh to s pport man fact re a minim m efficient scale. )rod ction costs are lower in some foreign co ntries. ?irms are sometimes forced to prod ce locally since exporting heavy or b lky goods can be prohibitive in terms of transportation costs. 'ariff and non#tariff import barriers may precl de exploration into target co ntries. In cases where governments are c stomers their s pplier selection decisions sometimes discriminate against non#local prod cers. ?or laggards entering a foreign market, the only way in may be by takeover of, or co# operation with a local company.

MET#ODS FOR O,ERSEAS "ROD$CTION )rod cing overseas does not necessarily re3 ire f ll#scale wholly owned prod ction. 'his is only one of several alternative strategies. ICENSING * licensing agreement is a commercial contract whereby the licensor Athe international marketerB gives something of val e to the licensee Athe national target market firm.B in exchange for certain performances and payments. 'he licensor may provide any of the followingG 1. !. $. 4. 7. 9. 8ights to prod ce a patented prod ct. 8ights to se a patented prod ction process. 6npatented man fact ring know#how. 'echnical advice and assistance incl ding the s pply of essential materials, components or plant. &arketing advice and assistance. 8ights to se a trademark, bank or similar.

2icensing is a rapid growing phenomenon among firms worldwide. It is a common entry mode among small and medi m firms and it is sed by large companies. ?or example, Schweppes have granted licenses allowing 6S* firms to man fact re it soft drinks and to market them there nder Schweppes brand name. Advantages of licensing: 1. !. $. It re3 ires no investment and the only costs are those of signing and policing the agreement. " e to 1, it avoids many I& risks, s ch as that of expropriation. It allows entry into markets that wo ld otherwise be closed by say domestic competitiveness, tariffs or other government policies. ?or example, )hillip &orris the 6S* tobacco giant ses licensing agreements with the governments of 1= / ropean co ntries with nationaliFed tobacco ind stries. It is a 3 ick and easy mode of entry. 'he licensor gains access to knowledge of the local environment. %wning to the very low investment re3 irements, licensing allows firms to introd ce new prod cts to many co ntries 3 ickly. It provides all the C s al benefits of overseas prod ction concerning transport costs, import barriers, etc.

4. 7. 9. ;.

Despite the gains of licensing there are some important disadvantages that may even be more powerful. The disadvantages include the following: 1. !. $. 4. 7. 'he reven es from licenses are very modest, s ally amo nting to only !J to ;J of t rnover. * major danger is that the licensee may become the licensors competitor. " ring the license period, the former may gain eno gh know#how from the latter as to be able to operate independently. *ltho gh the contract may specify a minim m sales vol me there is some danger that the licensee will not f lly exploit the market. 'here is some risk that prod ct 3 ality will deteriorate when the licensee is less conscientio s than the licensor. :overnments often impose conditions on the payment of royalties or on the s pply of components.

9.

* major problem with licensing is the diffic lty of effectively controlling the licensee. Dis objectives often conflict with those of the licensor and disagreements are common.

*st te management of the license agreement is essential for the licensor. 'he licensor sho ld cond ct extensive search and apply good selection criteria when choosing licenseesH design contracts that protect both partiesH control the licensee, by say, having an e3 ity interest in his b siness or by retaining excl sivity of key inp tsH and take action to motivate the licensee.

FRANC#INSING
'his is a type of licensing altho gh franchising does more formally specify what is expected of the franchisee Athe national target market firm.B. In a franchise arrangement the franchiser s pplies a standard package of goods, components or ingredients along with management and marketing services or advice. 'he franchiser s pplies capital, personal involvement and local market knowledge. (ommon franchisers in many co ntries incl de, Doliday Inn, )epsi (ola, and @ent cky ?ried (hicken. 'he advantages and disadvantages are largely the same as for licensing. *n extra benefit, however, is that since it involves the franchisers s pply of ingredients or components it does provide some leverage for controlling the franchisees activities. *n additional disadvantage of franchising is that many franchisees are sed for each co ntry and the search for competent candidates is both costly and time cons ming. CONTRACT MAN$FACT$RING 'his involves a long#term contract whereby a firm in a foreign co ntry ndertakes to man fact re or assemble a prod ct on behalf of another firm located o tside the co ntry. 'he latter company retains f ll control over marketing and distrib tion while having man fact re done by proxy. 'his type of entry proced re is sed by s ch firms as (olgate, and )rocter and :amble. Advantages include the following: 1. !. $. 4. 7. 9. +o need to invest in plant overseas. *voidance of risks associated with c rrency, expropriation etc. 8etention of market control * locally made image which enhances marketing s ccess, especially to government c stomers. /ntry into market otherwise closed by import barriers. 2ower transport costs and sometimes lower prod ction costs.

(ontract man fact re is perhaps best s ited to co ntries where market smallness prohibits plant investment or to firms whose main strengths are in marketing vis#I#vis prod ction. Disa*-antages of Contra)t man.fa)t.re/ 1. !. $. 4. It is only feasible when reliable and capable man fact rers can be identified which is not always the case. Sometimes s bstantial technical training has to be provided for he man fact rers personnel. 'he man fact rer may event ally become a rival 5 ality control problems in man fact ring may arise.

0OINT ,ENT$RES * .0 is an arrangement whereby two firms in different co ntries join forces for man fact ring financial and marketing p rposes and where each has a share in the e3 ity and in the management of b siness. .0s are very common and fast becoming more so. ?irms involved incl de >erox, &assey ?erg son, I(I and )hilips. 2icensing, franchising and contract man fact re are loose forms of .0. Dowever, the ties these involve are less strong than formal .0. JVs are usually evaluated as an alternative to a fully owned manufacturing set-up abroad. Accordingly and for other reasons a JV offers various advantages: 1. !. $. 4. 7. 9. ;. <. Some governments prohibit independent operation or enco rage .0 since their own co ntries get more profit and technological gains from the latter. /.:. .apan, +igeria, India. .0 re3 ires smaller capital o tlays and is th s especially attractive to smaller or risk# averse firms. Ehen f nds are limited .0 permits coverage of a larger spread of co ntries since each one re3 ires less investment. .0 red ces the risk of expropriation since a local firm is involved. /.:. (l b &editeranee pays m ch attention to this factor. .0 facilitates profits on man fact ring which licensing and franchising does not. It can provide for close control over marketing and other operations. ?acilitates good feedback. .0 provides local knowledge, 3 ickly.

'he major disadvantage of .0s is that the different parties often have a conflict of interest. "isagreements may arise over the parties respective shares in e3 ity, profits and effort or over their ideas concerning marketing strategy. ?or these reasons firms s ch as I-& are rel ctant to engage in .0s. The potential for conflict re uires firms to either: 1. !. &inimise its extent by caref l selection of partners, form lation of jointly beneficial contracts, pre#arranging for arbitration to resolve any clashes that occ r. /ns re it is the international marketer that retains effective control by the terms of the contract, by retaining private ownership of a key inp t, retaining the right to appoint key exec tives and so on.

CONSORTIA 'hese are similar to joint vent res b t they have t'o .ni1.e characteristicsG AaB 'hey typically involve a large n mber of participants. AbB 'hey fre3 ently operate in a co ntry or market in which none of the participants is c rrently active. (onsortia are developed for pooling financial and managerial reso rces and to lessen risks.

2#O Y O2NED O,ERSEAS "ROD$CTION (2#O 445 foreign o'ners6i7 or ( FDI

Y O2NED S$%SIDIARIES) (3

'his involves the f llest commitment to market or markets. It can be achieved thro gh the creation of capacityAsetting p shopB or by ac3 isition of an existing firm. *c3 isition is a mode of rapid entry and offers the benefits of an existing management team, market knowledge and all the other trappings of a Cgoing concern. ?or example, :eneral &otors enjoyed these gains when entering the 6@ market thro gh the ac3 isition of 0a xhall &otors. /ntry by creating new capacity is beneficial if there are no likely candidates to take#over or if ac3 isition is prohibited by the government. &ore positively, this entry mode allows for the se of the newest prod ction technology and it often generates among staff the feelings of optimism, high expectations and motivations. 'hese were major benefits for "ats n when they created new capacity in S nderland and 'ennessee. Advantages of wholly-owned overseas manufacture are several: 1. !. $. 4. 7. 9. 'he firm does not have to share the profit with a partner of any kind 'he firm has complete control over all decisions and so none of the efficiency drains arising in inter#firm conflict as with .0s. 'here are none of the problems of inter#firms mis#comm nication that arise in .0s, license agreements etc. 'he firm is able to operate a completely integrated and synergistic international system. 'he firm gains close contact with the market. 'he firm gains a more complete Cfeel for I& and more varied experience.

Despite these strong benefits there are also major disadvantages: 1. !. $. (omplete ownership re3 ires s bstantial investment f nding and this might precl de some firms. 'here may be an ins fficient s pply of s itable managers either in the target co ntry or to be posted abroad from the home co ntry. Some overseas governments disco rage 1==J foreign ownership and sometimes they prohibit it. 'heir reasoning is that host co ntry profits andKor development is not helped s fficiently when it merely profits andKor development is not helped s fficiently when it merely provides materials andKor nskilled labo r. )artly d e to $, b t also beca se e3 ity is not shared, 1==J ownership involves bigger conse3 ences in the face of expropriation. 'his mode foregoes the benefits of a partners market knowledge, distrib tion set# p and so on.

4. 7.

10

T$RNKEY "RO0ECTS In a t rnkey project, the contractor agrees to handle all details of the project for a foreign client, incl ding the training of operating personnel. *t completion of the contract, the foreign client is handed the LkeyM to a plant that is ready for f ll operation hence the term Lt rnkeyM. 'his is act ally a means of exporting process technology to other co ntries. In a sense it is j st a very specialiFed kind of exporting. ' rnkey projects are common the chemical, pharmace tical, petrole m refining and metal refining ind stries, all of which se complex, expensive prod ction#process technologies. A*-antages of t.rnkey 7ro8e)ts/ AaB * way of earning great economic ret rns from the firms know#how. AbB 6sef l in cases where ?"I is limited by host government reg lations. ?or example, the governments of some oil#rich co ntries have set o t to b ild their own petrole m refining ind stries, and as a step toward that goal, have restricted ?"I in their oil and refining sector. Since many of these co ntries lacked petrole m# refining technology, they had to gain it by entering into t rnkey projects with foreign firms that had the technology. AcB S ch t rnkey deals are attractive to the selling firm beca se they wo ld probably have no other way to earn a ret rn on their val able know#how in that co ntry. AdB * t rnkey strategy, as opposed to a more conventional type of ?"I, enables a firm to operate in a co ntry where the political and economic risks are high Ae.g. risk of nationaliFation or economic collapse. Disa*-antages of T.rnkey/ AaB ?irm that enters into a t rnkey project with a foreign enterprise may inadvertently create a competitor. AbB If the firms technology is a so rce of competitive advantage, then selling this technology thro gh a t rnkey project is also selling competitive advantage to potential and act al competitors. AcB 'he firm that enters into a t rnkey deal will have no long#tern interest in the foreign co ntry. 'his can be a disadvantage if that co ntry s bse3 ently proves to be a major market for the o tp t of the process that has been exported. %ne way aro nd this is to take a minority e3 ity interest in the operation set p by the t rnkey project.

11

STRATEGIC INTERNATIONA A

IANCES (SIA)

*n SI* is a b siness relationship established by two or more companiesAact al or potential competitorsB to cooperate o t of m t al need to share risk in achieving a common objective. /xampleG * co#operative arrangement between -oeing and a consorti m of .apanese firms to prod ce the ;9; wide#bodied aircraft. * strategic international alliance impliesG iB iiB iiiB ivB (ommon objective 'hat one partners weaknesses will be offset by the others strength. 'hat there are synergistic benefits to be had. 'hat reaching the objective alone wo ld be too costly, take too m ch time and be too risky.

SIAs can be joint vent res, licensing, franchising. A*-antages of SIAs for a firm/ *c3 ires needed market share. *c3 ires technology 6tilises excess man fact ring capacity 8ed ces new market risk and entry costs. )rod ces economies of scale. %vercomes legal and trade barriers.Aeasy foreign entry methodB. *ccelerates prod ct introd ctions demanded by shorter )2(s.

