Keyur D Vasava Pharmacy+MBA Dist.

Narmada
"ACCEPT EVERYTHING ABOUT YOURSELF -- I MEAN EVERYTHING, YOU ARE YOU AND THAT IS THE BEGINNING AND THE END -- NO APOLOGIES, NO REGRETS." ( 14/03/12)

INTERNATIONAL MARKETING (IM)

VASAVA..

KEYUR D

Module 1. International Marketing: Nature Process and Benefits:

1. INTERNATIONAL MARKETING

Definition: International marketing is the performance of business activities designed to plan, price, promote, and direct the flow of companys goods & services to consumers in more than one nation for profit.

2. INTERNATIONALIZATION PROCESS

DEFINATION:

Internationalization is the process of planning and implementing products and services so that they can easily be adapted to specific local languages and cultures, a process called localization . The internationalization process is sometimes called translation or localization

The process of Internationalization can be described as the process of increasing involvement in international operations. (Welch and Luostarinen, 1988). The process essentially involves the adaption of firm operations like strategy, structure, resources etc. to perfectly fit the international environments. Furthermore, the degree of internationalization can be measured as foreign sales relative to total sales. (Welch and Luostarinen, 1988). The goal of the Internationalization process is to have a pronounced global presence in an attempt to keep abreast with their competitors, to generate improved profitability and be known as a multinational; a

sure sign of success and credibility. The process typically entails generalizing a product to counterbalance and efficiently expedite the subsequent localization process. The result is an improved quality product as well as reduced localization costs and time to market. The internationalization process may involve the following tasks: Reduce surplus or repetitive text. Modify and/or settle on a final text before the localization and translation process. Application of standard language/nomenclature. Creation of a glossary containing original, technical or perhaps unclear terms. Implementation of a coherent writing style. Adherence to grammar rules Flexible layouts that fit right-to-left or top-to-bottom scripts Application of programming tools that support foreign language character sets. (RFIDwizards, 2007). Several theories have been postulated over the years to maintain and enhance the essence of the process of internationalization. According to the theories of the stage model; the process of internationalization may be successful if a specific prescribed path is followed. Strategic decisions that the firms have to face play a vital role in validating the above assumption. The internationalization process is described as a gradual development taking place in distinct stages (Melin 1992). The process can be clearly identified under two major schools: (1) the models initially developed by Johanson and Wiedersheim-Paul (1975) and Johanson and Vahlne (1977), referred to as the Uppsala models (U-models); and (2) the Innovation-Related Internationalization Models (I-models) conceptualized by Cavusgil (1980). Both the I-model as well as the U-model emphasizes on firms involvement in foreign market segments. The U-model describes the process as "a gradual acquisition, integration and use of knowledge about foreign markets and operations and a successively increasing commitment to foreign markets (All business, 2000). The strategic choices under the U-model are influenced by many factors which include certain aspects which either help in or suppress exports, information requirements and collecting informational data, foreign market selection and entry (including the effects of cultural distance), expansion, and marketing strategies (Leonidou and Katsikeas 1996). Due to the various factors involved, it is rather difficult to accurately assess this model. In Cavusgil's Imodel, the involvement of exports is operationalized by the ratio of sales/export, which in turn indicates a firms reliance on foreign markets.

In the process of internationalization; market knowledge is gradually increased and the company gets a clear picture over time, reducing the involved uncertainties. Different companies gather a different approach but with a similar objective in mind. If the process of internationalization is relatively slow, it is primarily because companies either want to avoid risks or are unable to gather relevant or enough knowledge and information.

3.TRADE THEORIES

INTL. TRADE THEORY

1)Mercantilism

countries should export more than they import - balance of trade surplus result in more gold & silver for governments trade conducted by governments Led consolidation of power trade with colonies import less-valued raw materials export more-valued manufactured goods views trade as zero-sum game

2)Absolute Advantage

proposed by Adam Smith countries differed in their ability to produce different goods efficiently and should specialize in the production of goods they can produce more efficiently views trade as a positive sum game countries will benefit from trade if they have an absolute advantage in one product

3)Comparative Advantage

even if a country has an absolute advantage in both products it should Specialize in production of that good in which it has a comparative advantage proposed by Ricardo

4)Assumptions Comparative Advantage

Full employment 2 products and 2 countries only Ignores role of technology and marketing Perfect competition Mobility of resources Transportation costs ignored Max efficiency - countries produce goods for other reasons

OR
INTERNATIONAL TRADE

AND INTERNATIONAL

MARKETING

Buying and selling of goods and services across national frontiers refers to International Trade Selling of goods to other countries refers to exports, while buying the goods from a foreign country is imports Marketing of such goods and services across between two or more nations, is International Marketing

Various theories of international trade attempt to explain the reasons why trade takes place between two or more countries

INTERNATIONAL TRADE THEORIES

Mercantilist Theory Theory of absolute advantage Theory of country size Theory of comparative advantage

Factors proportion theory Product life cycle theory

MERCANTILIST THEORY

Theory developed - 1500 to 1800 AD Countrys wealth measured in terms of gold holdings Encouraged exports and discouraged imports Imports were taxed and thus restricted Exports were encouraged to gain maximum gold During colonial rule, colony masters imported raw material from colonies and exported finished goods The theory ignores the fact that imports are necessary at times If the imports are restricted too much, the countrys population has to do without some of the commodities
OF ABSOLUTE ADVANTAGE

THEORY

Put forward by Adam Smith Believes that every country has an absolute advantage in supplying certain products Hence, the country must specialise in export of those products only It should import goods from countries, which have an absolute advantage in exporting the products, and hence get them at a cheaper rate Eg. Japan has an advantage in production of high quality steel while India has huge reserves of iron and coal mines. This advantage can be used to complement each other In practicality, it is not possible for only one country to have absolute advantage in terms of cost or otherwise for a particular product
OF COUNTRY SIZE

THEORY

It says that the size of the country decides how much and what type of products to trade in

Larger countries have varied climates and natural resources It makes them self sufficient, due to which they import and export less In these countries, transportation is costlier to larger expanse of land, compared to smaller countries Since transport cost is less in smaller countries (due to less distance in production units and end markets), they have an advantage in international trade
OF COMPARATIVE ADVANTAGE

THEORY

Improved version of absolute advantage theory, by David Ricardo In case a country has an absolute advantage or absolute disadvantage in production of all the goods it consumes, it cannot export or import each product Hence, it needs to trade in goods in which it has a comparative advantage It involves redirecting the resources to more efficient uses When two countries need to consume a product, the country which produces it in lowest cost/using least resources will have a comparative advantage over the other country

FACTORS PROPORTION THEORY

It says that factors of production that are in abundance are cheaper than those in relative scarcity In capital abundant countries, cost of capital is low, while in labour abundant countries, manpower is available at a low cost Hence, a country can trade in factors which are found in abundance India exports software professionals to US of A due to cheap labour availability

Australia and Canada have abundance land and hence concentrate on agriculture

THE PRODUCT LIFE CYCLE THEORY

Stages in PLC: Introduction Growth

Maturity Decline

3.

MARKETING BARRIERS -TARIFF AND NON -TARIFF BARRIERS

WHAT

IS THE PURPOSE OF TARIFFS?

To protect domestic business. The idea is that by taxing imports, and thus raising the price, consumers will buy domestic products as they are free of this tax and therefore cheaper.

DEFINE NON TARIFF BARRIERS?

Non-tariff barriers are blocks to trade include quotas, local-content requirements, licenses, and other types of import restrictions that depend on quantity, not price.

How would you define tariff barriers?

A tariff is a tax levied on goods imported into a country. It benefits domestic producers and the government at the expense of consumers. Tariff Barriers 1. Tariff barriers and Non-tariff barriers, both includes import quotas, exchange controls, and other obstacles to trade. In some cases, these barriers effectively prevent the exporter from selling its goods in that foreign country. In other cases, they represent an extra cost of doing business that can be built

into the export price. A tariff : Is a tax levied by the foreign government on goods imported into that country (or import duty). The tariff increases the price at which the goods are sold in the importing country and therefore makes them less competitive with locally produced goods.

Non-Tariff Barriers The various types of non-tariff barriers (or NTB) that impede the flow of international trade include consist of: import quotas, exchange controls, customs delays, government purchasing policies, subsidies, customs calculation procedures, boycotts, technical barriers, bribes and voluntary restraints. Additional steps are continuously being taken through the General Agreement on Tariffs and Trade or GATT or now referred to as WTO World Trade Organization since 1995, to reduce trade barriers to imports from non-members. Types of Tariffs A tariff may be one of the following four kinds: (1) Ad valorem (2) Specific (3) Alternative

(4) Compound 1. Ad Valorem duty The kind most commonly used, is one that is calculated as a percentage of the value of the imported goods - for example, 10, 25 or 35 per cent. This may be based, depending on the country, either on destination (c.i.f.), or on the value of the goods at the port in the country of origin (f.o.b.). 2. A Specific duty Is a tax of so much local currency per unit of the goods imported (based on weight, number, length, volume or other unit of measurement. Specific duties are often levied on foodstuffs and raw materials. 3. An Alternative duty Is where both an Ad valorem duty and A Specific duty are prescribed for a product, with the requirement that the more onerous one shall be Ad valorem duty value plus 10 cents per kilo. 4. Compound duties Are imposed on manufactured goods that contain raw materials that are themselves subject to import duty. The "specific" part of the compound duty (called compensatory duty) is levied as protection for the local raw material industry.

OR

Tariff and Non-Tariff Barriers

Two Types of Trade Barriers

Tariff and Non-Tariff

TARIFF BARRIERS

It refers to the duties or taxes imposed on internationally traded goods when they cross the national borders. In other words, it is a custom duty or a tax on products that move across borders.

C LASSIFICATION

OF

TARIFF BARRIERS

On the basis of Direction Import Tariff Export Tariff

On the basis of Purpose Protective Revenue

On the basis of time length Tariff surcharge Countervailing duties

On the basis of Tariff rates Specific duties Ad valorem Combined rates

On the basis of Production, Distribution and Consumption Single - stage Value-added Cascade Excise

Turnover or equalisation

NON-TARIFF BARRIERS

This refers to the barriers imposed on exporting countries and also to protect the domestic markets for making them more internationally competitive.