+ot all SI*s are s ccessf l. Some fail. %thers are disbanded after reaching their goals. &ajor reason for fail re can be lack of perceived benefits to one or more of the partners. Disa*-antagesG (onflict ,o can give away more than yo receive.

12

"ROD$CT DECISIONS IN INTERNATIONA MARKETS Ehat is a prod ctN 1.1 * prod ct is anything that can be offered to a market for attention, ac3 isition, se or cons mption that might satisfy a want or need. It incl des physical objects, services, places, organiFations, ideas, people. In marketing terms a prod ct is the total tility or satisfaction that a b yer receives as a res lt of a p rchase. It exists at three levels.

1.!

Augmented Formal Core

Core 7ro*.)t 1.$ 'he Ccore prod ct is the need which is being satisfied or the problem which is being solved by the prod ct. 'his is a vital concept in international marketing, e.g. the Ccore prod ct varies between 'hird Eorld co ntries and ind strial developed co ntries. In the case of a bicycleG in the 'hird world sed as a means of transportH in the developed world sed for recreation, sport.

AaB AbB

&arketers m st always view a prod ct in terms of its ability to satisfy needs or solve problems, i.e. perceived benefits which may vary between co ntries. Forma& 7ro*.)t 1.4 'his is what the market recogniFes as the tangible offer. It comprises the feat res, styling, 3 ality, packaging and brand name. *gain this may have important implications for international marketing. 0ariations in 3 ality, siFe, colo r etc. may have to be sed from co ntry to co ntry.

A.gmente* 7ro*.)t 1.7 AaB AbB 'hese are the additional services and benefits which Cs rro nd a prod ct. 'hey may offerG rep tationH deliveryH

13

AcB AdB AeB AfB AgB

before and after sales servicesH installation and maintenanceH g aranteeH financeH credit

*ccording to many marketers Afor example 2evitt,B it is at this level of the prod ct that the Cnew competition is taking place. ( stomers may val e reliable delivery, credit or after sales service more than 3 ality or price. So it is vital for the international marketer to be aware of needs and expectations and the extent to which they vary between different co ntries when making prod ct decisions. :+ !.1 IM "ROD$CT STRATEGIES/ STANDARDISATION ,S ADA"TATION 'his topic was introd ced in (hapter 1. 'here are fo r areas whose decision m st be made. 'he first two can be considered together. AaB AbB AcB AdB Sell prod cts nmodifiedKstandardiFe. &odify or adapt prod cts where necessary. develop new prod cts for a specific market or gro p of markets. /liminate oldKweak prod cts.

Standardisation vs adaptation !.! 'he 3 estion of whether or not to adapt the prod ct is often considered in conj nction with the promotionKcomm nication iss e. 'his gives s fo r possible prod ct#comm nication strategies Asee next chapter for a more detailed analysis of comm nication decisionB. !roduct standarised "ommunications #tandardised "ommunications adapted Standardisation worldwide of both prod ct and comm nication *daptation of comm nications only !roduct adapted *daptation of prod ct only -oth prod ct and comm nications adapted.

#tandardised product and communications !.$ !.4 'his is the obvio s strategy for the occasional exporter b t also some major international companies seeking economies of scale. (oca (ola and )epsi (o have been s ccessf l with this strategy. )olaroid also failed in ?rance with their instant pict re camera beca se of fail re to modify their prod ct and comm nications activities from the s ccessf l 6S* version. 'his fail re was d e to the fact that the prod ct was at a different stage in its prod ct life cycle in ?rance and the 6nited States.

#tandardised product$adapted communication !.7 'his strategy is sed where a prod ct meets different needs in different co ntries. 'ake bicycles for exampleG

14

AaB AbB AcB

?ranceK-elgi m 6@ 'hird Eorld

sport#recreation # recreation # means of transport

Adaptation product$standardi%ed communication !.9 'his strategy is relevant where the prod ct satisfies the same need Aor solves the same problemB in many markets b t conditions of se vary. AaB AbB )etrol companies adapt their f el to climatic conditions b t standardiFe their advertising and other promotional activities. (ar man fact rers need different tires and temperat re control systems in Sa di *rabia than they do in the 6@.

Adaptation of both product and communications !.; 'his strategy is the most costly one b t may be necessary to exploit a market f lly. ?or example, take these two stereotypes. AaB AbB 6S prod ct can be made or packaged in plastic and be disposable. :erman prod ct m st be made or packaged in metal and m st be d rable and repairable beca se of :erman concern for environmental iss es. )romotional activities m st reflect these prod cts attrib tes.

15

;+ $.1

OT#ER AS"ECTS OF "ROD$CT DECISIONS %ther aspects of the prod ct decision principally concern packaging, labeling and after sales service.

"a)kaging $.! *gain, standardiFation vs. adaptation is the major 3 estion. 'here are two aspects of packaging. AaB AbB )rotection. )ackaging may have to be adaptedKmodified if climates, handling facilities, time spent in distrib tion chain or sage rate vary. )romotion. )ackaging will be adapted if package siFe, cost of packaging, colo r preference, legal constrains, literacy, rep tationKrecognition varies from market to market.

$.$

* problem might be the different siFe re3 ired in different co ntries.

a<e&&ing $.4 2abelling is often an example of mandatory modification re3 ired by government reg lations. ?or I&, this iss es s ally concerns listing contents or se of appropriate lang age or lang ages.

Ser-i)ing $.7 'his is an increasingly important part of the a gmented prod ct Apartic larly in the developed economiesB and is of great importance in international marketing. If the availability or 3 ality of servicing is do btf l, cons mers may choose to b y domestic prod cts. 'he service problem is a complex one of the exporter. It involves decisions abo t facilities, personnel and training. Sho ld they se distrib tors which wo ld involve training foreign staff and sending o t D5 personnel to monitor or sho ld they operate direct servicing policy in which case they wo ld fly o t maintenance staff when re3 iredN 'he appropriate decision varies with the technical sophistication and val e of the prod ct. STANDARDISATION ,S ADA"TATION FACTORS

$.9

=+

Fa)tors en)o.raging 7ro*.)ts stan*ar*i>ation 4.1 AaB /conomies of scale inG AiB AiiB AiiiB AivB AbB AcB AdB prod ctionH marketingKcomm nicationsH research and developmentH stock holding.

/asier management and control, i.e. familiarity. Domogeneity of markets, in other words world markets available witho t adaptation Ae.g. denim jeansB. ( lt ral insensitivity, e.g. ind strial and agric lt ral prod cts.

16

AeB

(ons mer mobility for travelersKto rists, for example standardiFation is expected in certain prod ctsG AiB AiiB camera filmH hotel chains

AfB AgB

Ehere Cmade in image is important to a prod cts perceived val e Ae.g. ?rance for perf me, Sheffield for stainless steelB. ?or a firm selling a small proportion of its o tp t overseas, the incremental costs of adaptation may exceed the incremental sales val e.

?actors enco raging adaptationKmodification =+: Man*atory mo*ifi)ation

&andatory prod ct modification normally involves either adaptation to comply with government re3 irements or navoidable technical changes. 6sing car man fact re as an example it may concernG &a' (egal re uirements such as: AiB AiiB &b' specified exha st emission levels Ahealth and safety lawB local components Aeconomic lawBH

Technical re uirements such as: AiB AiiB modification of heatingKcooling systems for different climatesH engine modification to se locally available f els.

=+;

Dis)retionary mo*ifi)ation AaB "iscretionary modification is called for only to make the prod ct more appealing in different markets. It res lts from differing c stomer needs, preferences and tastes. 'hese differences become apparent from market research and analysis, intermediary and c stomer feedback etc. 2evels of c stomer p rchasing power. 2ow incomes may make a cheap version of the prod ct more attractive in some less developed economies. 2evels of ed cation and technical sophistication. /ase of se may be a cr cial factor in decision#making. Standards of maintenanceKrepair facilities. Simpler, more rob st versions may be needed.

AbB AcB AdB

17

?+ 7.1

NE2 "ROD$CT DE,E O"MENT FOR O,ERSEAS MARKETS Sometimes international marketing managers may need to develop new prod cts for a specific overseas market or gro p of markets. 'here is no need to analyse new prod ct development in depth here since the new prod ct development process is the same for international marketing as for domestic marketingG AaB AbB AcB AdB AeB AfB AgB idea generationH idea screeningH concept testingH b siness analysisH prod ct development and testingH test marketingH commercialiFation.

#uccess of new products 7.! 'he s ccess of new prod cts in an international environment depends on a n mber of factors. AaB It is important to have an appropriate organiFational str ct re. *n international division, responsive to international rather than p rely domestic marketing concerns, is far more likely to introd ce new prod cts overseas s ccessf lly A"avidson and DarriganB 'here sho ld be a commitment to market research. *s we have seen, international market research is more complex than domestic market research. So rces of idea generation sho ld be as wide as possibleG c stomers, intermediaries, competitors, research and development, sales staff etc. 'he new prod ct development process sho ld be implemented for each co ntry, i.e. Screening, b siness analysis, test marketing, etc.

AbB

AcB AdB @+ 9.1

"ROD$CT E IMINATION ?or companies that have been involved in international marketing for some time, and who prod ce a range of prod cts, analysis of their prod ct portfolio is vital. *gain the principles and concepts are the same as in domestic marketing and need not be disc ssed here in depth. *nalytical models s ch as the -oston (ons lting :ro ps growth#share matrix or the :eneral /lectric approach are sef l in this context. Strategic models allow managers to identify those prod cts Aor strategic b siness nitsB which sho ld be strengthened, maintained, harvested or divested. 'his analysis will need to be ndertaken in all markets in which the company is operating since a Ccash cow in one co ntry may be a Cdog in another.

9.!

18

)igure *.+ AaB &arket :rowth rate -oston cons lting gro ps growth#share matrix Digh CStars Strengthen 2ow C(ash cows &aintain or harvest ,igh 5 estion marks Strengthen or divest C"ogs "ivest (ow

Re&ati-e market s6are AbB :eneral /lectric approach (ompetitive position -odel attractivenes s ,igh -edium (ow #trong )rotect position - ild selectively )rotect and refoc s -edium Invest to b ild SelectivelyK manage for earnings &anage for earnings .ea/ - ild selectively 2imited expansion or harvest "ivest

9.$

&any organiFations, in both domestic and international markets, do not manage obsolete and marginal prod cts. 'hey are kept in the prod ct range, with little or no contrib tion to profits, with a high opport nity cost in that the reso rces sed to prod ce them and partic larly to market them co ld be m ch more profitably sed elsewhere Ain managing prod cts regarded as stars or 3 estion marksB. 0ther problems associated with marginal products are that: AaB AbB AcB AdB as sales fall, short prod ction r ns become increasingly expensiveH an excessive amo nt of management and sales force time is sed in trying to extend the life cycle of the prod ctH they may detrimentally affect the image and rep tation of the companyH they may mean that not eno gh reso rces can be allocated to the development of new prod cts.

19

"ro*.)tion e&imination 9.4 /limination AdivestmentB sho ld be part of a proced re for prod ct portfolio analysis, where for each co ntry a periodic review of prod ct range is ndertaken. ?actors to be taken into consideration d ring this review wo ld incl deG AaB AbB AcB AdB AeB 9.7 c rrent profitabilityH effects of elimination on the sale of other AcomplementaryB prod ctsH after sales service implicationsH alternative prod ct opport nities in each co ntryH the effect on salesKprofits of prod ct life extension K rej venation.

all these factors become m ch more complex for the m ltinational company with overseas operations than with the mere exporter. 'he m ltinational company may be prod cing the prod ct nder consideration in a n mber of co ntries, nder a n mber of different market conditions. Dowever, the m ltinational companys range of alternatives to prod ct elimination for a marginal prod ct is greater than for an exporter. * m ltinational company can export or license or arrange for contract man fact ring as an alternative to direct man fact ring abroad. "ROD$CT IFE CYC E AND INTERNATIONA MARKETING MI! DECISIONS &any marketing mistakes have been made beca se firms have failed to take into acco nt the fat that in different co ntries a prod ct may be at different stages in its prod ct life cycle. &arketing principles tell s that prod cts, prices, marketing comm nications and channels of distrib tion need to be adapted as a prod ct Cages d ring its life cycle. 'he marketing mix programmed for a new prod ct sho ld be f ndamentally different from the mix programme for a mat re prod ct.