C LASSIFICATION

OF

NON-TARIFF BARRIERS

Government participation in trade

Administrative guidance Subsidies Government procurement and state trading

Customs and entry procedures

Product classification Product valuation Documentation License or permit Inspection Health and safety regulation

Product requirements

Product standards Packaging, labeling and marking Product testing Product specifications

Quotas
Two Types

1) Import quotas

A) Absolute

B) Tariff

2) Export quotas

A) Voluntary (OMA and VER)

Financial control
Exchange control

Profit remittance retrictions Multiple exchange rates Prior import deposits Credit restrictions

4. ORGANISATION

AND CONTROL FOR

INTERNATIONAL MARKETING

Organization Organizational Alternatives ' Organizational separation. The World Company Area, Product, or Functional Orientation? Structuring by Area Structuring by Product Structuring by Function Choosing the Organizational Form International Marketing and Organization Centralization and Decentralization Corporate Headquarters The Local Subsidiary Licensee and Distributor Markets Regional Headquarters: A Halfway House Conclusions on Organization. Controlling International Marketing Establishment of Standards What Standards? How Are Standards Determined? Measurement and Evaluation of Performance Measurement = Feedback Evaluation Controlling Means of Maintaining Control Licensee and Distributor Markets Coordinating International Sales Conclusions Key Terms Index Questions Further Readings Whereas planning helps to prepare the way for the coordination of international marketing, organizational relationships provide the framework, in which coordination can occur. The task of control, by contrast, involves implementing the plan, actually assuring the coordination of international marketing activities. In this sense, coordination equals control, although it is facilitated by planning and organization. We will first look at organization and then turn to a discussion of the control process. INTERNATIONAL MARKETING CONTROL International context of control Obtaining performance information Principles of a control system. Simple process of control Control techniques Effective control systems Benchmarking

Balanced Scorecard INTERNATIONAL CONTEXT CONTROL

OF

Each international market is different, so strategies and controls will vary Distance, language differences and cultural variations cause communications problems Resentment from subsidiaries of HQ control Local marketing plan will need to controls appropriate for HQ and subsidiaries.

OBTAINING PERFORMANCE INFORMATION Report Meetings Gathering of all. Take time and resources Standardised to allow comparison Use common language As frequently as necessary Cover all HQ information needs

Information Technology Make control simpler and quicker

PRINCIPLES

OF A CONTROL SYSTEM.

Aim to translate strategic plans into actions (Drummond and Ensor 2001). Ensure that behaviour and operations conform to corporate objectives Organisations need to measure, compare and analyse variances so that timely corrections can be made

Effective control involves the measurement of inputs as well as outputs. Control is important because: 1. You cant manage what you cant measure adage 2. Gaining importance to measure ROI in marketing 3. Moves afoot to include branding in financial accounts. SIMPLE

PROCESS OF CONTROL

Set targets quantified objectives and/or budgets. Determine the method(s) of measurement Measure the results at the end of each period Compare results against the targets and identify variances Identify and implement any necessary corrective action.

C ONTROL TECHNIQUES Financial analysis e.g. ratio analysis, variance analysis, cash flow, monitoring capital expenditure. Market analysis I.e. market demand, market share, marketing resources. Sales analysis e.g. sales targets, selling costs. Physical resources analysis analysis of plant and equipment utilisation, other measures of productivity and product quality Systems analysis consider the effectiveness of implementation and application of marketing resources. Others. . . . . . BENCHMARKING Benchmark core operational standards against the very best in business. Process benchmarking compare one process from within the organisation to another.

Competitor benchmarking compares performance in key areas against that of competitors. Others BALANCED SCORECARD

Assesses performance across a wider dimension other than just financial performance. (tend to be backward looking) Customer perspective e.g. satisfaction and retention. Internal perspective e.g. employee behaviour, skills, quality. Innovation and learning e.g. idea generation, product development. The financial perspective traditional financial measures. Takes a shareholders perspective.

FACTORS AFFECTING ORGANIZATION

STRUCTURE

The degree of involvement in international operations. The firms country and political history The businesses in which the firm is engaged the type of product and its variety University The size and importance of the markets. The human resources capability of the firm.

DECENTRALIZED VS

CENTRALIZED STRUCTURES

The decentralized structure gives a high degree of Autonomy to subsidiaries. The centralized structure has control and strategic Decision making concentrated at headquarters. University of Coordinated Decentralization due to stronger global pressure Overall corporate strategy is provided from headquarters. Subsidiaries are free to implement it within the range agreed on With headquarters.
CHALLENGES:

Understand the global forces Power barriers: struggle regional / Global

 Multicultural and infrastructure challenges for communication A clearly communicated corporate vision. Clear and long-term consistent corporate mission guiding people Worldwide HR management to broaden individual perspectives And develop identification with corporate goals. University of Develop global managers withlocal mind Create a global perspective for country managers The integration of individual thinking and activities into the corporate agenda The Not-Invented-Here (NIH) Syndrome
C ONTROL

Controls are designed to reduce uncertainty, increase predictability and ensure separate parts are in line and in support of common objectives The instruments and processes needed to influence behavior and performance of members to meet goals. .... Module 2. International Marketing and World Environment:
1.P OLITICAL FACTORS

Political factors constitute an important environment factor. Actually politics and Economics are inter-related as one influences the other. That was the reason for early Writers of Economics preferred to caption their work as Political Economy. Political system, Political parties in power, political parties in the opposition, political maturity of the parties, Number of political parties, political awareness of people, political stability and the like Have great impact on the business environment in a country. The economic policies pursued By a Government are to a great extent the by-product of political environment that impacts

Businesses very often.

BASIC POLITICAL IDEOLOGIES

Political ideology refers to, the body of ideas, theories, aims and means to execute The ideas adapt the theories and fulfill the aims that constitute a socio-political programme For action. Depending on the mix of different ideas, theories, aims and means, there Exists Pluralism, Democracy and Totalitarianism as alternative ideologies.
A.

PLURALISM involves coexistence of different ideas, theories, aims and means. Pluralism

may be existing due to lack of convergence because the polity is made of different interest groups based on ethnicity, language, religion, race and so on and no one group is dominant enough to overrule the rest.
B.

TOTALITARIANISM involves, only one idea, theory, aim and means. No alternative

ideology is allowed to co-exist. There is lack of tolerance. The best example is China. Former USSR was an example. But there used to be the tendency to break away. And that happened with the USSR breaking up into present Russia and over dozen countries. Of course, countries do unite even under totalitarian system do as it happened with Taiwan, Singapore and Hong Kong getting attached to mainland China late 1990s. China could ensure economic growth, but USSR couldnt. people want development ultimately.
DEMOCRACY involves, a mix of pluralism and totalitarianism. There used to be individual

freedom with checks and balances. The degree of political rights and civil liberties enjoyed however vary. Certain rights allowed, certain restricted and certain denied too. India falls in this category. It is the largest democracy in the world in theory. 75% of countries have democracies of some order. Of them, 1/3rd are more pluralistic, 1/3rd are some 50:50 type and remaining 1/3rd are more totalitarian.
POLITICOECONOMIC

SYSTEM

There are different forms of political system. Capitalism, Crony capitalism, Welfare capitalism, Socialism, Communism and Mixed economy are the different systems. A brief summary of each of the forms is presented below.
C APITALISM

Capitalism is a politico-economic system wherein, private ownership and initiative, individual freedom to produce, exchange, consume and distribute, market mechanism and consumer sovereignty and limited role of government are found. In short capitalism may be called as free enterprise economy where state control on businesses is not existing or minimum.
SOCIALISM

Socialistic political system is characterized by state ownership of production,

exchange and distribution. The main features of this system are: i) Government ownership and/or control of factors of production, ii) Government direction of production, exchange and distribution, iii) Central Planning of resource mobilization, allocation, pricing etc. iv) Restriction private businesses, v) restriction on individual freedom and initiative, vi) government interference in income distribution, vii) government direction on physical distribution and pricing of products, viii) consumer is not the king, only the state is all powerful and so on.
C OMMUNISM

A communist political system is nothing but 100% state control of all human activities. It is also known as state capitalism. Production, exchange, consumption and distribution are all state controlled. The difference between socialism and communism is that in communism, consumption is also state controlled. Businesses are run almost like government departments. The dominant environment of business is, truly, the government factor.
MIXED ECONOMY

Mixed economy is said to be the golden mean of capitalism and socialism. Side by side public and private ownership exist. This system is in vogue in India. The features of capitalism and socialism are jointly present in this system. Private initiative, freedom of enterprise, consumer sovereignty, individual saving and investment, profit orientation and market mechanism are all there. But it is not entirely free of government control. State initiative, state enterprise, state investment, social objectives like equal distribution, balanced development of all regions, concessions and privileges for the less privileged, reservations for the benefit of weaker sections, etc are found. is a crucial factor. The political system, the number of parties, ideologies of parties, animosities amongst different parties, leadership characters of political parties, the commitment of parties taking power to honour commitments made by previous governments, etc influence political stability. Political stability also means consistency in political decisions, much needed for inspiring confidence in the minds of business community, both national and international. Lack of political stability is an indication of excessive risk businesses suffer.
POLITICAL
STABILITY

POLITICAL RISK: TYPES, MEASUREMENT TYPES

OF

AND

HANDLING

POLITICAL RISKS

Political Risks are of different types. There are micro and macro political risks. Micro political risk is the one that affects a particular firm or class of firms. Usually firms owned by one class of businessmen, say, the foreigners from certain country, a particular business family or region/state. Micro risk can be hedged. This happens even today. Macro political risk affects all. There is no sparring of any business, any nationality, any trade or industry. Cuba took-over all foreign property without exception by nationality or industry or past behavior. Macro risk cannot be hedged, but it is bit rare now

POLITICAL

RISK IS A FUNCTION OF:

(i) Probability that a given political event will affect a particular business unit or its particular project and (ii) The magnitude of impact.of the event. A political demand, say, to halt FDI or a project or to confiscate a business or nationalize a business unit, is the event that causes political risk. What is the probability that all parties will jointly assemble and protest? What is the likely impact of this on the project or a business unit? Answers to these questions answer the relevance of political risk.
POLITICAL
RISK CAN BE AND HAVE TO BE QUANTIFIED .

FACTORS

TO BE CONSIDERED INCLUDE:

(i) (ii)

(iii)
(iv)

(v) (vi)

the countrys political and government system; track record of political parties and their relative strength; the degree of integration into the world system; the host countrys ethnic and religious stability; regional security; and key economic indicators. Even if all parties show solidarity,the Govt. in power can contain their rebellion using constitutional and legal measures. It must have the power and willingness to do.

1) Handling political risk in the pre-investment planning phase

To deal with political risk, at pre-investment level, a business concern can think of Avoidance, Insurance, Negotiate the environment, Structure the investment and Patenting.

2) Handling political risk in the post-investment operating phase

After investment is made, through operating policies, political risk can be managed. The alternatives are: Short term profit maximization, Changing the BCR of expropriation, Developing local stake holders and Adaptation.