9.9

A+ ;.1

B+ B+C

T#E "ROD$CT IFE CYC E IN INTERNATIONA MARKETING Mi)ro ana&ysisD 7ro*.)t &ife )y)&e an* t6e in*i-i*.a& firm 'he concept of the prod ct life cycle is well known among marketing scholars and practitioners. It post lates that prod cts are born, pass thro gh some, or all, of vario s stages and that typically they ltimately die. 'he important conse3 ences of the concept are that ind stry, sales and competitive conditions differ in the vario s stages of the life cycle and that these differences have major implications for marketing strategy. ?ig re 7.! is a presentation of the generaliFed prod ct life cycle model, showing the fo r C s al stages of sales growth. It is ass med that st dents are familiar with the prod ct life cycle, its implications and appropriate strategies in the domestic context.

<.$

'his approach was very convenient. ?irms were simply able to classify markets according to their economic development and la nch declining prod cts in rapid s ccession into co ntries with progressively less market development. +owadays, however, this type of strategy is far less feasible, altho gh not entirely impossible. 'he revol tion in comm nications among co ntries d ring recent years has narrowed the time gap between when sat ration occ rs in the home market and

20

the last overseas market entered. Dence, the total d ration of the profit life cycle pattern is exactly the same for home sales as for someKmostKall overseas markets. <.4 'he new sit ation is shown below. *s a res lt of these developments, international marketing m st consider many markets sim ltaneo sly, with a view to implementing a global introd ction.

8.7

'his is necessary to ens re that the prod ct is la nched in all potential markets before rivals have time to pre#empt the firm and to ens re that introd ction everywhere coincides with the most appropriate demand conditions.

"ro*.)t &ife )y)&e an* t6e marketE)o.ntry <.9 'he International 'rade )rod ct 2ife (ycle AI')2(B is sed in developing long#term prod ct strategy. It post lates that many prod cts pass thro gh a cycle d ring which high income, mass cons mption co ntriesG AaB AbB AcB <.; are initially exportersH s bse3 ently lose their export marketsH ltimately become importers of the prod ct.

(orresponding to these shifts, other developed co ntries shift from being importers of the prod ct to being self#s fficient, to exporters of it, as do event ally, less developed co ntries. 'he shifts referred to correspond to the three stages in the prod ce life cycleG AaB AbB AcB introd ctionH growth and mat rityH and decline.

21

<.!

'he prod ct life cycle is relevant to international marketing management. 'raditionally many firms have tended only to operate at home as long as performance there was satisfactory. 'hen, when domestic performance declined, they tried to close the gap by exporting. - t this is possible only if there are different prod ct life cycle patterns in different co ntries A?ig re 7.!B here the prod ct is in the decline stage in the home market, in the growth stage in co ntry >, in the introd ction stage in co ntry , while the prod ct is not known by c stomers in co ntry 1. ?ig re 7.$ ill strate the gap between these extremes.

22

'o brand or not to brandN O.$ 'he advantages of branding incl de the followingG AaB AbB AcB AdB AeB AfB AgB AhB AiB O.4 -randing facilitates memory recall, th s contrib ting to self#selection and improving c stomer loyalty. In many c lt res branding is preferred, partic larly in the distrib tion channel. -randing is a way of obtaining legal protection for prod ct feat res. I' helps with market segmentation. A'ake toothpaste for exampleG (rest is marketed to a health conscio s segment, 6ltrabrite is marketed for its cosmetic 3 alities.B It helps b ild a strong and positive corporate image, especially if the brand name sed is the company name Ae.g. @elloggs, DeinFB. It is not so important if the company name is not sed Ae.g. )rocter and :ambleB. -randing makes it easier to link advertising to other marketing comm nications programmes. "isplay space is more easily obtained and point#of#sale promotions are more practicable. If branding is s ccessf l, other associated prod cts can be introd ced. 'he need for expensive personal sellingKpers asion may be red ced.

-randing is not relevant to all prod cts, only thoseG AaB AbB that can achieve mass sales beca se of the high cost of branding and the s bse3 ent advertising. 'his is partic larly important if global branding is so ghtH and whose attrib tes can be eval ated by cons mers.

'h s chocolate bars can be branded, b t not concrete slabs, whisky can be branded b t not coal. O.7 'he most s ccessf l examples of worldwide branding occ r where the brand has become synonymo s with the generic prod ct, Doover, (ellophane, Sellotape, *spirin, @leenex, ?ilofax, >erox. 'his can event ally, however, carry its own dangers. Ehen the brand name has been adopted as the description of the generic prod ct As ch as 'hermos for a vac m flaskB the man fact rer of the brand can be find it diffic lt to convey the specific prod ct advantages of the brand.

Ty7e of <ran* O.9 'here are fo r choices of brand. AaB Individ al brand nameG 'his is the option chosen by )rocter and :amble for example, who even have different brand names within the same prod ct line, e.g. -old, 'ide. 'he main advantage of individ al prod ct branding is that an ns ccessf l brand Ae.g. Strand cigarettesB does not adversely affect the firms other prod cts, nor the firms rep tation generally. -lank family brand name for all prod cts, e.g. Doover, DeinF Aoriginally CDeinF 7; varietiesB. 'his has the advantage of enabling the global organiFation to introd ce new prod cts 3 ickly and s ccessf lly. *lso the cost of introd cing the new prod ct in terms of name research and awareness advertising will be red ced Ae.g. Donda lawn mowersB.

AbB

23

AcB

Separate family names for different prod ct divisions e.g. 'he 6S based company Sears, sells electrical appliances nder the name @enmore, and womens clothing nder the @errybrook brand. 'his is obvio sly the option for the global organiFation with Cinconsistent prod ct lines where the family brand name above is not appropriate. - t within each Cfamily the advantages identified in AbB still apply.

AdB 'he company trade name combined with an individ al prod ct name. /.g. @elloggPs (orn ?lakes, 8ice (rispies etc.B. 'his option both legitimiFes Abeca se of the company nameB and individ alises Athe individ al prod ct nameB. *s in AbB above it allows new Cnames to be introd ced 3 ickly and relatively cheaply. S.))ess )riteria for <ran*ing O.; -randing sho ld be a central and strategic part of both prod ct and promotional Qplanning. It sho ld not be a cas al aftertho ght. It therefore re3 ires research in all the markets in which the brand is planned to be marketed. ?or international companies name research can avoid possible fa x pas beca se of c lt ral and lang age differences, e.g. C-ody &ist when translated into :erman means Cman reR Eorldwide research s ggests that the beneficial 3 alities of a brand name are that they sho ldG AaB AbB AcB AdB AeB AfB s ggest benefits, e.g. 6ltrabrite toothpaste, Slimline tonicH s ggest 3 alities s ch as action or colo r, Ae.g Shake Cn 0acBH be easy to prono nce, recogniFe and remember Ai.e. short and p nchyBH be acceptable in all markets both ling istically and c lt rally Ae.g. see C-ody &ist aboveBH be distinctive, e.g. @odakH be meaningf l. Ehen )rocter and :amble wished to la nch C(rest 'artar (ontrol into So th *merican co ntries, research fo nd that there was no recogniFed Spanish translation for dental tartar. * similar word implied Csorrow. 'he brand name was s ccessf lly changed to Lcrest *nti#Sorro.

G&o<a& <ran* *e)isions O.< ?or the international company marketing prod cts which can be branded are two f rther policy decisions to be made. 'hese areG AaB AbB O.O the problem of deciding if and how to protect the companys brands Aand associated trademarksBH and whether there sho ld be one global brand or many different national brands for a given prod ct.

'he major arg ment in favo r of a single global brand is the economies of scale that it prod ces, both in prod ction and promotion. - t whether a global brand is the best policy or even possible depends on a n mber of factors, which address the two basic policy decisions above.

ega& )onsi*erations for <ran*ing O.1= AaB 2egal constraints may limit the possibilities for a global brand, for instance where the brand name has already been registered in a foreign co ntry.

24

AbB

)rotection of the brand name will often be needed, b t internationally is hard to achieve beca seG AiB AiiB in some co ntries registration is diffic ltH brand imitation and piracy are rife in certain parts of the world.

'here are many examples of imitation in international branding, with prod cts s ch as cigarettes A6S*B, and denim jeans. Eorse still is the problem of piracy where a well known brand name is co nterfeited. It is illegal in most parts of the parts of the world b t in many co ntries there is little if any enforcement of the law. A2evis is one of the most pirated brand names.B. C.&t.ra& as7e)ts of <ran*ing O.11 /ven if a firm has no legal diffic lties with branding globally, there may be c lt ral problems, e.g nprono nceable names, names with other meanings A ndesirable or even obsceneB. 'here are many examples of problems in global branding, for example &axwell Do se is &axwell @affee in :ermany, 2egal in ?rance and &onkey in Spain. - t sometimes a minor spelling change is all that is needed, s ch as Erigley Speermint in :ermany. %ther marketing considerations O.1! &any other infl ences affect the global branding decision, incl dingG AaB AbB "ifferences between the firms major brand and its secondary brands. 'he major brand is more likely to be branded globally than secondary brands. 'he importance of brand to the prod ct sale. Ehere price for example, is a more important factor, then it may not be worth the heavy expendit re needed to establish and maintain a global brand in each co ntry G a series of national brands may be more effective. 'he problem of how to brand a prod ct arising from ac3 isition or joint vent re. Sho ld the m ltinational company keep the name it has ac3 iredN

AcB

"RICING DECISION IN INTERNATIONA MARKETING C+ 1.1 T#E RO E OF "RICING 'he principles involved in making decisions on price are the same for both domestic and international marketing. 'hey will be briefly disc ssed here with partic lar reference to their application to the international context before covering in detail the partic lar concerns that marketers have regarding I& pricing. )ricing is the only mix decision that prod ces reven eH the other elements involve costs. ?or many prod cts it is the major decision determinant, partic larly d ring times of economic recession, yet its importance can often be overstated. ?or many prod cts, other mix aspects are more important, e.g. prod ct 3 ality, a gmented prod ct feat res.

1.!

25

1.$.

&any companies do not handle pricing well. (ommon mistakes incl deG AaB AbB AcB AdB pricing is too cost orientated Asee belowBH pricing is not revised often eno gh to reflect changing market conditionsH pricing is decided in isolation rather than as part of an integrated marketing planH and pricing is not flexible or varied eno gh to meet the differing re3 irements of the different market segments Aor co ntriesB.

1.4

)rice setting is not a Conce and for all C decision. ?lexible pricing is necessary to cover the following sit ations Asee -))s (I& st dy text for &arketing )lanning and (ontrolB. AaB AbB Ehen a new prod ct is la nched. Ehen the company wants to initiate a price change, as a response toG AiB AiiB AiiiB AivB AvB AviB AcB AdB costs increasesH a decision to sell as a loss leaderH a sales promotionH a change in the prod ct life cycle stageH a change in disco nt policyH a decision to reposition the prod ce.

1.7

*s a response to price change by competitors. Ehen the company wants to decide on a price policy for an entire prod ct line. 'he key to s ccessf l domestic pricing is flexibility. In International marketing this means a ret rn to the Cstandardisation vs adaptation iss e. S ccessf l international marketing involves an analysis of the extent to which prices sho ld be adapted to meet the different environmental and competitive sit ations in the companys markets. A""ROAC#ES TO "RICING ?irms or strategic b siness nits AS-6sB within firms can be classified with regard to pricing policies according to the strongest infl ence on the pricing decision. In the international context the need for flexibility in pricing arises beca se different conditions may exist in different markets and firms may adopt different marketing objectives ASee Section $ belowB.

:+ !.1

Cost <ase* 7ri)ing !.! Dere, total cost is the basis for pricing with market demand having little or no effect. 'his is a sensible policy in markets where price is the only or more important factor in the p rchase decisions and where there is little differentiation among prod ct offerings, both at a formal and a gmented level, Ae.g. ind strial n ts, bolts and screwsB. Dowever, research tends to s ggest that too many firms adopt cost based pricing for all their prod cts and in all their markets when other approaches wo ld be more effective in achieving their objectives. ?or example, even in ind strial prod ct markets demand intensities can vary between co ntries, which gives opport nities for price differentiation.