3)Handling political risk in the post-expropriation phase

In the post-expropriation phase, damage control and benefit harvesting exercises need to be pursued. Negotiation, Power leveraging, Legal recourse and Surrender are the options.
2. C ULTURAL FACTORS

Elements of Culture
Culture includes all facets of life. In order to obtain a total picture of a culture it is necessary to investigate every possible side of it. For facilitating an accurate study of culture, the anthropologists have evolved a cultural scheme which embodies all the various elements of culture. The main elements included within the meaning of the term cultureare:

1. Material Culture Technology Economics 2. Social Institutions Social organization Education Political structures 3. Man and the Universe Belief systems 4. Aesthetics Graphic and plastic arts Folklore Music, drama and the dance 5. Language

C ULTURAL FACTORS

India is a culturally diverse/complex country. The cultural mosaic is made up by a mix of several factors in different proportions. The Nation, Religion, Social Stratifications ( such as Race, Community, Caste or Tribe), Region, Language, Communication Styles, Attitudes of People (such as motivations, relationship preferences, risk preferences, etc.), Perception, Obtaining and Processing of Information by People and other cultural factors.
THE NATION

A nation as such may mean a particular culture. India for long time was seen as a country of proletarian, yes-men and snake-charmers. This has now changed into a country of professionals, yeomen doers and strategic thinkers. Indians are now regarded as Englishspeaking soft-mannered high achievers with professional and business acumen. Aggressiveness can often be interpreted as a sign of disrespect in India and may lead to a complete lack of communication and motivation on the part of the Indians. One needs to take the time to get to know them as individuals in order to develop professional trust. Indians are good hosts and indulge in personal talk often.
RELIGION

Religion is integral to a culture. The Dictionary of Philosophy and Religion defines religion, as an institution with a recognized body of communicants who gather together regularly for worship, and accept a set of doctrines offering some means of relating the individual to what is taken to be the ultimate nature of reality. Religion often codifies behavior, such as the 10 Commandments of Christianity or the five precepts of Buddhism or the 5 times prayer a day by the Islam. Sometimes it is involved with government. It influences arts and architecture. Religious symbols are worshipped and revered much
SOCIAL STRATIFICATION (RACE / COMMUNITY / CASTE / PROFESSION/ REGION)

Cultural groups exist based on affiliations. The affiliations might be ascribed or acquired membership. The ascribed membership is based on birth like gender affiliation, age, caste, race, nationality and the like. The acquired membership is earned by ones education, profession, religion, political affiliation, life styles, and the like.
REGION

India is fairly a big country, though only one time zone is followed. The northern states reel under cold and hot for 6 months while the south used to have normal temperature. This variation speaks that the country is not small, though only 2.4% of world land mass it has. There are different regions. There variations in regional developments as well. The central, central east, north east and extreme north-west are less developed. Political factors, insurgency problems, lack of opportunities for education, poor infrastructure because of the terrain features, etc combine to make these regions less developed. Lesser the development, more are the exploitation of the proletarian and weaker the governance. In the way fellow human are treated, particularly women, cultural richness differs. The index of safety to person and to modesty of women is not that high in the insurgent inflicted regions of the country.
LANGUAGE

Languages abound. There are really too many languages and too many cultural patterns too. The demarcation of states other than those in the Hindi-belt, are language based. It is sacred cow and a local politician can simply pump in / blow hot venomous passions on language veil should he want to score something over someone, by simply

linking some frivolous issue to the language. You have to be very careful as much as I am when I make the statement in your lesson Language has lot of business implications. Should information brochures and advertisement messages be in as many languages or simply a few or just one.
ATTITUDES
OF

PEOPLE (MOTIVATIONS, RELATIONSHIP

AND

RISK PREFERENCES,

ETC)

Culture is reflected by people by their attitudes. Motivation, relationship and risk preferences are certain cultural variables.
PERCEPTION, OBTAINING
AND

PROCESSING

OF

INFORMATION

BY

PEOPLE

3. LEGAL FACTORS

INTERNATIONAL LEGAL ENVIRONMENT

An integral part of a countrys culture is the laws governing business activities. Therefore, a Marketer faces as many different legal environments as there are countries where he or she tries to penetrate. For instance, an Indian company having an American agent, doing business in France has to contend with three legal jurisdictions, three legal systems, three tax systems, and in addition, the Supranational European Community laws and regulations, each of which could be potentially contradicting the others. Therefore, it is very important to understand the nuances of the different systems so that the business transaction is done in the correct environment, or at least in an environment clearly understood by the Marketer.
THE FOUR HERITAGES ISLAMIC LAW:
OF TODAY S

LEGAL SYSTEMS

Pakistan, Iran, Arab Countries, and other Islamic States follow this System, also called the Shariah Law. It is based on interpretation of the Koran. It encompasses religious duties as well as secular

aspects of Law. It prescribes specific patterns of social and economic behaviour of all individuals. How do individuals tackle interest on loans given out such interest is forbidden by Koran!
SOCIALIST LAW:

This is based on the fundamental tenets of the Marxist Socialist State, and cluster around the core concept of Social, Political, and Economic Policies of the State. Properties, Contract, Arbitration denote different realities to Common Law.
COMMON LAW:

Derived from English Law, and prevalent in the USA, UK, Canada, and the British Commonwealth, this is based on Tradition, Past Practices, and Legal Precedence set by courts through interpretation of Statutes, Legislations and Past Rulings.
CODE LAW:

Code Law, where the Legal System is generally divided into three separate Codes - Commercial, Civil, and Criminal, is based on an all inclusive system of written rules (Codes) of Law.
LEGAL DISPUTES

Jurisdictions of Legal Disputes International Legal Disputes can arise in three ways: Between two Governments Between a Company and a Government, and Between two Companies In International Commercial Disputes, therefore, the question of paramount importance is, Which Law Governs in the dispute? Jurisdictions of Legal Disputes The jurisdiction of the case is generally determined by:

 Jurisdiction clauses set in the contract Where the Contract was entered into Where the provisions of the Contract were performed Legal Recourse in resolving International Disputes Sorting out the problem is the best option. If need be, use the offices of the Chambers of Commerce, or the Commercial Attache of the local embassies.
CONCILIATION:

There are various arbitration bodies, like the inter American Commercial Arbitration Commission, London Court of Arbitration, International Chamber of Commerce, etc.
ARBITRATION:

Sorting out the problem is the best option. If need be, use the offices of the Chambers of Commerce, or the Commercial Attaches of the local embassies.
CONCILIATION:

There are various arbitration bodies, like the inter American Commercial Arbitration Commission, London Court of Arbitration, International Chamber of Commerce, etc.
ARBITRATION:

Typical Arbitration Clause: All disputes arising in connection with this present contract shall be finally settled under the rules of conciliation and arbitration of the ICC, by one or more arbitrators appointed in accordance with the said rules.

A Lawsuit should be avoided unless it is absolutely necessary. Possible consequences of a Lawsuit in a foreign country, irrespective of the outcome, are:
LITIGATION:

Creation of a poor image and damaged PR, both very difficult to rebuild Face unfair treatment in a foreign court

 Difficult to obtain a judgment that would otherwise be obtained by arbitration Very high cost and very long time taken in international legal action Total loss of confidentiality of business strategy and practices
4)TECHNOLOGICAL FACTORS

Technological Factors.
Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points: 1. Does technology allow for products and services to be made more cheaply and to a better standard of quality? 2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc? 3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc? 4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?

Once a technology is developed, it soon becomes available everywhere in the world. Technology is a universal factor that crosses national and cultural boundaries. Once a technology is developed, it soon becomes available everywhere in the world. Concerning the emergence of global markets for standardized products this phenomenon supports Levitts products. In his landmark Harvard Business Review article, Levitt anticipated the communication revolution that has, in fact, become a driving force behind global marketing. Satellite dishes, globe-spanning television networks such as CNN and MTV, and the Internet are just a few of the technological factors underlying the emergence of a true global village. In regional markets such as Europe, the increasing overlap of advertising across national boundaries and the mobility of consumers have created opportunities for marketers to pursue pan-European product positioning.

5) REGIONAL TRADE AREAS (RTAS)

Major regional trade blocks (RTAs)

HIGH-INCOME ECONOMIES

AND LOW AND MIDDLE-INCOME

ASIA-PACIFIC ECONOMIC COOPERATION (APEC) EUROPEAN UNION (EU) NORTH AMERICAN FREE TRADE AREA (NAFTA) LATIN AMERICA
AND THE

CARIBBEAN

ASSOCIATION OF CARIBBEAN STATES (ACS) ANDEAN GROUP GROUP OF THREE LATIN AMERICAN INTEGRATION ASSOCIATION (LAIA) SOUTHERN CONE COMMON MARKET (MERCOSUR)

AFRICA COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) ECONOMIC COMMUNITY OF WEST AFRICAN STATES (ECOWAS) SOUTHERN AFRICAN DEVELOPMENT COMMUNITY (SADC MIDDLE EAST
AND

ASIA

ASSOCIATION OF SOUTH-EAST ASIAN NATIONS (ASEAN) BANGKOK AGREEMENT EAST ASIAN ECONOMIC CAUCUS (EAEC) GULF COOPERATION COUNCIL (GCC) SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION (SAARC)
PARTICIPATION IN

INDIAS

RTAS

FRAMEWORK AGREEMENT ON COMPREHENSIVE ECONOMIC COOPERATION BETWEEN ASEAN AND INDIA BANGLADESH-INDIA-MYANMAR-SRI LANKA-THAILAND (BIMST-EC) INDO-SRI LANKA FREE TRADE AGREEMENT BANGKOK AGREEMENT FRAMEWORK AGREEMENT FOR ESTABLISHING
ECONOMIC COOPERATION

FREE TRADE

INDIA AND THAILAND SAARC PREFERENTIAL TRADING AGREEMENT (SAPTA) SOUTH ASIAN FREE TRADE AGREEMENT (SAFTA)
BETWEEN

INTERNATIONAL MARKETING FACTORS

Although firms marketing abroad face many of the same challenges as firms marketing domestically, international environments present added uncertainties which must be accurately interpreted. Indeed, there are a host of factors that need to be researched and evaluated when preparing an international marketing strategy. Key aspects of any potential foreign market include: demographic and physical environment; political environment; economic environment; social and cultural environment; and legal environment.

Demographic and Physical Environment. Elements that needs to be assessed

that fit under this category include population size, growth, and distribution; climate factors that could impact on business; shipping distances; time zones; and natural resources (or lack thereof).

Economic Environment. Factors in this area include disposable income and

expenditure patterns; per capita income and distribution; currency stability; inflation; level of acceptance of foreign businesses in economy; Gross National Product (GNP); industrial and technological development; available channels of distribution; and general economic growth. Obviously, the greater a nation's wealth, the more likely it will be that a new product or service can be introduced successfully. Conversely, a market in which economic circumstances provide only a tiny minority of citizens with the resources to buy televisions may not be an ideal one for a television-based marketing campaign.

Social and Cultural Environment. This category encompasses a wide range of

considerations, many of which canif misunderstood or unanticipatedsignificantly undermine a business's marketing efforts. These include literacy rates; general education levels; language; religion; ethics; social values; and social organization. "The ability of a country's people to read and write has a direct influence on the development of the economyand on marketing strategy planning," observed McCarthy and Perrault. "The degree of literacy affects the way information is deliveredwhich in marketing means promotion."Attitudes based on religious beliefs or cultural norms often shape marketing choices in fundamental ways as well. As Hiam and Schewe noted, cultures differ in their values and attitudes toward work, success, clothing, food, music, sex, social status, honesty, the rights of others, and much else." They observed that even business practices can vary tremendously from people to people. "For instance, haggling is never done by the Dutch, often by Brazilians, and always by the Chinese." The company that does not take the time to make it aware of these differences runs the risk of putting together an international marketing venture that can fail at any number of points.