!.$

26

Deman* <ase* 7ri)ing !.4 'his enables marketers to set prices according to demand conditions Ai.e. the c stomers ability and willingness to payB. 'hese demand levels may vary from one co ntry to another, within the same co ntry among different segments, or even within the same segment over time. 'his is the tr e marketing based approach and p ts c stomers needs and preferences at the heart of the pricing decision. )rice setting is flexible to meet changing marketing environments. "emand based prices are most prevalent in branded cons mer goods b t are increasingly possible in many ind strial goods markets. Com7etition <ase* 7ri)ing !.9 'here are two aspects of competition based pricing relevant to the international context. AaB Ehere there is almost perfect competition individ al s ppliers of a prod ct have no control over the price they charge. 'his is the case with commodity prices s ch as those for tea and coffee. Dere c rrent world market prices are known to c stomers and any change is established as a res lt of interaction among a large n mber of b yers and sellers. 'h s, in these markets, there is no pricing decision to make. Ehere a firm can base its price levels in relation to its competitors in order to achieve certain objectives the price charged m st be consistent with those objectives. 'he priceK3 ality diagram below ill strates the competitive price strategies open to an international firm. 8elative price ,igh 8elative )rod ct 5 ality -edium (ow ,igh 1. )remi m pricing strategy 4. %ver pricing strategy ;. Dit S r n pricing strategy -edium !. )enetration pricing strategy 7. *verage pricing strategy <. Shoddy goods pricing strategy (ow $. S per bargain strategy 9. -argain pricing strategy O. (heap goods strategy

!.7

AbB

?ig re ;.1

* f ll analysis of this model can be fo nd in many textbooks concerned with marketing principles.

27

!.;

Some examples of the models application in the international context wo ld be as follows. AaB * firm might adopt Strategy $ Aat least in the short termB in one co ntry in order to penetrate a diffic lt competitive market while adopting Strategy 1 in another where it already has a good rep tation and fewer real competitors. Asee marginal cost pricing is disc ssed in section 7 o this chapterB AbB * firm might adopt Strategy O Acheap goods strategyB in a less developed co ntry beca se of low disposable income levels while prod cing a better 3 ality prod ct at a higher price in a market where disposable incomes are higher AStrategies 7 or 1B AcB *ny of strategies 4, ; or < Aover pricing, hit and r n pricing or shoddy goods pricingB might be adopted in markets where c stomers are relatively ignorant, i.e. naware that they co ld obtain the same 3 ality at a lower price or a higher 3 ality at the same price, while in another, more knowledgeable market, a cheap goods strategy AOB might be sed. @otler states that strategies 4, ; and < sho ld be avoided by professional marketers. 'his self#denying ordnance can be j stified on ethical gro nds, and also on commercial ones. Selling shoddy goods deval es the brand name, and will disco rage repeat p rchases.

;+ $.1

T#E FACTS INF $ENCING INTERNATIONA MARKETING "RICING DECISIONS )ricing is affected both by a companys own objectives and a variety of external factors. 'he principal ones are as follows. AaB 'he companys marketing pricing objectives. 'hese are as followsG AiB AiiB AiiiB AivB ?inancial &arketing (ompetitive )rod ct differentiation # cash generation, profit, ret rn on investment # maintainKimprove market share # skimKpenetrate depending on stage in prod ct life cycle # prevent new entry # follow competition # market stabiliFation Atacit agreementsB high price aids perception of prod ct differences.

* company may have different objectives in different markets and th s need to adopt different pricing policies. ?or example, in one market early cash recovery may be the objective leading to premi m pricing in a small niche market. In another, larger market the objective might be longer term market share, s ggesting a more penetrative pricing strategy. AbB 2evel of demand. 'his is infl enced by the markets state of economic development, stage in the prod ct life cycle and c lt ral attit des. 8elatively low prices wo ld be s itable in the following circ mstancesG AiB AiiB in markets of low economic developmentH in the mat rityKsat ration stags of the prod ce life cycleH and

28

AiiiB AcB AdB AeB AfB AgB =+ 4.1

where the prod ct is perceived as a basic one Ain that it satisfies physiological needs in &aslows hierarchyB.

'he intensity of competition, both domestic and international. (osts :overnment restrictions and controls. &any governments have both maxim m and minim m permitted prices for certain prod cts. 'he n mber and type of intermediaries in the distrib tion channel. )ricing in foreign c rrency. * sales val e in a companys home c rrency is ncertain d e to exchange rate fl ct ations.

E!"ORT "RICING /xport pricing involves all the complexities of the domestic pricing decision pl s some major additional complications. (onse3 ently, export pricing is both more challenging and more risky. /xport pricing is made more complex byG AaB AbB AcB AdB AeB AfB AgB greater diffic lties of ac3 iring reliable market informationH problems in reacting to fre3 ent changes in demand in m ltiple marketsH greater complexities in acc rately allocating costsH problems of responding to exchange rate fl ct ationsH additional diffic lties in deciding on payment termsH barter trading Aor co ntertradeB which may sometimes be an nfamiliar practiceH and other complications, s ch as legal and c lt ral factors, which vary between export markets.

EF7ort 7ri)ing 7ro)e*.re 4.! *s in any other pricing exercise, export pricing sho ld be based on an integrative approach. * thoro gh pricing proced re developed by &onroe is shown in 'able 1 on the next page. Ehile the g idelines prescribed in 'able 1 constit te a so nd basis for price decision# making, they are incomplete in the partic lar context of export pricing. ?or sales overseas price determination m st incorporate additional considerations in relation to individ al markets. * comprehensive set of export criteria are set o t below. &a' !ricing discretion AiB Ehat, if any, product factors give s pricing discretionN A?or example, prod ct differentiation, parents, cross elasticity, specialiFationNB AiiB Ehat, if any, mar/et factors give s pricing discretionN A?or example, market share, n mber and siFe of rivals, n mber and siFe of c stomers, market segmentationNB AiiiB Ehat, if any, customer factors give s pricing discretionN A?or example, loyalty, degree of knowledgeNB AivB Ehat, if any, company factors give s pricing discretionN A?or example, dependence on exports, attit des concerning exporting, objectivesNB AvB %verall, in this partic lar market, are we a Cprice taker or a Cprice makerN

29

&b'

costs and e1port pricing AiB Ehich costs are most s itable for exporting pricingN *re these f ll costs or marginal costsN ?or example, does exporting form a major part of o r b siness or is it s bsidiary or even marginalN *re we adopting a long term or short term viewN Ehat are the true incremental costs of exportingN ?or example, what extra packaging, transportation, ins rance, tariffs etc are involved. Ehat contrib te to overheads and profits do we re3 ire from export salesN TA% E C Integrated pricing g idelines

AiiB AiiiB

C+

Set )onsistent o<8e)ti-es+ AaB &ake s re that objectives are clearly stated, operational and m t ally consistent. AbB Ehen there are several objectives, develop priorities, or otherwise clarify the relationships between the objectives. AcB &ake s re that everyone concerned with a pricing decision, at any level in the firm, nderstands the relevant objectives.

:+

I*entify a&ternati-e+ AaB Identify eno gh alternatives to permit a sensible choice between choice between co rse of action. AbB *void traditional thinking, enco rage creativity.

;+

A)1.ire re&e-ant information AaB -e s re that information abo t b yers and competitors are c rrent and reflects their c rrent and f t re sit ations. AbB &ake s re information is for the f t re, not j st a report of the past. AcB Involve market research people in the pricing problem. AdB &ake s re cost information identifies which costs will be affected by a partic lar pricing alternative. AeB (omm nicate with and involve acco nting with the cost aspects of a pricing decision. AfB *nalyse the effect a partic lar alternative will have on scare reso rces, inventories, prod ction, cash flows, market share, vol me and profits.

4.

&aking the pricing decision AaB &ake f ll se of the information available. AbB (orrectly relate all the relevant variables in the problem. AcB 6se sensitively analysis to determine which elements in the decision are not important. AdB (onsider all h man and organiFational problems which co ld occ r with a given pricing decision. AeB (onsider the long#r n effects of the pricing decision. AfB -ase the pricing decision on the life cycle of each prod ct. AgB (onsider the effect of experience in red cing costs as the c m lative prod ction

30

?+

vol me increases. Maintain fee*<a)k an* )ontro& AaB "evelop proced res to ens re that pricing decisions fit into the firms overall marketing strategy. AbB )rovide for a feedback mechanism to ens re that all who sho ld know the res lts of individ al price decisions are f lly informed. 'o s mmarise, pricing decisions sho ld be logically made and sho ld involve rigoro s thinking, with minim m diffic lty from h man and organiFational factors. ? rther, it sho ld be recogniFed that j dgement and prediction are needed abo t he f t re, not the past, ?inally, pricing decisions sho ld be made within a dynamic, long# r n marketing strategy. &c' 2uyer behaviour and e1port pricing AiB Ehat level of b yer awareness prevails in the partic lar marketN "o c stomers know how competing prices compareN "o they try to compare pricesN Sho ld we try to strengthen or red ce b yer awarenessN Ehat degree of price awareness AelasticityB prevailsN *re b yers more responsive to price or other variablesN *re there segmental differencesN *re there any important psychological infl ences on price# ind ced behavio rN Dow does o r price compare to the Cgoing rateN Sho ld we try to strengthen price elasticity or to dil te itN Ehat evidence is there concerning price interpretationN *re prices sed to j dge 3 alityN Is price compatible with o r brand imageN Is there a market stereotype infl ence on price perceptionsN

AiiB

AiiiB

AdB

&arketing factors and export pricing AiB Is o r marketing mix designed to emphasiFe price or non#price elementsN Is o r price consistent with other mix factors like 3 ality, advertising and channelsN *re the vario s components of price consistent Ae.g. list price, disco nts, creditB. If price is sed as a promotional tool, is this effective and are there any significant side#effectsN

AiiB

AiiiB *t what stage is the prod ct in its life cycleN "oes this vary across markets and segmentsN Is price compatible with the life cycle stageN

AivB Is there scope for viable differential pricingN Sho ld prices be e3 al to, above or below domestic pricesN Dow sho ld prices vary across export marketsN &f' "urrencies for e1port pricing AiB "o we have a general policy concerning c rrencies for export pricingN

31

AiiB AiiiB AivB ?+ 7.1

Ehat c rrencies do we 3 ote and price in form export salesN (o ld we improve exporting performance by changing. Is o r export c rrency policy consistent with the role of price in o r marketingKcompetitive strategyN Dow do we monitor and respond to c rrency fl ct ationsN Dow sho ld we do thisN

MARGINA COST "RICING Ehen a company reaches a level of o tp t which generates eno gh reven e to cover all the costs of prod cing that o tp t Afixed and variableB then it is said to be at break even point. *ny o tp t above break even point yields a profit, provided the price charged exceeds the variable cost, since fixed costs have already been covered. (learly any company has to sell well above marginal cost price Aprice at which only variable costs are coveredB in most of its markets. If, however, an isolated market can be fo nd where conditions for marginal cost pricing apply Asee belowB witho t jeopardiFing price levels in established markets, total profit Atho gh not percentage profitB will be increased by selling below market price b t above variable cost.

7.!

Con*itions for margina& )ost 7ri)ing 7.$ In order to penetrate a diffic lt competitive market, it is worth marginal cost pricing in the following fo r sit ations. AaB Ehere there is little possibility of speedy intervention by the foreign government. If the government of the importing wishes to protect firms in a domestic ind stry it may try to impose Cd mping d ties. :*'' allows s ch imposition so long as a government can demonstrate that the prod ct is being sold in its co ntry at below Cnormal val e. 'he concept of normal val e is central to the definition of d mping by :*''. " mping takes place if the price of the prod ct exported from one co ntry to another is less than the comparable price, in the ordinary co rse of trade, for the like prod ct when destined for cons mption I the exporting co ntry. It is a lengthy complex proced re to investigate claim of d mpling. Dence, anti#d mping legislation is not a serio s threat to the occasional or short term marginal cost price. AbB Ehere the o tp t being sold at marginal cost price forms only a small proportion of total o tp t. "ecisions on s ch marginal b siness sho ld be made witin an overall sales and marketing and profit plan. Ehere the reso rces sed to prod ce the marginal o tp t cannot be sed more profitably elsewhere in the company, i.e. if the opport nity cost is not too high. Ehere is will not jeopardiFe prices in domestic or principal export markets not protected by tariffs.