Legal Environment. This includes limitations on trade through tariffs or quotas;

documentation and import regulations; various investment, tax, and employment laws; patent

and trademark protection; and preferential treaties. These factors range from huge treaties (North American Free Trade Agreement-NAFTA, General Agreement on Tariffs and Trade-GATT) that profoundly shape the international transactions of many nations to trade barriers erected by a single country.

Political Environment. Factors here include system of government in targeted market;

political stability; dominant ideology; and national economic priorities. This aspect of an international market is often the single most important one, for it can be so influential in shaping other factors. For example, a government that is distrustful of foreigners or intent on maintaining domestic control of an industry or industries might erect legal barriers designed to severely curtail the business opportunities of foreign firms.

..

Module 3. Research in International Marketing:

1. CONSUMER BEHAVIOR

What is Consumer Buying Behavior?

Definition of Buying Behavior: Buying Behavior is the decision processes and acts of people involved in buying and using products.

Need to understand:

Why consumers make the purchases that they make? What factors influence consumer purchases? The changing factors in our society.

Consumer Buying Behavior refers to the buying behavior of the ultimate consumer. A firm needs to analyze buying behavior for:

Buyers reactions to a firms marketing strategy has a great impact on the firms success.

The marketing concept stresses that a firm should create a Marketing Mix (MM) that satisfies (gives utility to) customers, therefore need to analyze the what, where, when and how consumers buy. Marketers can better predict how consumers will respond to marketing strategies.

Stages of the Consumer Buying Process

Six Stages to the Consumer Buying Decision Process (For complex decisions). Actual purchasing is only one stage of the process. Not all decision processes lead to a purchase. All consumer decisions do not always include all 6 stages, determined by the degree of complexity...discussed next.

THE 6 STAGES ARE:

1. Problem Recognition(awareness of need)--difference between the desired state and the actual condition. Deficit in assortment of products. Hunger--Food. Hunger stimulates your need to eat. Can be stimulated by the marketer through product information--did not know you were deficient? I.E., see a commercial for a new pair of shoes, stimulates your recognition that you need a new pair of shoes. 2. Information search-o Internal search, memory. o External search if you need more information. Friends and relatives (word of mouth). Marketer dominated sources; comparison shopping; public sources etc. A successful information search leaves a buyer with possible alternatives, the evoked set.

Hungry, want to go out and eat, evoked set is

o o o o

chinese food indian food burger king klondike kates etc

3. Evaluation of Alternatives--need to establish criteria for evaluation, features the buyer wants or does not want. Rank/weight alternatives or resume search. May decide that you want to eat something spicy, indian gets highest rank etc. If not satisfied with your choice then return to the search phase. Can you think of another restaurant? Look in the yellow pages etc. Information from different sources may be treated differently. Marketers try to influence by "framing" alternatives. 4. Purchase decision--Choose buying alternative, includes product, package, store, method of purchase etc.

5. Purchase--May differ from decision, time lapse between 4 & 5, product availability. 6. Post-Purchase Evaluation--outcome: Satisfaction or Dissatisfaction. Cognitive Dissonance, have you made the right decision. This can be reduced by warranties, after sales communication etc. After eating an Indian meal, may think that really you wanted a Chinese meal instead.

Types of Consumer Buying Behavior

Types of consumer buying behavior are determined by:

Level of Involvement in purchase decision. Importance and intensity of interest in a product in a particular situation. Buyers level of involvement determines why he/she is motivated to seek information about a certain products and brands but virtually ignores others.

High involvement purchases--Honda Motorbike, high priced goods, products visible to others, and the higher the risk the higher the involvement. Types of risk:

Personal risk Social risk Economic risk

The four type of consumer buying behavior are:

Routine Response/Programmed Behavior--buying low involvement frequently purchased low cost items; need very little search and decision effort; purchased almost automatically. Examples include soft drinks, snack foods, milk etc. Limited Decision Making--buying product occasionally. When you need to obtain information about unfamiliar brand in a familiar product category, perhaps. Requires a moderate amount of time for information gathering. Examples include Clothes--know product class but not the brand. Extensive Decision Making/Complex high involvement, unfamiliar, expensive and/or infrequently bought products. High degree of economic/performance/psychological risk. Examples include cars, homes, computers, education. Spend a lot of time seeking information and deciding. Information from the companies MM; friends and relatives, store personnel etc. Go through all six stages of the buying process. Impulse buying, no conscious planning.

The purchase of the same product does not always elicit the same Buying Behavior. Product can shift from one category to the next. For example: Going out for dinner for one person may be extensive decision making (for someone that does not go out often at all), but limited decision making for someone else. The reason for the dinner, whether it is an anniversary celebration, or a meal with a couple of friends will also determine the extent of the decision making.

2. PSYCHOLOGICAL

AND

SOCIAL

ASPECTS

Psychological factors
Psychological factors include: Motives-A motive is an internal energizing force that orients a person's activities toward satisfying a need or achieving a goal. Actions are effected by a set of motives, not just one. If marketers can identify motives then they can better develop a marketing mix. MASLOW hierarchy of needs!!
o o o o o

Physiological Safety Love and Belonging Esteem Self Actualization

Need to determine what level of the hierarchy the consumers are apt to determine what motivates their purchases. Handout...Nutrament Debunked... Nutrament, a product marketed by Bristol-Myers Squibb originally was targeted at consumers that needed to receive additional energy from their drinks after exercise etc., a fitness drink. It was therefore targeted at consumers whose needs were for either love and Belonging or esteem. The product was not selling well, and was almost terminated. Upon extensive research it was determined that the product did sell well in inner-city convenience stores. It was determined that the consumers for the product were actually drug addicts who couldn't not digest a regular meal. They would purchase Nutrament as a substitute for a meal. Their motivation to purchase was completely different to the motivation that B-MS had originally thought. These consumers were at the Physiological level of the hierarchy. BM-S therefore had to redesign its MM to better meet the needs of this target market. Motives often operate at a subconscious level therefore are difficult to measure. Perception--

What do you see?? Perception is the process of selecting, organizing and interpreting information inputs to produce meaning. IE we chose what info we pay attention to, organize it and interpret it. Information inputs are the sensations received through sight, taste, hearing, smell and touch.

Selective Exposure-select inputs to be exposed to our awareness. More likely if it is linked to an event, satisfies current needs, intensity of input changes (sharp price drop). Selective Distortion-Changing/twisting current received information, inconsistent with beliefs. Advertisers that use comparative advertisements (pitching one product against another), have to be very careful that consumers do not distort the facts and perceive that the advertisement was for the competitor. A current example...MCI and AT&T...do you ever get confused? Selective Retention-Remember inputs that support beliefs, forgets those that don't. Average supermarket shopper is exposed to 17,000 products in a shopping visit lasting 30 minutes-60% of purchases are unplanned. Exposed to 1,500 advertisement per day. Can't be expected to be aware of all these inputs, and certainly will not retain many. Interpreting information is based on what is already familiar, on knowledge that is stored in the memory.
Handout...South Africa wine.... Problems marketing wine from South Africa. Consumers have strong perceptions of the country, and hence its products. Ability and Knowledge-Need to understand individuals capacity to learn. Learning, changes in a person's behavior caused by information and experience. Therefore to change consumers' behavior about your product, need to give them new information re: product...free sample etc.

South Africa...open bottle of wine and pour it!! Also educate american consumers about changes in SA. Need to sell a whole new country. When making buying decisions, buyers must process information. Knowledge is the familiarity with the product and expertise. Inexperience buyers often use prices as an indicator of quality more than those who have knowledge of a product.

Non-alcoholic Beer example: consumers chose the most expensive six-pack, because they assume that the greater price indicates greater quality. Learning is the process through which a relatively permanent change in behavior results from the consequences of past behavior.
Attitudes--

Knowledge and positive and negative feelings about an object or activitymaybe tangible or intangible, living or non- living.....Drive perceptions

Individual learns attitudes through experience and interaction with other people. Consumer attitudes toward a firm and its products greatly influence the success or failure of the firm's marketing strategy.
Handout...Oldsmobile..... Oldsmobile vs. Lexus, due to consumers attitudes toward Oldsmobile (as discovered by class exercise) need to disassociate Aurora from the Oldsmobile name.

Exxon Valdez-nearly 20,000 credit cards were returned or cut-up after the tragic oil spill. Honda "You meet the nicest people on a Honda", dispel the unsavory image of a motorbike rider, late 1950s. Changing market of the 1990s, baby boomers aging, Hondas market returning to hard core. To change this they have a new slogan "Come ride with us". Attitudes and attitude change are influenced by consumers personality and lifestyle. Consumers screen information that conflicts with their attitudes. Distort information to make it consistent and selectively retain information that reinforces our attitudes. IE brand loyalty. There is a difference between attitude and intention to buy (ability to buy).
Personality--

All the internal traits and behaviors that make a person unique, uniqueness arrives from a person's heredity and personal experience. Examples include:
o o o

Workaholism Compulsiveness Self confidence

o o o o o o o o o

Friendliness Adaptability Ambitiousness Dogmatism Authoritarianism Introversion Extroversion Aggressiveness Competitiveness.

Traits affect the way people behave. Marketers try to match the store image to the perceived image of their customers.

There is a weak association between personality and Buying Behavior, this may be due to unreliable measures. Nike ads. Consumers buy products that are consistent with their self concept.
Lifestyles-Recent US trends in lifestyles are a shift towards personal independence and individualism and a preference for a healthy, natural lifestyle.

Lifestyles are the consistent patterns people follow in their lives. EXAMPLE healthy foods for a healthy lifestyle. Sun tan not considered fashionable in US until 1920's. Now an assault by the American Academy of Dermatology.
3. SOCIAL
ASPECTS

Social Factors
Consumer wants, learning, motives etc. are influenced by opinion leaders, person's family, reference groups, social class and culture. Opinion leaders-Spokespeople etc. Marketers try to attract opinion leaders...they actually use (pay) spokespeople to market their products. Michael Jordon (Nike, McDonalds, Gatorade etc.)

Can be risky...Michael Jackson...OJ Simpson...Chevy Chase

Roles and Family Influences-Role...things you should do based on the expectations of you from your position within a group.

People have many roles. Husband, father, employer/ee. Individuals role are continuing to change therefore marketers must continue to update information.

Family is the most basic group a person belongs to. Marketers must understand:
o o o o o

that many family decisions are made by the family unit consumer behavior starts in the family unit family roles and preferences are the model for children's future family (can reject/alter/etc) family buying decisions are a mixture of family interactions and individual decision making family acts an interpreter of social and cultural values for the individual.

The Family life cycle: families go through stages; each stage creates different consumer demands:
o o o o o o o o o o

bachelor stage...most of BUAD301 newly married, young, no children...me full nest I, youngest child under 6 full nest II, youngest child 6 or over full nest III, older married couples with dependant children empty nest I, older married couples with no children living with them, head in labor force empty nest II, older married couples, no children living at home, head retired solitary survivor, in labor force solitary survivor, retired Modernized life cycle includes divorced and no children.

Handout...Two Income Marriages Are Now the Norm Because 2 income families are becoming more common, the decision maker within the family unit is changing...also, family has less time for children, and therefore tends to let them influence purchase decisions in order to alleviate some of the guilt. (Children influence about $130 billion of goods in a year) Children also have more money to spend themselves. Reference Groups-Individual identifies with the group to the extent that he takes on many of the values, attitudes or behaviors of the group members.