AcB

AdB

32

If a company has s rpl s stock Ai.e. stock that is otherwise nsaleableB it is j stified in selling it even below marginal cost. )rovided that the costs of distrib tion and sale are covered it is worth selling the stock rather than scrapping it. @+ 9.1 TRANSFER "RICING Ehen a m ltinational firm adopts a decentraliFed organiFational str ct re, each of its man fact ring nits becomes a profit centre. (omponents, semi#finished or finished prod cts may have to be transferred between these man fact ring or assembly nits. It is in this context that the 3 estion of transfer pricing arises. If these components or prod cts are sold on the open market they will be sold at arms length price Amarket priceB. & ltinational firms m st decide whether the transfer price between nits of the same organiFation sho ld be e3 al to, higher than or lower than the open market arms length price. 'he overall objective of transfer pricing sho ld be to provide s fficient profit and motivation to the decentraliFed nits while at the same time meeting corporate profit targets.

%nce again, problems associated with transfer pricing in a domestic marketing sit ation become more complex in an international context. Setting t6e transfer 7ri)e 9.! AaB 'ransfer price less than open market price * m ltinational organiFation will find it beneficial to set its transfer price below the open market price in the following sit ations. AiB If the importing co ntry has a lower rate of profits than the exporting co ntry. In this sit ation, for the ethnocentric organiFation, dividend repatriation is easy. 'he problem here is that operating reven es and profits are distorted and problems of managerial motivation and appraisal arise. I? the importing co ntry has high tariff barriers, the impact of those barriers maybe lessened by charging a price below open market price and th s improve overall corporate profits. *s a competitive pricing strategy, it may be possible to penetrate a new, competitive market more 3 ickly by adopting a low initial transfer price Aprovided the market has high price elasticityB. If inflation is high in the exporting co ntry it may be possible to transfer f nds by high transfer pricing to an economically Csafe co ntry.

AiiB

AiiiB

AivB AbB

'ransfer price greater then open market price In the following circ mstances it may be beneficial to the organiFation to set the transfer price above open market price. AiB AiiB AiiiB If the importing co ntry taxes profits at a higher rate of tax than the exporting co ntry. If dividend repatriation is restricted. If tariffs are at a relatively low level in the importing co ntry.

33

AivB

If there is a fear of expropriation of assets the organiFation will wish to hold its cash assets in the most politically Cstable co ntry.

"ro<&ems of transfer 7ri)ing 9.$ 9.4 *s already mentioned, the problem of managerial motivation and eval ation may override a transfer price that has the best economic j stification. 'ax avoidance strategies are increasingly attracting the attention of governments and their tax a thorities. I+ the 6@ the Inland 8even e Afor profit tax effectsB the "epartment of ( stoms and /xcise Afor tariff effectsB and the &onopolies (ommission Afor the effects on fair competition and tradingB are all concerned with transfer pricing practices of m ltinational organiFations. -eca se of this Cp blic s rveillance international companies increasingly feel the need to be seen to be playing fair to both domestic and host co ntries and to nions and other gro ps. 9.7 A+ ;.1 ?inally, transfer pricing might, indirectly, be the s bject and anti#d mpling actions E!"ORT G$ATIONS Dere we are concerned with the make p of the export price. 'here are two important aspects of 3 oting export prices. AaB AbB 'he c rrency of the 3 otation. 'he terms

Foreign ).rren)y 7ri)ing ;.! *bo t ;=J of 6@ imports are paid for in foreign c rrency. Dowever abo t O=J of 6@ exports are invoiced in sterling. Since sterling has been in decline in recent years there are advantages to 6@ exporters to change towards invoicing in selected foreign c rrencies Aor indeed notional nits of acco nt, s ch as /(6sB.

Foreign eF)6ange risk ;.$ In international trade, the exporter m st invoice the b yer in a foreign c rrency Ae.g. the c rrency of the b yers co ntryB or the b yer m st pay in foreign c rrency Ae.g. the c rrency of the exporters co ntryB. It is also possible that the c rrency of payment will be the c rrency of a third co ntryH for example, a 6@ firm might sell goods to a b yer in -raFil and ask for payment in 6S dollars. %ne problem for importers is therefore the need to obtain foreign c rrency to make a payment, and for exporters there can be the problem of exchanging foreign c rrency received for c rrency of their own co ntry. -anks provide the service to importers and exporters of b ying and selling foreign c rrency. 'he cost of imports t the b yer or the val e of exports to the seller might be increased or red ced by movements in foreign exchange rates. ?or example, if a 6@ importer b ys goods from a 6S s pplier for T17,=== when the exchange rate between the 6S dollar and sterling is T1.9= to U1, the importer wo ld expect to pay UO,$;7 for the goods. Dowever, if by the time the date of payment arrives, the rate of exchange is T1.7= to U1 Ai.e. sterling has fallen in val e against the 6S dollarB the cost to the importer wo ld by U1=,===, or U9!7 more than originally anticipated.

;.4

34

;.7 'he 6S exporter wo ld receive T17,===, and wo ld not be affected by the exchange
rate movement. Dowever, in the same example, if the invoice had been in sterling Ae.g. for UO,$;7 rather than 6S T17,===B the 6@ importer wo ld not have had any foreign exchange risk. Instead the 6S exporter wo ld have inc rred a loss from the exchange rate movement from T1.9= to T1.7=, receiving AUO,$;7 x 1.7=B only T14,=9!,7= instead of the T17,=== originally expected. 'he firm paying in a foreign c rrency or earning reven e in a foreign c rrency therefore has a potential exchange risk form adverse movements in foreign exchange rates.

;.9 'here is also a change of making a profit o t of favo rable movements in exchange
rates b t, altho gh gains as well as losses can be made, movements in foreign exchange rates which occ r contin ally in the foreign exchange markets introd ce a serio s element of risk ACgambling of a Clottery on the way exchange rates moveB which might deter firms from entering international sales or p rchase agreements.

;.; 'he foreign exchange risk does not arise from a b siness that makes payments and
earns receipts in the same foreign c rrency, beca se payments in the c rrency can be made o t of cash income in the same c rrency. ?or example, if a 6@ company b ys goods from s pplier > costing 6S T1=,===, and at the same time the 6@ company sells goods abroad to c stomer , for 6S V1=,=== Ain dollarsB, the company can se the 6S T1=,=== it receives from c stomer , to pay the 6S T1=,=== dollars to s pplier > If Cmatching receipts and payments is carried o t in this way, the exchange rate between the foreign c rrency and the companys domestic c rrency wo ld be irrelevant and exchange risk wo ld be avoided.

;.< &atching receipts and payments is made easier by the ability of organiFations or
individ als in the 6@ to hold a foreign c rrency acco nt. ?or example, a company that earns receipts and makes payments in 6S dollars can choose to hold a 6S dollar acco nt with its 6@ bank, and to maintain as m ch of its dollar receipts as it chooses in this acco nt, ntil the time comes to se the c rrency to make dollar payments.

;.O &atching c rrency receipts and payments Aor c rrency receipts and the repayment of
c rrency loansB is only feasible if the international trader has receipts and payments in the same c rrency to match. &any traders are not so l cky, and m st eitherM aB make a AnetB payment in a foreign c rrencyH or bB earn AnetB receipts in a foreign c rrency.

;.O.1 ?oreign c rrency Cexpos re refers to this sit ation, and so any trader who has
foreign c rrency expos re inc rs a foreign exchange risk ie a risk of losses from adverse movements in exchange rates. It is possible to set p Chedging arrangements to red ce the risk of losses. 5 otation in own c rrency advantages It is administratively convenient. 'his is an important factor for the small firm or the firm where export reven e is a small proportion of total reven e.

;.1=

'he risk of variation in the exchange rate is born by the foreign c stomer.

35

3uotation in foreign currency ;.1$ Dere the exporter accepts any exchange risk of fl ct ating val es. 'his risk can be covered in the forward exchange market. 'he exporter however can accept exchange risks Aprofits or lossesB if he wishes, b t in this role exporters are acting as c rrency spec lators. Is this part of their missionN 'hese risks become even greater the Csofter a c rrency is Ai.e. the less easy to convert into other c rrenciesB. 'he exporter might be made v lnerable to a severe risk of loss.

Advantages of foreign currency pricing ;.14 Eere a forward market exists for a c rrency and where dealing is at a premi m to sterling, receivables may be sold forward A p to five years in some casesB from the date of a contract to increase their sterling reven e or lower the effective cost of sterling export finance Awhile at the same time minimiFing exchange riskB. *lso, thanks to any forward premi m the exporter co ld increase vol me by offering a lower c rrency price than the spot rate of exchange wo ld indicate, i.e. foreign c rrency pricing can help to sec re contracts in the first place. *n exporter can gain a competitive edge by 3 oting in a foreign c rrency if the importer wo ld prefer his own c rrency, either to avoid expos re to c rrency fl ct ation or beca se of exchange control reg lations. ?oreign c rrency pricing also makes it easy to relate to retail prices overseas. In addition, constant adj stment to a sterling price list is avoided. ?oreign c rrency invoicing can sometimes help exporters to borrow at lower rates of interest than at homes.

;.17

;.19

;.1;

4esolving differences between e1porter and importer ;.1< "espite the advantages of foreign c rrency pricing note above. 6@ exporters fre3 ently prefer to 3 ote prices in sterling. It makes calc lation of profits, cash flows and possibly costs easier and avoids expos re to exchange rate risks. - t foreign c stomers normally prefer to receive price 3 otations in their own c rrency since it places the risk of exchange rate fl ct ation on the exporter and facilitates comparison of prices from a n mber of foreign so rces. 8esol tion of this potential conflict depends to a large extend onG AaB AbB AcB the relative strengths of the two partiesH the importance of the contract to either partyH and occasionally the economic sit ation in both co ntries As ch as the balance of payments positionB.

;.1O

36

;.!=

Ehichever c rrency is need there are a n mber of ways of minimiFing problems ca sed by foreign c rrencies. AaB 'he simplest way is to have an appropriate cla se in the contract to adj st the price if it fl ct ates within agreed limits or to renegotiate if these are exceeded. AbB 'o p rchase Aor sellB forward as appropriate Asee aboveB whereby a fixed rate is agreed for the given s m at a specified date in the f t re by a bank. 'he net s m Aafter commissionB received or paid at the end of the period is at least g aranteed. AcB In a sit ation where either or both c rrencies are nstable a third c rrency can be 3 oted, e.g. the 6S dollar. * strengthening or weakening in one partys c rrency wo ld be felt in relation to the dollar and the other party wo ld not be affected. /ach party to the transaction th s takes on the risk associated with its own c rrency. If the dollar changed val e, it wo ld be likely to be relative to both c rrencies and the risk Aor benefitsB wo ld be shared. 'he one disadvantage is that there is a do ble exchange transaction involved. Dowever, this may be more acceptable than other alternatives.

Terms of a 7ri)e 1.otation ;.!1 Ehatever the pricing objectives or the basis for pricing of an organiFation, cost aspects are of vital importance as a g ide. In more ethnocentric export companies, overseas prices are based on domestic prices pl s additional costs of freight etc. %ften however the domestic price will incl de costs not relevant to the export sit ation, e.g. domestic advertising, selling, distrib tion etc. %ne of the key tasks of the international marketer involved in pricing decisions is to take into acco nt all the relevant costs in order that exports achieve the defined level of profitability or market share. Shipping terms ;.!! In addition to the obvio s man fact ring costs of he exporter they are be significant extra costs in getting the goods to a foreign b yer. :enerally, the costs of )hysical movements are as followsG aB bB cB dB eB fB ;.!$ ;.!4 transport from the man fact rers premises to the docksH loading aboard shipH freight chargesH nloading c stoms d tiesH and transport from the docks to the c stomers wareho se

*s well as these costs of physical movement there are also ins rance charges and possibly additional costs for any delays. 'here are a n mber of internationally accepted standard forms of dividing these costs between b yer and seller. Eho pays what, and who is responsible for arranging for the transport, has to be confirmed when the sale contract is agreed.

37

;.!7

'he standard forms are known as I+(%'/8&S and have been designated by the International (hamber of (ommerce. ,o will note that many of the descriptions contain the term Cfree. 'his indicated the time at which legal title passes from seller to b yer Aand th s risk of loss in case of damage, theft and so forthB. *mong the more common forms of 3 otation are the followingG &a' 56.: 51-wor/s

;.!9

'he b yer m st take delivery at the exporters factory and pay all the costs of freight, ins rance and other expense items to get the goods transported from the s pplier factory to their destination. 'his represents the minim m obligations for the seller. &bB )A#: )ree Alongside #hip AiB 'he seller arranges toG A1B deliver the goods alongside the named ship at the port of loading named in the contractH and A!B pay all the charges p to delivery of the goods alongside ship, incl ding freight and ins rance charges to that point. AiiB 'he b yer is responsible forG A1B choosing the carrier to transport the goods abroad and paying the cost of freight from the port of shipment incl ding the cost of loading the goods on board ship Aif loading costs are separate from freight chargesBG A!B arranging ins rance and paying ins rance from arrival at the dockside onwardsH and A$B arranging and paying for any export license and export taxes. 'he point of delivery of the goods from the seller to the b yer is alongside the ship. ;.!; ?or example C?*S ?elixstowe for the export of goods by a 6@ firm to an overseas b yer wo ld mean that the exporter m stG AaB AbB deliver the goods free alongside ship at ?elixstoweH and pay all the costs, incl ding freight and ins rance, to bring the goods alongside the ship at ?elixstowe.

;.!<

'he overseas b yer m st nominate the carrierAsB to take the goods from ?elixstowe to their destination and AaB pay freight from ?elixstowe, Ab= pay export charges Aif anyB, AcO pay for loading the goods on board ship Aif separate from freight chargesB, and AdB pay for ins rance of the goods from their timeKpoint of delivery at ?elixstowe.

38

FO%/ Free on %oar* ;.!O ?%- means that the b yer does not have to pay for transporting or ins ring the goods from the place where they are originally dispatched p to the point when they are taken on board ship. 'he costs p to this point are borne by the sellerKexporter. 'he place of delivery is the ships rail. 'he sellerKexporter m stG AaB pay for transportation, freight and ins rance charges to the named port of shipment Ae.g. C?%- 2%S *ngles wo ld mean that an *merican s pplier wo ld be responsible for sending goods for shipment on board at 2os *ngeles, and to pay cost s p to that pointBH provide and pay for the export licenseH pay export taxes deliver the goods on board the ship Aor airline flight etcB that the b yer has specifiedH pay for the cost of loading the goods on board ship Aif loading costs are separate from freight chargesBH

;.$=

AbB AcB AdB AeB ;.$1

'he b yer m stG AaB nominate the carrier to transport the goods Ae.g. if the shipping terms for an export consignment from the 6@ are ?%- Stranraer, it is the b yer who specifies the shipping company, sailing date and timeBH give the seller the details of the ship and sailing timeH pay for the carriage from this point Aie freight from that point, incl ding costs of nloading at the place of destinationBH arrange and pay for ins rance of the goods from this point.

AbB W AdB

CFR/ Cost an* Freig6t ;.$! Eith (ost and ?reight, the exporterKseller m st nominate the carrier to ship the goods abroad, arrange the contract of carriage and pay freight charges. In these respects, (?8 differs from ?%-. 'he seller m stG AaB AbB AcB AdB AeB nominate the carrier and so make the contract of carriageH pay for transportation of the goods to the place of shipment and ins re the goods p to this pointH provide and pay for the export licenseH pay export taxesH deliver the goods on boardH

;.$$

39

AfB AgB AhB

pay for the cost of loading the goods if the loading charge is separate from the freight chargeH provide the b yer with a clean on board bill of ladingH pay the cost freight charges to the named port of destination Aeg, C(?8 8otterdam wo ld mean that the 6@ exporter m st pay freight charges for delivery to the port of 8otterdamBH send to the b yer advice of the carrier and the shipment date.

AiB ;.$4

'ho gh the s pplier pays the freight charges to the ort of destination, the place of delivery of the goods is the ships rail when the goods are taken on board,. Ehen they are on board, they are the responsibility of the b yer. In a (?8 contract, the s pplier is paying freight charges for goods that have already been delivered to the b yer. 'he b yer m stG AaB AbB AcB AdB pay for the ins rance of the goods from the time they are taken on board, and so the b yer henceforward bears the risk of loss or damage to the goodsH pay for nloading costs at the port of destination if these costs are separate from the freight charges. )ay for any import license re3 iredH *ccept delivery of the goods, when the appropriate doc ments Aeg bill of lading, invoiceB have been presented, an obligation of great practical importance beca se the s pplier does not want the b yer to ref se the goods after they have been shipped to the b yers co ntry, the seller already having paid freight charges to get them theeH *rrange and pay for transportation and ins rance from the port of destination to their final destination in the b yers co ntry.

;.$7

AeB

(I?G (ost, Ins rance and ?reight. ;.$9 (ost, ins rance and freight is similar to (?8, with the exception that it is the seller, not the b yer, who m st arrange and pay for the ins rance of the goods to the port of destination. 'he obligations of the seller are therefore the same as for (?8, except that additionally the seller m stG AaB arrange for ins rance of he goods from the port of shipment to the port of destination Athe amo nt of ins rance cover is often the (I? val e of the goods pl s 1=JBH pay the ins rance premi mH provide the b yer with the ins rance policy or certificate.

;.$;

AbB AcB ;.$<

Eith (I?, the place of delivery by the seller is still the ships rail when the goods are taken on board so that the ins rance taken o t by the seller will be in favo r of the b yer in the event of loss or damage etc to the goods d ring shipment.

40

;.$O

'he b yers obligations are the same as for (?8, with the exception that he does not have to pay for the ins rance of the goods between the port of shipment and the port of destination. 'he terms of shipment might therefore by L(I? Dong @ong meaning that the exporter ndertakes to pay for the freight charges and ins rance of the goods to the port of destination, which is Dong @ong. If terms for an import of goods from 'aiwan are C(I? 6@ port this means that the exporter in 'aiwan can deliver the goods to any 6@ port. 'he 6@ importer wo ld obvio sly be well advised to have the port of delivery specified to avoid nnecessary transport costs in the 6@.

;.4=

;.41

DD"/ De&i-ere* *.ty 7ai* ;.4! 'he seller m st pay the costs of delivering the goods to the named destination, having paid import d ties on the goods. 'he seller m st therefore pay the import d ties or taxes, arrange and pay ins rance and provide doc ments that will enable the b yer to take delivery. 'he b yers responsibility is to take delivery of the goods at the named destination. 'his represents the maxim m obligation for the seller. MET#ODS OF "AYMENT In the context of international marketing there are three essential elements in taking pricing decisionsG AaB AbB AcB determining the basis of calc lating the price Aeg cost pl s, transfer price, local market price and so forthBH agreeing with the seller the basis of shipping, ins rance etcH and agreeing with the seller the method of payment.

B+ <.1

'he first two of these have been considered above and this section is devoted to the third. <.! 'here are any n mber of variations in the method of payment that may be agreed between the exporting company and its c stomer b t the following provide a series of Cyardsticks. 'hey are listed in order of increasing risk for the exporter. AaB AbB AcB AdB AeB )ayment in advance. 2etters of credit Adoc mentary creditsB. )ayment on shipment. "oc mentary collections. %pen acco nt trading.

"ayment in a*-an)e <.$ 'he most sec re method of payment for an exporter is to obtain payment in f ll in advance of shipping the goods. De will then not have any risk that the foreign b yer will ref se the pay or be nable to pay for goods that have already been shipped to him. )ayment in advance also means that the exporter, by not giving the b yer any credit, does not have to finance the sale himself for a credit period, and so does not tie p working capital for exports Aforeign debtorsB.

41

<.4 <.7

Dowever, when payment is made in advance, the exporter sho ld make s re that the f nds are cleared first before making the shipment. )artic lar care sho ld be taken when the che3 e, draft or other payment order calls for payment in the b yers own co ntry, or in another co ntry other than the exporters own. In s ch circ mstances, it is possible that the exporters bank will insist on either. AaB negotiating the che3 e etc. with reco rse, which means that if the foreign b yer stops the che3 e or is nable to pay beca se he lacks the f nds etc, the bank will have reco rse to the exporter for a ret rn of the paymentH or a collection arrangement for obtaining the f nds from abroad.

AbB <.9.

)ayment in advance gives sec rity to the exporter. 'he obvio s drawback to payment in advance is the risk for the b yer that the exporter will not act ally dispatch the goods, or if he does dispatch them, that they will not arrive in the re3 ired condition or to the right specification. It also means that he b yer is financing the sale for some time before he takes physical possession of the goods. *s yo may imagine, 1==J cash with order is not a common form of payment. Dowever, it is 3 ite common for the overseas b yer to pay a cash deposit in advance, and then to pay the balance by another method.

<.;

etters of )re*it (*o).mentary )re*its) <.< 'he doc mentary credit system is a method of payment in international trade which gives a g arantee of payment to the exporter provided that it complies with vario s terms and conditions As ch as providing specified doc ments to a bank for checking after shipment of the goods and shipping the goods within a certain timeB.

<.O "oc mentary credits re3 ire international cooperation thro gh the banking system. 'he interests of promoting international trade are helped by international agreed standard proced res and these have been form lated by the International (hamber of (ommerce. <.1=. In brief, the doc mentary credit system works as followsG #tage + #tage 7 #tage 8 'he b yer and seller AexporterB agree a sales contract that incl des payment by a doc mentary credit 'he foreign b yer re3 ests his own ACforeignB bank to iss e a letter of credit in favo r of the b yer. 'he foreign bank iss es a letter of credit in favo r of the b yer. -y doing so it is g aranteeing payment to the exporter provided that the latter complies with the terms and conditions 'he foreign bank asks a bank in the exporters co ntry to advise the credit to the exporter. 'his does not necessarily involve the latter in making any commitment to the exporter to add its own g arantee of payment b t if it does so it is then known as a confirmed letter of credit.

#tage 9

42

#tage *

*fter shipping the goods the exporter has to present the doc ments specified by the letter of credit. 'hese normally incl de a commercial invoice, bill of lading and ins rance certificate. )rovided the doc ments are in order the exporter arranges for payment to be made Aeither immediately or on deferred termsB by the b yers bank.

#tage :

<.11

+ot s rprisingly, all this international activity costs money. 'he cost of iss ing a letter of credit is s ally borne by the b yer, altho gh the b yer may be able to pers ade the exporter to bear some or all of the costs and charges. Eho pays what costs depends of the relative bargaining strength of the two parties.

4evocable and irrevocable letters of credit <.1! 'hese are the two basic types of doc mentary credit. AaB * revocable credit allows the foreign b yer to amend the credit Aor even cancel itB witho t giving prior notice to the exporter. 'he right to amend or cancel can be exercised by the b yer at any time p to payments begin made to the exporter. (onse3 ently there is a risk that the credit Ai.e. bank g aranteeB will be withdrawn after the exporter had made, and even shipped, the goods. " e to their insec rity, revocable credits are similar in their risk profile to trading on open acco nt and therefore rare. AbB *n irrevocable credit can be amended or cancelled only with the agreement of all parties to the credit Ai.e. b yer, iss ing bank, advising bank and exporterB. It therefore gives greater sec rity to the exporter beca se the iss ing banks g arantee remains in force, even if the b yer changes his mind.

<.1$

*ltho gh the irrevocable letter of credit gives the exporter the g arantee of a foreign bank, the exporter may not be entirely happy relying on a bank abo t which the exporter has little information in a co ntry that might, for example, impose exchange controls. 'his can be overcome by confirmation Aor additional g arantee of paymentB by a bank in the exporters own co ntry. In the 6@ an exporter might ask for a credit to be confirmed by a first#class 2ondon bank Ae.g. one of the clearersB. * confirmed irrevocable letter of credit th s gives greater sec rity to the exporter beca se the g arantee is given by a bank in the exporters own co ntry. It makes little difference to the b yer whether it is confirmed or nconfirmed beca se the b yer event ally pays the iss ing bank Athe b yers own bankB which g arantees payment to the exporter whether the irrevocable credit is confirmed or not. 'here are, of co rse, extra bank charges for a confirmed letter of credit b t the b yer may be able to pers ade the exporter to pay for he additional sec rity.