Families, friends, sororities, civic and professional organizations. Any group that has a positive or negative influence on a persons attitude and behavior.

Membership groups (belong to) Affinity marketing is focused on the desires of consumers that belong to reference groups. Marketers get the groups to approve the product and communicate that approval to its members. Credit Cards etc.!! Aspiration groups (want to belong to) Disassociate groups (do not want to belong to) Honda, tries to disassociate from the "biker" group. The degree to which a reference group will affect a purchase decision depends on an individuals susceptibility to reference group influence and the strength of his/her involvement with the group.
Social Class-an open group of individuals who have similar social rank. US is not a classless society. US criteria; occupation, education, income, wealth, race, ethnic groups and possessions.

Social class influences many aspects of our lives. IE upper middle class Americans prefer luxury cars Mercedes.
o o o o o o o

Upper Americans-upper-upper class, .3%, inherited wealth, aristocratic names. Lower-upper class, 1.2%, newer social elite, from current professionals and corporate elite Upper-middle class, 12.5%, college graduates, managers and professionals Middle Americans-middle class, 32%, average pay white collar workers and blue collar friends Working class, 38%, average pay blue collar workers Lower Americans-lower class, 9%, working, not on welfare Lower-lower class, 7%, on welfare

Social class determines to some extent, the types, quality, quantity of products that a person buys or uses.

Lower class people tend to stay close to home when shopping, do not engage in much pre-purchase information gathering. Stores project definite class images. Family, reference groups and social classes are all social influences on consumer behavior. All operate within a larger culture.

Culture and Sub-culture-Culture refers to the set of values, ideas, and attitudes that are accepted by a homogenous group of people and transmitted to the next generation.

Culture also determines what is acceptable with product advertising. Culture determines what people wear, eat, reside and travel. Cultural values in the US are good health, education, individualism and freedom. In american culture time scarcity is a growing problem. IE change in meals. Big impact on international marketing.
Handout...Will British warm up to iced tea? No...But that is my opinion!!...Tea is a part of the British culture, hot with milk.

Different society, different levels of needs, different cultural values. Culture can be divided into subcultures:
o o

geographic regions Human characteristics such as age and ethnic background.

IE West Coast, teenage and Asian American.

Culture effects what people buy, how they buy and when they buy.
3.INTERNATIONAL MARKETING RESEARCH

The scope of research: + Market measurement studies + Competitive studies + Environmental studies International marketing research is used to make strategies and tactical decisions. The importance of International marketing research: Before making market entry, product position, or marketing mix decision, a marketer must have accurate information about the market size, market needs, competition, and so on.

Marketing research provides the necessary information avoid the costly mistakes of poor strategies or lost opportunities. 1.SOURCES OF INFORMATION 1.1. Secondary data + Internal source + External source 1.2. Primary data

1.1. Secondary data + Internal source Sales and cost records, markets, + External source UN, OECD, EU, IMF, WB, IBRD, IFC Embassy, Consulate; Non -government agencies; Universities and other educational institutions Internet CD-ROM The Business International Market Report. 1.1. Secondary data The major issues are data availability, reliability and comparability. 1.2. Primary data Primary data can be collected in four broad ways: + Observation + Focus groups + Surveys

+ Experiments Observation research: Fresh data can be gathered by observing the relevant actors and settings. EX; The American Airlines researchers might hang around airports, airline offices, and travel agencies to hear travelers talk about the different carriers and how agents handle the flight arrangement process. The researchers can fly on American and competitors planes to observe the quality of in-flight service and hear consumer reactions. This exploratory research might yield some useful hypotheses about how travelers choose their air carriers.

Focus groups research: A focus group is a gathering of six to ten persons who spend a few hours with a skilled interviewer to discuss a project, service, organization, or other marketing entity. The discussion is recorded through note taking or Audio or video tape and is subsequently studied to understand consumer belief, attitudes, and behavior. In American Airlines example, the group interviewer may start with a broad question, such as How do you feel about air travel? Survey research: Survey research stands midway between observational and focus group research, on the one hand. And experimental research on the other hand. Companies undertake surveys to learn about peoples knowledge, beliefs, preferences, satisfaction, and so on, and to measure these magnitudes in the population.

Experiments research: the most scientifically valid research is experimental research. Experimental research calls for selecting matched group of subjects, subjecting them to different treatments, controlling extraneous variable, and checking whether observed response differences are statistically significant. The purpose of experimental research is to capture cause-and- effect relationships by eliminating explanations of the observed findings. Research instrument: Questionnaires Contact methods: + The mail questionnaire + Telephone interviewing + Personal interviewing The challenges: + Comparability of data + Willingness of potential respondent + Ability of the respondent to understand and communicate. (Challenge in survey research involves translation from one language to another) To avoid these translation errors, experts suggest the Technique of back-translation. First, the questionnaire is translated from the home language into the language of the country where it will be used, by a bilingual who is a native speaker of the foreign country. Then this version is translated back to the home language by bilingual who is native speaker of the home language. Another translation technique is parallel translation, in which two or more translators translate the questionnaire. The results are compared, and differences are discussed and resolved. Using the internet and e-mail data collection Some problems: + Sampling + Language

+ Respondent cooperation
2.THE EXPORT MARKETING RESEARCH PROCESS

Problem formulation Research method and design Data collection techniques Sample Data collection Analysis and interpretation reporting results Research study report + + + + + Cover: topic, organization, name of author, time Abstract Table of contents List of figures List of tables

+ Chapter1. Introduction Problem statement Objectives of study Scope and research method Structure of study + Chapter 2. Literature review + Chapter 3. Introduction of the company or Sector of + Chapter 4. Research design + Chapter 5. Presentation and critical discussion of results

+ Chapter 6. Conclusions and recommendations, further research + References + Appendix

2.

FOREIGN

CONSUMERS AND FOREIGN MARKETS

Foreign consumers + + + + + + + How foreign consumers differ What they buy Why they buy Who makes the purchase decision? How they buy When they buy Where they buy

Foreign industrial market + What they buy + Why they buy + Who makes the purchase decision Foreign government + The size of governments role as customer, however, varies from country to country + Another variable in the economic role of government is the kind of economic activity undertaken. + Government markets differ from consumer and industrial markets in what they buy, how they buy, and why they buy- and government in different

countries also vary among themselves on these dimensions. Export market segmentation 1) It is important to note that any decision to segment on particular basis should be evaluated in term of the following: + + + + Measurability Accessibility Profitability Actionability

2) Base of segmentation + Country market level; demographic and population characteristics ; socio-economic characteristics; political characteristics; cultural characteristics. + Customer market level: Demographic characteristics: age, gender, life cycle, religion, nationality, etc; socio-economic characteristics: income, occupation, education, etc. Psychographic characteristics: personality The four strategies: + + + + Increase penetration (existing product and markets) Develop products (new products in existing markets) Extend markets (existing products in new markets) Widen activities (new products and markets)
MARKET PORTFOLIOS: TECHNIQUE AND ANALYSIS

4.FOREIGN

Country attractiveness/ competitive strength matrix Using these variables, and some scheme for weighting them, countries are classified into one of the nine cells depicting relative market investment opportunity. + Invest/grow countries + Harvest/divest/license/combine countries

+ Dominant/divest countries + selective countries Country attractiveness Market size (total and segments) Market growth (total and segments) Market seasons and fluctuations Competitive conditions (concentration, intensity, entry barriers, etc.) Market prohibitive conditions ( tariff, non tariff barriers, import restrictions, etc.) Economic and political stability. Competitive strength -Market share -Marketing ability and capacity -Product fit -Contribution margin -Image -Technology position -Product quality -Market support -Quality of distributions and service 2.MARKET ENTRYSTRATEGIES
Market entry strategies include licensing, joint ventures, contract manufacture, ownership and participation in export processing zones or free trade zones. LICENSING: Licensing is defined as "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor". It is quite similar to the "franchise" operation. Coca Cola is an excellent example of licensing. In Zimbabwe, United Bottlers have the licence to make Coke. Licensing involves little expense and involvement. The only cost is signing the agreement and policing its implementation.

LICENSING GIVES THE FOLLOWING ADVANTAGES:

Good way to start in foreign operations and open the door to low risk manufacturing relationships Linkage of parent and receiving partner interests means both get most out of marketing effort Capital not tied up in foreign operation and Options to buy into partner exist or provision to take royalties in stock.

THE DISADVANTAGES ARE:

Limited form of participation - to length of agreement, specific product, process or trademark Potential returns from marketing and manufacturing may be lost Partner develops know-how and so license is short Licensees become competitors - overcome by having cross technology transfer deals and Requires considerable fact finding, planning, investigation and interpretation.

Those who decide to license ought to keep the options open for extending market participation. This can be done through joint ventures with the licensee. JOINT VENTURES Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation". Joint ventures are a more extensive form of participation than either exporting or licensing. In Zimbabwe, Olivine industries have a joint venture agreement with HJ Heinz in food processing. Joint ventures give the following advantages:
sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process

Joint financial strength May be only means of entry and May be the source of supply for a third country. They also have disadvantages:

 Partners do not have full control of management May be impossible to recover capital if need be Disagreement on third party markets to serve and Partners may have different views on expected benefits.

If the partners carefully map out in advance what they expect to achieve and how, then many problems can be overcome. OWNERSHIP: The most extensive form of participation is 100% ownership and this involves the greatest commitment in capital and managerial effort. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing. However, as mentioned earlier, repatriation of earnings and capital has to be carefully monitored. The more unstable the environment the less likely is the ownership pathway an option. These forms of participation: exporting, licensing, joint ventures or ownership, are on a continuum rather than discrete and can take many formats. Anderson and Coughlan8 (1987) summaries the entry mode as a choice between company owned or controlled methods "integrated" channels - or "independent" channels. Integrated channels offer the advantages of planning and control of resources, flow of information, and faster market penetration, and are a visible sign of commitment. The disadvantages are that they incur many costs (especially marketing), the risks are high, some may be more effective than others (due to culture) and in some cases their credibility amongst locals may be lower than that of controlled independents. Independent channels offer lower performance costs, risks, less capital, high local knowledge and credibility. Disadvantages include less market information flow, greater coordinating and control difficulties and motivational difficulties. In addition they may not be willing to spend money on market development and selection of good intermediaries may be difficult as good ones are usually taken up anyway. Once in a market, companies have to decide on a strategy for expansion. One may be to concentrate on a few segments in a few countries - typical are cashew nuts from Tanzania and horticultural exports from Zimbabwe and Kenya - or concentrate on one country and diversify into segments. Other activities include country and market segment concentration - typical of Coca Cola or Gerber baby foods, and finally country and segment diversification. Another way of looking at it is by identifying three basic business strategies: stage one - international, stage two - multinational (strategies correspond to ethnocentric and polycentric orientations respectively) and stage three - global strategy (corresponds with geocentric orientation). The basic philosophy behind stage one is extension of programmes and products, behind stage two is decentralization as far as possible to local operators and behind stage three is an integration which seeks to synthesize inputs from world and regional headquarters and the country organization. Whilst most developing countries are hardly in stage one, they have within them organizations which are in stage three. This has often led to a "rebellion" against the operations of multinationals, often unfounded. EXPORT PROCESSING ZONES (EPZ)

Whilst not strictly speaking an entry-strategy, EPZs serve as an "entry" into a market. They are primarily an investment incentive for would be investors but can also provide employment for the host country and the transfer of skills as well as provide a base for the flow of goods in and out of the country. One of the best examples is the Mauritian EPZ12, founded in the 1970s.