43

"ayment .7on s6i7ment of t6e goo*s <.1! 'he exporter and overseas b yer might agree an arrangement whereby the b yer pays for the goods as soon as they are shipped. 'he exporter wo ld have to cable or telex the b yer to notify him of the shipment, giving f ll details of the shipment, and then expect the b yer to make an immediate payment. 'he goods will therefore be in transit or at their point of destination when the payment is received. Sec rity is provided to the exporter beca se there are doc ments of title to the shipped goods, and the exporter can arrange to keep these doc ments ntil payment has been received. If the b yer does not make the payment on shipment, or if the f nds are not cleared, the exporter will still have title to the goods, beca se he holds the doc ments of tile. Dowever, the goods wo ld now be in transit and so he wo ld have the problem of deciding what to do with them when they arrive at their destination.

<.17

<.19

Do).mentary )o&&e)tions <.1; "oc mentary collections involve the exporter asking his bank to help with the arrangements for payment, by handling shipping doc ments as well as a bill of exchange or a che3 e. 'hey provide some sec rity of payment for the exporter beca se the banks involved in a collection sho ld act in accordance with the internationally accepted r les that apply to collections. 'he system works as shown in ?ig re ;.!. below. ?ig re ;.! "(5A; "0((5"T<0; /xporter

(ommercial doc ments Asent direct to b yerB

)inancial documents

8emitting bank

(ollectingKpresenting bank

- yer

44

<.1<

* significant feat re of a doc mentary collection is that if a bank is instr cted to handle commercial doc ments which incl de a bill of lading, the exporter can keep control over the goods ntil the b yer has either paid for them or accepted a bill of exchange. 'his is beca seG AaB AbB the bill of lading is a doc ment of titleH and a f ll set of the signed originals of this doc ment can be kept by the bank ntil the foreign b yerG AiB pays for the goods which may have arrived at their port of destination b t which the b yer cannot take possession of witho t the bill or ladingH or accepts a bill of exchange and gives it to the Ccollecting bankH or iss es a promissory note.

AiiB AiiiB <.1O

'he bank therefore has Cconstr ctive control over title to the goods and m st only release this title when the b yer complies with the re3 irements of the exporter, as set o t in the collection order.

O7en a))o.nt tra*ing <.!= %pen acco nt trading is the most risky method of trading for exporters, altho gh it acco nts for some ;=J of 6@ exports. Dowever, when trading relations between an exporter and b yer are well#established, and sovereign and co ntry risk are considered low or non#existent, then open acco nt trading might be perfectly acceptable witho t excessive risk for the exporter. %pen acco nt trading has developed 3 ite extensively between co ntries in the /( for these reasons. * f rther point to bear in mind is that a vast amo nt of world trade occ rs between fellow members of m ltinational gro ps Ae.g. a vehicle man fact rer assembling cars in co ntry * with engines and gearboxes bo ght from its sister companies in co ntries - and (B. It is fair to ask why an exporter, who is worried abo t the risk of non#payment, does not insist on payment in advance, payment on shipment or a letter of credit every time he or she exports importer. 'he exporter is often nable to get payment terms, which wo ld be desirable in an ideal world, beca se of the fierce competition in international trade. If the importer does not lie the payment terms, another s pplier who might offer more favao rable terms.

<.!1

%i&&s of EF)6ange <.!! 'he methods of payment described above have foc sed on the degree of risk inc rred by the exporter. *S the final item in this chapter we look at the techni3 e of payment known as a -ill of /xchange. 'his can be co pled with a n mber of different payment methods b t is s ch an important and established means of payment in international trade that it is worthy of consideration in its own right.

45

<.!$

* bill of exchange is defined asG AaB AaB AcB AdB AeB AfB AgB AhB AiB an nconditional order in writingH addressed by one person Athe drawerBH to another Athe draweeBH signed by the person giving itH re3 iring the person to whom it is addressedH to payH on demand, or at a fixed or determinable f t re timeH a s m certain in moneyH to, or to the order of, a specified person, or to bearer.

<.!4

'h s it is basically a re3 est for payment, normally from the s pplier AexporterB to the c stomer. * bill known as a Cterm bill allows the recipient a period of credit before payment. Ehen s ch a bill is sent to the c stomer he is expected to sign it as the Cacceptor and the bill becomes an Caccepted bill. FOREIGN MARKET "RICING Dere we are concerned with pricing strategies for prod cts that are both prod ced and marketed in an overseas co ntry. 'he extent of pricing control exercised from o tside that co ntry will depend on the organisations str ct re. AaB AbB AcB 5thnocentric approach: gro p head3 arters dictates its s bsidiarys pricing decisions totally. !olycentric approach: the s bsidiaries are a tonomo s. =eocentric approach: control varies depending on the sit ation, perhaps the best of both worlds.

H+ O.1

O.!

In most cases pricing decisions in foreign markets are based on the same principles as domestic pricing. Dowever foreign governments infl ence pricing decisions to a greater or lesser extent. *n international company m st be aware of the price legislation in each of the co ntries in which it operates. 'here are broadly two of government infl ences in pricing decisionsG AaB AbB price controlsH restrictive practices control

"ri)e )ontro&s O.$ 'hese tend to become widespread when inflation takes hold. :overnments either forbid or lay down certain conditions for price increases. )rice controls still feat re in some co ntries for basic commodities Ae.g. bread in /gypB. :overnments may also take the view that setting minim m prices is in the p blic interest by maintaining competition. 'hey may also set maxim m prices,

s ally for certain basic prod cts, Ae.g. foodB and in some instances lay down profit restrictions which will affect price levels.
Restri)ti-e 7ra)ti)es )ontro&s

46

O.4

* restrictive practice is an agreement or practice which prevents, restricts or distorts competition. 'he government control of s ch practices will have effects on foreign market pricing. &any co ntries have a government agency whose main task is to protect the national or p blic interest by controlling s ch practices Ain the 6@, the %ffice of ?air 'radingB.

47

COMM$NICATIONS DECISIONS IN INTERNATIONA MARKETS C+ 1.1 "RO% EMS IN INTERNATIONA "ROMOTION /ffective comm nications are partic larly important in international marketing, d e to the geographical and psychological separation of the prod cer and its market. (onse3 ently, the international marketer has to rely more on intermediaries and impersonal comm nication for a major part of the comm nication process. 'he methods of promotion in any one market will be affected byG AaB AbB AcB AdB AeB AfB AgB 1.$ the promotional objectives for that marketH c lt ral and other social constraintsH facilities available for promotional effort in the marketH economic developmentH distrib tion infrastr ct reH media availabilityH and competition

1.!

*ltho gh in some circ mstances it is possible broadly to standardiFe promotional messages, as for (oca (ola, generally the lang age, media and other elements need to be altered. Standardised promotion refers essentially to the themes and messages portrayed in the promotion rather than identical media and a diences. Standardisation is rare and can only occ r when the prod ct and its c lt ral meaning are more or less identical across a n mber of co ntries and c lt res. 'he more normal state of affairs is that of adaptation of promotional effort to match the different comm nication re3 irements of the market in 3 estion.

"romotiona& o<8e)ti-es 1.4 In new or developing markets the promotional objectives may be to create awareness and enco rage trial. In mat re markets the objectives will be to enco rage repeat p rchase and remind the c stomer. 'he objectives chosen will th s infl ence the promotional campaign for a market. 'h s in a new market the se of Csamples may be sed to enco rage trial b t in a mat re market the se of Cprice off next p rchase co pons Aif allowedB might be more appropriate.

C.&t.ra& an* ot6er so)ia& )onstraints in 7romotion 1.7 2ang age often presents a problem. 2iteral translation rarely worksG there is a story that Ccome alive with )epsi when translated into one lang age means raising the dead to life. Similarly brands may r n into problemsH one only has to mention )schitt, a ?rench lemonade, to make the point. 2ang age problems can be overcome by translation and back translation to ens re meaning is conveyed properly. &ore f ndamental areG AaB AbB AcB gender rolesH context in which the prod ct is sedH who will se the prod ct

48

1.9

'h s in the relatively liberated gender climate of the 6@, an advertisement showing a man cooking for the family does not ca se comment A+ew 1ealand lamb '0 advertisementB, b t in co ntries with more rigid gender codes, this may well be fo nd to be abs rd or offensive. Similarly the se of gro nd coffee in the 6@ is still largely on special occasions where visitors or celebratory meals are involved. In ?rance it is an everyday prod ct. 'he promotion sho ld reflect these differences.

ega& )onstraints in 7romotion 1.; 'he international marketer faces a legal minefield when considering promotional methods. In the 6@, altho gh considerable tightening p is in progress, the attit de towards promotional claims is relatively liberal, as is the attit de to what is promoted, when and where. C8eaching the parts that other beers cannot reach co ld only be claimed in the 6@, where the diversity of the /nglish lang age allows irony, overstatement and p ns. 2egal constraints may exist coveringG AaB AbB AcB AdB AeB 1.< what can be claimedH what prod cts may be promotedH what media may be sedH when they may be promotedH and how m ch may be spent on promotion.

'he 6@ has fallen in line with the rest of the /6 in banning tobacco advertisements on '0 Aincl ding the loss of the irony#laden Damlet advertisementsB. ?rance is amongst a host of co ntries that reg late what can be said in an advertisement, and most Scandinavian co ntries prohibit '0 advertising of tobacco in any form. 'his legal minefield s ally means that some local professional advice is necessary before a promotion is considered in a foreign co ntry. 'his may be the distrib tor Awho may have promotional responsibility anywayB or a local advertising agency.

Fa)i&ities a-ai&a<&e in t6e market 1.O 'he 6@ is pec liar in having largely national media Anewspapers, '0, radio, billboards and cinema for exampleB, which not only allow f ll market coverage b t also provide a m lti#media option to the promoter. (overage by the vario s media may be limited byG AaB AbB AcB 1.1= the media organiFation being localiFedH circ lation K a dience limitationsH and real restrictions.

In co ntries with low literacy, newspaper and magaFines will only be read by the ed cated elite. 8adio, '0 or posters co ld be better sol tions. In some co ntries the media is regionaliFed rather than nationwide, ca sing problems in coordination of promotional campaigns.

E)onomi) *e-e&o7ment 1.11 'he level of economic development will affect the amo nt and way in which a prod ct is sed, affecting the message. It may also be connected with ed cational and literacy levels, affecting the choice of media.

49

Distri<.tion infrastr.)t.re 1.1! 'he nat re of the trading channels in the market will determine their ability to provide all or even part of the promotional effort in a market. 'h s, a distrib tion system which consists mainly of small scale market traders cannot be expected to promote the prod ct to any significant degree, b t a major distrib tor s ch as (adb ry# Schweppes in the 6@ co ld be expected to promote (oco (ola as part of the dealership.

Me*ia a-ai&a<i&ity 1.1$ +ot all media are available in a market d e to economic, ed cational and legal considerations Adisc ssed aboveB and hence the international marketer may need to adapt the promotion to more n s al media in order to gain ade3 ate coverage of the market. Sometimes, the appropriate media may not exist and the promoter may have to sponsor the media Ae.g. a free advertising sheet, or a radio stationB.

Com7etition 1.14 'he level of competition will of co rse, affect the promotional programme in a co ntry. 'he entry of a foreign competitor into a market will normally provoke a response from local operators, be they indigeno s or existing international companies. 'h s, the entrant will have to consider not only the promotional programme b t his response to competition. 'he above disc ssion s ggests that promotion in international marketsG AaB AbB :+ !.1 s ally needs adaptationH and s ally needs expert advice.

1.17

T#E INTERNATIONA "ROMOTIONA MI! )ossible media for promotion areG AaB AbB AcB AdB AeB AfB trade and professional jo rnalsH cons mer media AmagaFines, newspapers, '0, radio, posters, etcBH direct mailH trade fairs and missionsH personal sellingH and telemarketing.