OR

1.ENTRY AS STRATEGY

The elements of entry strategy: + + + + + The objectives and goals in target market; Needed policies and resource allocations; The choice of entry modes to penetrate the market; The control system to monitor performance in the market A time schedule

2. FACTORS INFLUENCING CHOICE OF ENTRY MODE Target market Product Availability of marketing organization Company considerations Government policies

3.EXPORT ENTRY MODES 3.1. Indirect export + + + + + + + Export merchants Trading company Export commission house Resident buyer Broker Export management company Manufacturers export agent

+ Cooperative organization: Piggyback marketing; exporting combination 3.2.Direct export + Home country based department: 1) Built-in department 2) Separate export department 3) Export sales subsidiary + Foreign sales branch + Storage or warehousing facilities + Traveling salesperson +Foreign based distributors and agents With direct export, manufacturer of exportable goods undertakes the entire Export process without any intermediaries. By becoming a direct export exporter, the firm takes responsibility for the entire range of export activities starting with identifying customers through to collecting payment. In order to export directly, the firm may have to establish an export department from Domestic sale division which could be funded on the basis its requirements. Employees of the department must be trained in foreign trade affaires. Direct exporting has several advantages such as: 1. The firm is able to control the whole process of export. 2. The firm can increase net profit because of operating without expenditure for intermediary. 3. The firm can develop closed relation with foreign partners. But, the firm is responsible for the following aspects: 4. The firm has to spent time and money to success in foreign market. 5. The firm must suffer directly risks may be occurred.

What is involved in a typical export process? An export process involves three main functions: feasibility analysis, planning foreign market entry, and implementation. These functions involve 20 steps. FEASIBILITY 1. Analyze domestic performance of the business 2. Assess the firms capability. 3. Research various factors of population, economy, politic and society of target markets. 4. Confer with experts of international trade concerning marketing, financial, legal problems and delivery term of goods and services. 5.Select target market PLANNING FOREIGN MARKET ENTRY 6. Conduct market research concerning section of good and specific products to be exported. 7. Make plan, strategy or entering target markets. 8. Collect knowledge about countrys requirements concerning Certificates, standards and licenses of target countries. 9. Collect necessary documents concerning license, trade. Copyright protection of target countries. 10. Identify internal: import taxes, quotes or other non-tariff trade barriers of the target countries. 11.Establish pricing schedule. IMPLEMENTATION 12. 13. 14. 15. 16. 17. Determine method of sale. Establish marketing methods. Choose sale representatives or sales methods. Negotiate financial problems. Obtain insurance of good Complete the required paper work.

18. Package and label products. 19. Ship products 20. Get payment. The most common mistakes made by exporters The following are twelve most common mistakes often made by small firm as they begin to export or expand business on foreign markets: 1. Lack of full investigation of market, lack of qualified export expert enable to make international business strategy and marketing plan before starting an export business; 2. Lack of support by administrative offices to overcome initial Difficulties and financial problems of exporting; 3. Inadequate care in selecting overseas sales representatives or Distributors. 4. Seeking orders from a lot corners of the world rather than concentrating on one or two main geographical areas; 5. Neglecting export to foreign markets when domestic Markets booms; 6. Lack of treating international distributors and customers on an equal basis with domestic counterparts; 7. Assuming that a particular trade technique and product will automatically be successful in many countries; 8. Unwillingness in modifying products in order to meet regulations or cultural preferences of foreign countries 9. Lack of printing information of sale, guarantee and after-sale service in foreign language;

10. Lack of considering the use of an export development company if the firm cannot afford its own export department because of lacking financial or other conditions; 11. Worry about expenditure for investigating new markets, so that lacking of definitiveness in export; 12.Lack of providing after-sale services for the product. 4.NON-EXPORT ENTRY MODES Licensing Franchising Assembly operations Contract manufacturing Joint venture Wholly owned plant Management contracting 5. Naive rule Pragmatic rule The strategy rule SELECTING THE ENTRY MODE . Module 4. International Marketing Mix Decisions: 1..PRODUCT STRATEGIES
International Product Strategies
Although products in the international industrial market are more homogeneous than consumer products, there are more product variations internationally than domestically due to the greater number of international economic, cultural, and political/legal variables.

PRODUCT STRATEGY MARKETS IDENTIFICATION

FOR

INTERNATIONAL

OF PRODUCTS FOR INTERNATIONAL MARKETS

A FIRM HAS TO CARRY OUT PRELIMINARY SCREENING FOR MARKETS AND PRODUCTS BY CONDUCTING

MARKET RESEARCH POORLY CONCEIVED PRODUCT OFTEN LEADS TO MARKETING FAILURES

DEVELOPING

PRODUCTS FOR INTERNATIONAL MARKETS

ETHNOCENTRIC APPROACH POLYCENTRIC APPROACH REGIOCENTRIC APPROACH GEOCENTRIC APPROACH STANDARDIZATION

PRODUCT

PRODUCT STANDARDIZATION

THE PROCESS OF MARKETING A PRODUCT IN OVERSEAS MARKETS

WITH LITTLE CHANGE EXCEPT FOR SOME COSMETIC CHANGES SUCH AS MODIFIED PACKAGING AND LABELLING

BENEFITS PROJECTING A GLOBAL PRODUCT IMAGE CATERING TO CUSTOMERS GLOBALLY COST SAVINGS IN TERMS OF ECONOMIES OF SCALE IN DESIGNING AND MONITORING VARIOUS COMPONENTS OF THE DEVELOPMENT OF A PRODUCT AS A GLOBAL

PRODUCTION MARKETING MIX ECONOMICALLY

- FACILITATING BRAND FACTORS

FAVOURING PRODUCT STANDARDISATION

IN INTERNATIONAL MARKETS

HIGH LEVEL OF TECHNOLOGY INTENSITY FORMIDABLE ADAPTATION COSTS CONVERGENCE OF CUSTOMER NEEDS WORLDWIDE COUNTRY OF ORIGIN IMPACT ADAPTATION

PRODUCT

PRODUCT ADAPTATION: MAKING CHANGES IN A PRODUCT IN RESPONSE TO THE NEEDS OF THE

TARGET MARKET IS TERMED PRODUCT ADAPTATION OR CUSTOMIZATION BENEFITS ENABLES A FIRM TO TAP MARKETS, WHICH ARE NOT

ACCESSIBLE DUE TO MANDATORY REQUIREMENTS

FULFILLS THE NEEDS AND EXPECTATIONS OF CUSTOMERS IN HELPS IN GAINING MARKET SHARE INCREASES SALES LEADING TO ECONOMIES OF SCALE INFLUENCING PRODUCT

VARIED CULTURES AND ENVIRONMENTS

FACTORS

ADAPTATION IN INTERNATIONAL MARKETS

MANDATORY FACTORS GOVERNMENT REGULATIONS STANDARDS FOR ELECTRIC CURRENT OPERATING SYSTEMS MEASUREMENT SYSTEMS PACKAGING AND LABELLING REGULATIONS VOLUNTARY CONSUMER DEMOGRAPHICS CULTURE LOCAL CUSTOMS AND TRADITIONS CONDITION OF USE PRICE NEW
PRODUCT LAUNCH

WATERFALL APPROACH: THE LAUNCH OF A NEW PRODUCT IN INTERNATIONAL MARKETS IN A PHASED MANNER SPRINKLER APPROACH: SIMULTANEOUS PRODUCT LAUNCH IN VARIOUS INTERNATIONAL MARKETS

INTERNATIONAL INTERNATIONAL KINGS BARONS CRUSADERS COMMONERS

PRODUCT STRATEGY COMPETITIVE POSTURE MATRIX

INTERNATIONAL
DEVELOP DO

PRODUCT STRATEGIES

NEW PRODUCT

NOT CHANGE

PROMOTION ADAPTATION ADAPTATION

STRAIGHT PRODUCT COMMUNICATION

ADAPTATION ADAPTATION

DUAL PRODUCT

INVENTION DO
NOT CHANGE

2. BRANDING

AND

PACKAGING DECISIONS

There are four levels of branding decisions:

1. 2. 3. 4.

No brand versus brand Private brand versus manufacturers brand Single brand versus multiple brands Local brands versus worldwide brand

Branding versus No Brand

To brand or not to brand, that is the question. Most U.S. exported products are branded, but that does not mean that all products should be. Branding is not a cost-free proposition because of the added costs associated with marking, labeling, packaging, and legal procedures. These costs are especially relevant in the case of commodities (e.g.. salt, cement, diamonds, produce, beef, and other agricultural and chemical products). Commodities are unbranded or undifferentiated products which are sold by grade, not by brands. As such, there is no uniqueness, other than grade differential, that can be used to distinguish the offerings of one supplier from those of another. Branding is then probably undesirable because brand promotion is ineffective in a practical sense and adds unnecessary expenses to operations costs. The value of a diamond, for example, is determined by the so-called four Cscut, color, clarity, and carat weight-and not by brand. This is why DeBeers promotes the primary demand for diamonds in general rather than the selective demand for specific brands of diamonds.