Tra*e an* 7rofessiona& 8o.rna&s !.! Ehere they are available, these p blications have the advantage of providing a targeted a dience with little Cwastage. " e to the nat re of the jo rnals, literacy levels and technical expertise will be high. 'hey provide excellent b siness# to# b siness contact b t are ns itable for cons mer marketing beca se of their restricted circ lation and technical content. &any 6@ professional and trade jo rnals have significant foreign readership. "etails of foreign p blications can be fo nd in s ch p blications as Standard 8ate ad "ata Services Cb siness p blications for most major co ntries. -eca se of the high cost of advertising it is s al to limit advertising to a few key markets where the market t rnover j stifies s ch investment.

50

Cons.mer me*ia !.$ Dere the directed nat re and coverage of the media are open to 3 estion. &ajor media gro ps with international connections provide reports on readership and reader profiles. In many co ntries however, the data on cons mer media are sparse and the international marketer has to rely heavily on local knowledge. Iss es to consider incl deG AaB AbB AcB AdB AeB AfB !.4 extent of target market coverageH image carried by the medi mH literacy levelsH ownershipKrelationshipH ability to convey the messageH the cost of contact A s ally expressed as cost per 1,=== a dienceB.

In nderdeveloped co ntries where literacy and low incomes combine to provide low market coverage for newspapers, magaFines, '0 and radio, the se of posters and handbills A s ally handed o t in key trading centersB sho ld be considered as an alternative.

Dire)t mai& !.7 In most developed co ntries s itable listings based on company or cons mer segmentation profiles are widely available. ?or trade contacts, the se of international b yers g ides A@ellys or " nn and -radstreet, for exampleB provide ade3 ate contacts. In developing or lesser developed co ntries the international marketer may find that s ch information is harder to come by. 'he major problem with sing direct mail in an international context is the inability to Cfollow p en3 iries generated. 'h s it is important that the local sales office, agent or distrib tor in that co ntry is provided with leads as 3 ickly as possible. In developed markets direct mail can be sed in several waysG AaB AbB AcB direct response promotion, that is b ying Coff the pegH to generate en3 iries for more personal contactH and to provide an introd ction for personal contact

!.9

:enerally direct mail tends to be more expensive than advertising in terms of contact costs, and has only slightly more response. Dowever, it can have the advantage of providing more targeted a dience, which can save money significantly. Tra*e fairs an* missions !.; 'rade fairs are probably one of the most effective methods of initial b siness #to #b siness contact, providing an opport nity for prod cers, distrib tors and c stomers to meet. 'hey allow not only comm nication with a targeted a dience b t also the ability to demonstrate and provide trial of the prod ct or service. *ltho gh Cfairs exist in the cons mer markets, they are less attractive and effective to the international marketer.

51

!.<

?or smaller companies, the high cost of a presence at some of the major fairs, and the possibility of being ignored in the presence of major international competitors has led to the development of Cfringe ven es, s ch as a local hotel, where the company may display its offers witho t competitor presence. 'he client is often enco raged to attend by direct mail invitations and the provision of refreshments. *dvantages of trade fairs incl de the following. AaB AbB AcB AdB AeB 'he ability to let potential c stomers see demonstrations and trial. 'he ability to make personal contact with existing and potential c stomers to maintain and develop relationships. *llowing direct contact with major decision makers and infl encers at a time when they are interested in the prod ct. )roviding an opport nity for market research, s ch as competitor activity and b yer response. (ontacting a large n mber of potential c stomers in one place.

!.O.

'he principal disadvantage of trade fairs is cost, especially for smaller companies forced to compete with large m ltinational exhibitors. &ost trade fairs are, by their nat re, specific to a partic lar trade, s ch as Cengineering or Ctoys. Ehere internationally renowned trade fairs are held in yo r own co ntry, attendance sho ld be considered both from the domestic and international perspective.

"ersona& se&&ing !.1= In international marketing personal selling will be re3 ired one or more times in the trading channel. )ersonal selling is expensive b t effective. :iven the right s pport a good salesman can convert abo t one in three prospects. 'his compares to abo t one in 7= with direct mail and advertising as a maxim m. 'h s advertising and direct mail can be sed to generate en3 iries, and the expensive reso rce, the salesman, can be sed to convert the lead to an order. 'he international salesman cannot work in isolation. If the salesperson is to be efficient and effective, s pport m st incl deG AaB AbB AcB !.1! generation of en3 iriesH prod ct literat re and samples where relevantH and information on price, delivery and terms.

!.11

'he international salesperson will re3 ire several attrib tesG AaB AbB AcB AdB AeB AfB AgB knowledge of the prod ct and marketH lang age and c lt ral knowledge specific to the co ntryH technical knowledge where necessaryH contacts, preferably from experience in the marketH s itable personalityH selling skillsH and motivation to s cceed.

!.1$

)ersonal selling can only be j stified where the contrib tion, that is that combined effect of margin and order siFe, is s fficient to j stify the costs involved. 'h s, it is ideal in b siness# to# b siness marketing and might be essential in dealing with government p rchasing agencies.

52

'elemarketing !.14 'elemarketing, that is the se of telephone to sell, is often sed domesticallyG AaB AbB AcB !.17 to prospect potential c stomers for personal sellingH to handle repeat p rchases not re3 iring personal visitsH to deal with c stomer en3 iries or complaints.

Ehilst widely accepted in b siness#to#b siness trading, the acceptance of telemarketing in cons mer markets, especially in prospecting c stomers, is not so widely accepted. 'h s, in the 6@ there is more resistance to telemarketing than in the 6S*. In ?rance the existence of &I+I'/2 has allowed the growth of telephone ordering to a considerable degree, one so rce claims that $=J of retail sales are now via telephone. In the international context, the lack of a telecomm nications infrastr ct re and c lt ral inhibitions to telephone selling may limit the attraction of this medi m. 'elephone ownership varies considerably. In most developed co ntries there is at least one telephone for every two people, showing widespread telephone access. In the former /astern block it is one telephone per ten people, in - rma one per ;7= people and in "emocratic 8ep blic of (ongo, one per !,1== people. * f rther consideration is the ability to Cfollow p calls. 'elemarketing re3 ires the ability to react accordingly and th s probably works best from within a market rather than on a co ntry#to#co ntry basis. International directories are widely available and both -' and ,ellow )ages offer list broking services to the international telemarketer.

!.19

!.1;

!.1<

:enerally, the impersonal methods of comm nication are less expensive in terms of cost per contact, b t less effective than personal comm nication in Cgetting the order. 'he order siFe and potential contrib tion may well dictate the appropriate medi m. 'h s high val e, high vol me sales on a b siness to b siness warrant trade fair visits, and foreign sales representations, whereas cons mer comm nications are better s ited to indirect methods s ch as advertisement " ANNING T#E INTERNATIONA "ROMOTIONA CAM"AIGN In planning an international promotional campaign the international marketer needs to make decisions concerningG AaB AbB AcB AdB AeB AfB AgB professional assistanceH the messageH the mediaH the promotional b dgetH monitoring and controlH organiFationH and independent or cooperative promotion

;+ $.1

53

"rofessiona& assistan)e $.! 'he normal form of assistance is to hire an advertising agency eitherG AaB AbB $.$ international agency with local officesH local agencies in each market

In making the decision the international marketing manager sho ld considerG AaB AbB AcB AdB AeB AfB AgB AhB AiB AjB knowledge and coverage of the relevant marketH 3 ality and rep tation within each marketH additional services provided Afor example, market research, p blic relations, etc.B ability of international marketeers own organiFationH ability to liaise with agency easilyH whether the campaign is to be standardiFed or notH val e of promotional b dgetH attit de in market to international vs local imageH organiFation of international marketeers companyH and degree to which marketer is responsible for promotion.

'he criteria to se in selecting an advertising agency were explored in (hapter $. $.4 'h s a small firm exporting to one market and wishing to perhaps ,organiFe a stand at a trade fair, wo ld probably be best to se a 6@ based agency with local connections beca se it may well have lang age and comm nication problems and lacks experience in the foreign market. %n the other hand, a large international company s ch as >erox wo ld prefer to se an international agency with local offices beca se of he standardiFed nat re of their promotional campaign. Se&e)ting t6e message $.7 Ehilst commonality of needs is largely recogniFed worldwide, the way in which these needs are satisfied varies, as does the fre3 ency with which these needs occ r in any society. Social and c lt ral val es will almost inevitably mean that selecting the message will re3 ire a local office or a local distrib tor. ? rther considerations concernG AaB AbB AcB $.9 localiFed or standardiFed campaignsH market conditionsH and market segments so ght

'he degree to which promotion sho ld be standardiFed is a diffic lt decision. Ehere the prod ct or service is perceived or sed in a significantly different way, the message has to be adapted. 'h s, &c"onalds in &oscow is a relatively expensive p rchase, not able to be cons med 3 ickly Aa two ho r 3 e eB, and is regarded more as a special Ctreat rather than an everyday 3 ick, convenient snack. Ehere the media availability and market coverage is significantly different from the home market, a new and different media campaign will be re3 ired. ?inally, legal restrictions may force both message and media adaptation.

54

Se&e)tion me*ia $.; *s s ggested in the disc ssion above, the availability, cost and effectiveness of media may not be the same as in domestic markets. In considering the se of any media one needs to take into acco ntG AaB AbB AcB AdB AeB AfB $.< the target market yo wish to contactH degree of market coverageH legal restraints on sing the medi mH physical constraints of medi m Ae.g. ability to show colo r etc.BH degree of c stomer response to the medi mH and cost per en3 iry generated.

:enerally, nless yo are a m ltinational company operating in a partic lar co ntry, s ch information will be diffic lt to obtain. 'he advice of either yo r local distrib tor or advertising agency sho ld be so ght.

De)i*ing on t6e 7romotiona& <.*get $.O *s in domestic markets there are several methods sed to decide on international promotionalAadvertisisngB b dgetG AaB AbB AcB AdB AeB $.1= what can be affordedH percentage of sales competitor parityH historical precedentH and objective f nding.

'he first two are the most common. 6nfort nately, they do not take into acco nt either competition or the re3 irements to achieve sales objectives. In fact, all the first fo r tho gh sed, are flawed in their logic. %bjective f nding is based on the ass mption thatG AaB AbB AcB sales objectives in a partic lar market can be 3 antifiedH the appropriate level of promotion determinedH and the f nding necessary will be provided

$.11

'his is a more appropriate method of deciding on promotional b dgets, and has the advantage that when sales are hard to obtain, a case can be made for an appropriate b dget. In practice promotion is often regarded as an Coptional cost and considerable diplomacy is re3 ired by the international marketer to j stify an increased b dget at a time of financial stringency.

55

Monitoring an* )ontro& $.1! Investment of any kind sho ld be related to the Cret rn that the investment generates, and this applies e3 ally to promotional campaigns. (osts are s ally easy to obtain from the international records. 'he response generated is often ignored. 'ypical monitoring meas res co ld incl deG AaB AbB AcB coding advertisements so that en3 iries can be related to a partic lar medi m or advertisementH comparing response rates between mediaH and comparing against other salesforce, calls and orders per call to establish the costs of contact and order generation.

Organising internationa& 7romotion $.1$ 6nless the company is large and experienced internationally, centraliFed promotion is not advisable. 'h s in most cases the company will rely on the advice and help of both the local distrib tors and agency in a partic lar market for operational and administrative decisions. Strategic decisions will always be the domain of the company. )romotional campaigns and s pport are often disc ssed as part of the ann al review with agents and distrib tors and form part of the total Cincentive to s ch. In*e7en*ent or )oo7erati-e 7romotion $.14 )art of the task of a channel of distrib tion is that of promoting the prod ct. 'he problem is deciding who does the promotion. 'rade promotion is s ally ndertaken by the prod cer in most markets with en3 iries being direct to the distrib tor or agent. Ehere cons mer markets are involved the main distrib tor in any co ntry is s ally re3 ired to provide the promotion. Smaller distrib tors s ch as retailers may well be tempted to promote the prod ct locally to the end sers, if an incentive is offered in the form of shared cost of promotion. 'h s a foreign department store may be tempted to p t a special promotion on for a prod ct if the costs can be shared between it, the distrib tor and the prod cer.

56