No Brand lower production cost lower marketing cost lower legal cost more flexibility in quality and quantity control (i.e., possibility of less rigidity in control) good for commodities (undifferentiated items) Private Brand ease in gaining dealers' acceptance possibility of larger market share no promotional hassles and expenses good for small manufacturer with unknown brand and identity Multiple Brands (in single market) utilization of market segmentation technique creation of excitement among employees creation of competitive spirits

avoidance of negative connotation of existing brand gain of more retail shelf space retention of customers who are not brand loyal allowance of trading up or down without hurting existing brand Local Brands legal necessity (e.g., name already used by someone else in local market) elimination of difficulty in pronunciation allowance for more meaningful names (i.e., more local identification! elimination of negative connotations. avoidance of taxation on international brand quick market penetration by acquiring local brand allowance of variations of quantity and quality across markets Brand better identification better awareness better chance for product differentiation better chance for repeat sales possible premium pricing (i.e., removal from price com petition) possibility of making demand

more price inelastic Manufacturer's Brand better control of products and features better price because of more price inelasticity retention of brand loyalty better bargaining power assurance of not being bypassed by channel members Single Brand (in single market) better marketing impact permitting more focused marketing brand receiving full attention reduction of advertising costs because of better economies of scale and lack of duplication elimination of brand confusion among employees, dealer , and consumers good for product with good reputation and quality (halo effect) Worldwide Brand better marketing impact and focus reduction of advertising costs elimination of brand confusion good for culture-free product good for prestigious brand easy identification/recognition for international travelers good for well-known designer Private Brand versus Manufacturers Brand

Branding to promote sales and move product: necessitates a further branding decision: whether the manufacturer should use its own brand or a distributors brand on its product. Distributors in the world of international business include trading companies, importers, and retailers, among others; their brands are called private brands. Many portable TV sets made in Japan for the U.S. market are under private labels. In rare instances, Japanese marketers put their brands on products made by U.S. companies, as evidenced by Matsushitas purchases of major appliances from White and D&M for sale in the United States. Single Brand versus Multiple Brands When a single brand is marketed by the manufacturer, the brand is assured of receiv4tg full attention for maximum impact. But a company may choose to market several brands within a single market based on the assumption that the market is heterogeneous and thus-must be segmented. Consequently, a specific brand is designed for a specific market segment. The watch industry provides a good illustration for the practiceofusing-multiple brands in a single market for different market segments. Bulova, a well-known brand, also has the Accutron and Caravelle brands. Citizen, in its attempt to capture the new youth and multiple-watch owners market, traded down to include a new brand called Vega. Likewise, Hattori Seiko is well known for its Seiko brand, which is sold at the upper-medium price range ($100-300) in better stores; to appeal to a more affluent segment, the firm traded up with the Lassale name. Seikos strategy is to deliberately divorce the Seiko and Lassale names, once used together, in the public mind, with the goldplated Lassale line retailing for $225-750 and the karat-gold Jean Lassale line retailing for $675-35,000. Lassale watches have Seiko movements but are made only in the United States and Western Europe in order to curb parallel trading and they are distributed only through jewelers and department stores. The company also trades down, with Pulsar (the cheapest model at $50). Lorus ($12.95-49.95), and Alba ($9.95-19.95) for Asia. Local Brands versus Worldwide Brand

When the manufacturer decides to put its awn brand name an the product, the problem does not end there if the manufacturer is an International marketer. The possibility of having to modify the trademark cannot be dismissed: The international marketer must then consider whether to use just one brand name worldwide are different brands far different markets are countries. To market brands worldwide and to market worldwide brands are not the same thing A single, worldwide brand is also known as: an international, universal, or global brand. A Euro-brand is a slight modification of this approach, as it is a single product far a single market (i.e the European Union and the other Western European countries), with an emphasis on the search far inter-market similarities rather than differences. For a brand to be global or worldwide it must by definition have a commonly understood set of characteristics and benefits in all of the markets where it is marketed. Coca cola is a global brand in the sense that it has been successful in maintaining similar perceptions across countries and cultures. However, most other brand does not enjoy this kind of consistency thus making it debatable whether a gullible brand is a practical solution. A worldwide brand has several advantages. First, it tends to be associated with status and prestige. Second, it achieves maximum market impact overall while reducing advertising costs because only one brand is pushed. Bata Ltd. a Canadian shoe marketer and retailer in ninety two countries, found out form it s research that consumers greatly though Bata to be a local concern, no matter the country surveyed. The company thus decided to become and official sponsor of world cup soccer in order to enhance Batas international stature. For Bata and others it is easier to achiever worldwide exposure for one brand than it is for multiple local brands. Too many brands create confusion and fragmentation. Third, a worldwide brand provides a convenient identification,

and international travelers can easily recognize the product. There would be no sense in creating multiple brands for such international products as Time magazine, American Express credit card, Diners Club credit card, Shell gasoline, and so on; Finally, a worldwide brand is an appropriate approach when a product has a good reputation or is known for quality. In such a case, a company would be wise to extend the brand name to other products in the product line. This strategy has been used extensively by GE In another case, 3M perceived commonalities in consumer demographics and market development worldwide; in response, it devised a convergence remarketing strategy to develop global identity for its Scotch brand of electronic recording products, whose design prominently displays the Scotch name and a globelike logo. The use of multiple brands, also known as the local or individual approach, is probably much more common than many people realize. The automobile industry is a good example. The Japanese strategy is to introduce a new car in Japan for one year before exporting it to the U.S. market under a different name. Toyota XX and Datsun Sunny, dubbed Toyota Supra and Nissan Sentra for the United States, are examples of this practice. In the case of Unilever, its fabric softener is sold in ten European countries under seven names. Due to decentralization, the multinational firm allows country managers to choose names, packages, and formulas that will appeal to local tastes. More recently, the company, while keeping local brand names, has been gradually standardizing packaging and product formulas. There-are several reasons for using local brands. First, less developed countries resent international brands because the brands goodwill is created by an advertising budget that is much greater them research-and-development costs, resulting in no benefit derived from research and development for local economies. In addition, local consumers are forced to pay higher prices for advertising and goodwill, benefiting MNCs but

hindering the development of local competitive capacity. Such resentment may explain why Indias ministries, responding to domestic soft-drink producers pressure, rejected Pepsis 35 percent Pepsi-owned joint venture. Some governments have considered taxing international brands or limiting the use of such brands, as in the case of South. Korea, which has considered placing restrictions on foreign trademarks intended for domestic consumption. Second, when manufacturer is unable to ensure uniform product quality across countries; it should consider local brands. Third, when an existing brand is difficult to pronounce, a new brand maybe desirable. Sometimes, consumers avoid buying a certain brand when it is difficult to -pronounce because they want to avoid the embarrassment of wrong pronunciation. Wrigley had trouble with its Spearmint name in Germany until the spelling was changed to Speermint. Fourth, a local-brand is more easily understood and more meaningful for local consumers. By considering foreign tastes and preferences, a company achieves a better marketing impact. Post-it note pads made by 3M are marketed as Yellow Butterflies in France. Grey, an international advertising agency, worked with Playtex-to creates appropriate names for Playtexs brassieres in different languages. The result was Wow in England and Traumbilgel (dream wire) in Germany. Translation can also make a brand more meaningful. This approach is sometimes mistaken for a single brand approach when in fact a new brand is created. Close-Up (toothpaste) was translated as Klai-Chid (literally meaning very close) in Thailand; the translation retained the meaning and the logo of the brand as well as the package design. Fifth, a local brand can avoid a negative connotation. Pepsi introduced a-11oncola line under the Patio name in America but under the Mirinda name elsewhere because of the unpleasant connotation of patio in Spanish.

Sixth, some MNCs acquire local brands for a quick market penetration in order to save time, not to mention money, which otherwise would be, needed to build the recognition for a new, unknown brand in local markets. Renault would have been foolish to abandon the AMC (American Motors) name after a costly acquisition. Thus, Renault 9, for example, became AMC Alliance in the United States. Chrysler subsequently bought AMC from Renault, one reason being AMCs coveted Jeep trademark. Seventh, multiple brands may have to be used, not by design but by necessity, because of legal complications. One problem is the restrictions placed on the usage of certain words. Diet Coke in countries that restrict the use of the word diet becomes Coke Light. Antitrust problems can also dictate this strategy. Gillette, after acquiring Braun A.G., a German firm, had to sign a consent decree not to use the name in the U.S. market until 1985, The decree forced Braun to create the Eltron brand, which had little success. Eighth and perhaps the most compelling reason for creating new local brands is because local firms may have already used the names that multinational firms have been using elsewhere. In such a case, to buy the right to use the name from a local business can prove expensive. Unilever markets sure antiperspirant in the United Kingdom but had to test market the product under the Trust name in the United States, where Sure is Procter & Gambles deodorant trademark. In an interesting case, Anheuser-Busch bought the American rights to the Budweiser name and recipe from the brewer of Budweis in Czechoslovakia; Budejovicky Budvar Narodni Podnik, the Czech brewer, holds the rights in Europe. Operating from the town of Ceske Budejovice, known as Budweis before World War this brewer claims exclusive rights to the Budweiser name in the United Kingdom, France and several European countries. Courts have ruled that both companies have the right to sell in the United Kingdom, but Anheuser-Busch has to use the Busch name in France and the corporate name in other parts of Europe.

Ninth, a local brand may have to be introduced because of price control. This problem is especially acute in countries with inflationary pressures. Price control is also one reason for the growth of these called gray marketers, as the phenomenon contributes to price variations among countries for the same product. Thus instead of buying a locally produced product or one from an authorized distributor/ importer, a local retailer can buy exactly the same brand from wholesalers in countries where prices are significantly lower. A manufacturer will have a hard time prohibiting importation of gray market goods, especially in EU countries where products are supposed to be able to move freely. Parallel trading can be minimized by having different national brands rather than just a worldwide brand
OR BUILDING BRANDS BENEFITS
IN

INTERNATIONAL MARKETS

OF BRANDING

PROVIDES A MARKETING EDGE TO THE BRANDS SO AS TO MAINTAIN THEIR PRICES AT RELATIVELY SECURE BETTER MARGINS FACILITATE COPING WITH MARKET COMPETITION INCREASE THE LIFE OF A PRODUCT SERVE AS AN IMPORTANT TOOL IN INTERNATIONAL MARKETING AS THE IMAGE OF THE BRAND FACILITATES THE FORGING OF AN EMOTIONAL RELATIONSHIP BETWEEN CONSUMERS AND PRODUCTS IN INTERNATIONAL MARKETING

HIGHER LEVELS THAN THE COMPETITORS

CROSSES NATIONAL BOUNDARIES

BRANDS

IT IS IMPORTANT TO UNDERSTAND THE CULTURAL TRAITS OF THE TARGET MARKETS THE FAILURE TO RECOGNIZE THE REPERCUSSIONS OF THE BRAND NAME IN INTERNATIONAL MARKETS

PROVED DETRIMENTAL TO BRAND IMAGE . A FIRM SHOULD CAREFULLY RESEARCH THE LINGUISTIC AND CULTURAL REPERCUSSIONS WHILE TAKING A DECISION ON EXTENDING ITS BRAND NAME IN INTERNATIONAL MARKETS

STRATEGIES

FOR BUILDING BRANDS

BRAND BASED ON A TANGIBLE PRODUCT COMPONENT BRAND BASED ON AN INTANGIBLE PRODUCT COMPONENT - FEATURE BASED - USER IMAGERY BASED BALANCE BRAND BASED ON TANGIBLE-INTANGIBLE PRODUCT

COMPONENT

STRATEGY

FOR BUILDING GLOBAL BRANDS

DOMINATES THE DOMESTIC MARKET, WHICH GENERATES CASH FLOW TO ENTER NEW MARKETS MEETS A UNIVERSAL CONSUMER NEED DEMONSTRATES BALANCED COUNTRY- MARKET COVERAGE REFLECTS A CONSISTENT POSITIONING WORLDWIDE BENEFITS FROM POSITIVE COUNTRY OF ORIGIN EFFECT FOCUS IS ON THE PRODUCT CATEGORY

BRANDING ISSUES A brand; a brand name; a trademark; label; logo; slogan Brand protection Branding decisions Choosing a brand name (1) It should suggest something about the products benefits EX: Beautyrest mattress, Craftsman tools (2) It should suggest product qualities such as action or color. EX: Sunkist oranges, Firebird automobile (3) It should be easy to pronounce, recognize, and remember, short names help. EX: Tide, Crest (4) It should be distinctive. EX: Kodak, Exxon. (5) It should not carry poor meaning in other countries and language. EX: Nova Is a poor name for a car to be sold in Spanish-speaking countries; it doesnt go

Brand protection + The international Convention for the protection of Industrial Property (Paris Union). + The Madrid Agreement for International Registration of Trademarks. Branding decisions + Selecting a good brand + Determining how many brands should be in the companys product line (1) A single brand, or family brand (2) Individual (local) brands (3) Multiple brands Tools for building the brand identity (1) Owned word EX: Company Volvo BMW Federal Express Apple computer Kodak (2) Slogan EX: AT&T: The Right choice Budweiser: The King of Beers Fort: Quality is Our Number One job General Electric: We bring Good Things to life British Airways: The Words Favorite Airline (3) Colors Word Safety Drivingperformance Overnight graphics Film

EX: Yellow is also the corporate color of Kodak firm. IBM uses blue in its publications (4) Symbols and logos Chanel No.5 used Catherine Deneuve, One of the words most beautiful women, as its symbol, (5) A set of stories Some brands will be associated with stories, which are benefit if favorable and interesting, about the company or brand. The stories might relate to the founder (s) and the struggle to create the company. PACKAGING: FUNCTIONS
AND

CRITERIA

Much like the brand name packaging is another integral part of a product. Packaging serves two primary purposes: functional and promotional. First and foremost, a package must be functional in the sense that it is capable of protecting the product at minimum cost. If a product is not manufactured locally and has to be exported to another country, extra protection is needed to compensate for the time and distance involved. A countrys adverse environment should also be taken into account. When moisture is a problem, a company may have to wrap pills in foil or put food in tin boxes or vacuum-sealed cans. Still, the type of package chosen must be economical. In Mexico, where most consumers cannot afford to buy detergents in large packages, detergent suppliers found it necessary to use plastic bags for small packages because cardboard would be too expensive for that purpose. For most packaging applications, marketers should keep in mind that foreign consumers are more concerned with the functional

aspect of a package than they are with convenience. As such, there is usually no reason to offer the great variety of package sizes or styles demanded by Americans. Plastic and throw-away bottles are regarded as being wasteful, especially in LDCs, where the labor cost for handling returnable is modest. Non-American consumers prefer a package to have secondary functions. A tin box or a glass bottle can be used after the product content is gone to store something else. Empty glass containers can be sold by consumers to recoup a part of the purchase price. From the marketing standpoint, the promotional function of packaging is just as critical as the functional aspect. To satisfy the Japanese preference for beautiful packaging, Avon upgraded its inexpensive plastic packaging to crystalline glass. Similarly, BSR packs its product into two cartons, one for shipping and one for point-of purchase display, because Japanese buyers want a carton to be in top condition. The successful campaign for Baileys Irish Cream in the United States included a fancy gold foil box package that promotes this whiskey-based drinks upscale image. In any case, packaging does not have to be dull. Novel shapes and designs can be used to stimulate interest and create excitement. MANDATORY PACKAGE MODIFICATION A package change may be either mandatory or at the discretion of the marketer. A mandatory change is usually necessitated by government regulations. Sometimes, it is for safety and other reasons. Sometimes, packaging regulations are designed more for protection against imports than for consumer protection. Several countries require bilinguality (e.g., French and English in Canada and French and Flemish in Belgium). This requirement may force the manufacturer to increase package size or shorten

messages and product name, as a bilingual package must have twice the space for copy communications. In some cases, modification is dictated by mechanical or technical difficulties, such as the unavailability of certain typographic fonts or good advertising typographers: In many cases, packaging and labeling are highway related. Packages may be required to describe contents, quantity, manufacturers name and address, and so on in letters of designated sizes. Any pictorial illustration that is used should not be misleading. In Singapore, Certain foods must be labeled to conform to defined standards. When terms, are used, thatimply added vitamins or minerals (e.g., enriched, fortified, vitaminized), packages must show the quantities of vitamins or minerals added per metric unit. In addition, if the product is hazardous m. any way, marketers should adopt the United Nations recommendations for the labeling and packaging of hazardous materials.
PACKAGING VIEW V- VISIBILITY I- INFORMATIVE E- EMOTIONAL IMPACT W- WORKABILITY

3.PRICING

STRATEGIES

INTERNATIONAL PRICING STRATEGIES

Although pricing practices appear to be no different internationally than nationally, in some respects there is wide divergence. These differences occur in the areas of transfer pricing, dumping, and governmental influence over price.

Transfer Pricing. Transfer prices are the prices placed on products as they are transferred
between units belonging to the same company. Transfer prices can be used to mitigate the effects of government regulation.

Dumping. Dumping is disposing of goods in a foreign country at less than

their full cost. Goods will sometimes be exported at prices that only cover direct costs to dispose of excess inventories. Companies sell their excess inventories

overseas to avoid disturbing their own national markets (e.g., reducing prices or causing price wars at home.
PRICING
IN DEVELOPING COUNTRIES

LOWER PRODUCTION AND TECHNOLOGY BASE RELATIVELY LOW SHARE IN INTERNATIONAL MARKETS MAKES THEM MARGINAL SUPPLIERS IN MOST MAJORITY OF PRODUCTS SOLD AS COMMODITIES WITH MARGINAL VALUE ADDITION INFLUENCING PRICING DECISIONS IN INTERNATIONAL MARKETS

PRODUCT CATEGORIES WITH LITTLE BARGAINING POWER

FACTORS
COST

COMPETITION IRREGULAR OR UNACCOUNTED PAYMENTS IN EXPORTSIMPORTS PURCHASING POWER OF CUSTOMERS BUYERS BEHAVIOUR FOREIGN EXCHANGE FLUCTUATIONS OF PAYMENT IN INTERNATIONAL TRANSACTIONS

TERMS

ADVANCE PAYMENT OPEN ACCOUNT CONSIGNMENT DOCUMENTARY CREDIT DOCUMENTARY CREDIT WITHOUT LETTER OF CREDIT - SIGHT DRAFT (DOCUMENTS AGAINST PAYMENT) - USANCE OR TIME DRAFT (DOCUMENTS AGAINST ACCEPTANCE) DOCUMENTARY CREDIT WITH LETTER OF CREDIT REVOCABLE CONFIRMED UNCONFIRMED OF CREDIT

TYPES

SIGHT TERM CREDITS - ACCEPTANCE CREDIT - DEFERRED PAYMENT REVOLVING BACK TO BACK IMPORTANT

CREDIT

TERMS OF DELIVERY

EXW (EX WORKS) NAMED PLACE FCA (FREE CARRIERS) NAMED PLACE FAS (FREE ALONGSIDE SHIP) NAMED PORT OF SHIPMENT FOB (FREE ON BOARD) NAMED PORT OF SHIPMENT

 CFR (COST AND FREIGHT) NAMED PORT OF DESTINATION CIF (COST, INSURANCE, AND FREIGHT) NAMED PORT OF DESTINATION CIP (CARRIAGE AND INSURANCE PAID TO) NAMED PLACE OF DESTINATION CPT (CARRIAGE PAID TO) NAMED PLACE OF DESTINATION DAF (D ELIVERED AT FRONTIER) NAMED PLACE DES (DELIVERED EX SHIP ) NAMED PORT OF DESTINATION DEQ (DELIVERED QUAY) NAMED PORT OF DESTINATION DDU (DELIVERED DUTY UNPAID) NAMED PLACE OF DESTINATION DDP (DELIVERED DUTY PAID) NAMED PLACE OF DESTINATION

DUMPING
SELLING A PRODUCT OR COMMODITY BELOW THE COST OF PRODUCTION OR AT A LOWER PRICE IN OVERSEAS MARKETS AS COMPARED TO ITS PRICE IN DOMESTIC MARKETS.

TYPES OF DUMPING SPORADIC DUMPING PREDATORY DUMPING PERSISTENT DUMPING TRADE

C OUNTER

PRICE SETTING AND TRADE FINANCING ARE TIED TOGETHER IN ONE TRANSACTION INVOLVING RECIPROCAL COMMITMENTS OTHER THAN CASH PAYMENTS

IMPORTING COUNTRY S INABILITY TO PAY IN HARD CURRENCY IMPORTING COUNTRY S REGULATIONS TO CONSERVE HARD CURRENCY IMPORTING COUNTRY S CONCERN ABOUT BALANCE OF TRADE EXPLORING OPPORTUNITIES IN NEW MARKETS GAINING ACCESS TO CAPITAL GOODS MARKETS IN COUNTRIES WITH SHORTAGE OF HARD CURRENCY OF COUNTER TRADE

TYPES
BARTER

BARTER CLEARING ARRANGEMENT SWITCH T RADING COUNTER P URCHASED BUY- BACK ( COMPENSATION)
SIMPLE OFFSET PRICING

TRANSFER

PRICE OF AN INTERNATIONAL TRANSACTION BETWEEN RELATED PARTIES MARKET BASED

(ARM S LENGTH)

TRANSFER PRICING

NON- MARKET PRICING PRICING AT DIRECT MANUFACTURING COST

GREY

MARKETING

IMPORT OR EXPORT OF GOODS AND MARKETING THEM THROUGH UNAUTHORIZED CHANNELS PARALLEL IMPORTING RE- IMPORTING LATERAL RE- IMPORTING

Countertrade has disadvantages:

not covered by GATT so "dumping" may occur

Quality is not of international standard so costly to the customer and trader Variety is tow so marketing of wkat is limited Difficult to set prices and service quality Inconsistency of delivery and specification, Difficult to revert to currency trading - so quality may decline further and therefore product is harder to market.

4.SALES PROMOTION

AND

ADVERTISING STRATEGIES

1.Public Relations and Publicity 2. Personal Selling 3. Sales Promotion 4. Direct Marketing 5. Trade Shows and Exhibitions 6. Sponsorship Promotion PUBLIC RELATIONS PUBLICITY

AND

A companys public relations (PR) effort should-foster goodwill and understanding among constituents both inside and outside the company. PR practitioners attempt to I generate favorable

publicity, which, by definition, is a non-paid form of communication. (in the PR world, publicity is sometimes referred. to as earned media, whereas advertising and promotions are known unearned media.) PR personnel also playa key role in responding to unflattering media reports or controversies that arise because of company activities in different parts of the globe. In such instances, PRs job is to make sure that the company responds promptly and gets its side of the story told. The basic tools of PR include news releases, newsletters, press conferences, tours of plants and ether company facilities, articles in trade or professional journals, company publications and brochures, TV and radio talk show appearances by company personnel, special events, and homepages on Internet. As noted earlier, a company exerts complete control over the content of its advertising and pays for message placement in the media. How ever, the media typically receive far more press releases and other PR materials than they can use. Generally speaking, a company has little control over when, or if, a news story runs. The company cannot directly control the spin, slant, or tone of the story. In addition to the examples discussed later, Table summarizes several recent instances of global publicity involving well-known firms. THE GROWING ROLE COMMUNICATIONS
OF

PUBLIC RELATIONS IN GLOBAL MARKETING

Public relations professionals with international responsibility must go beyond media relations and serve as more than a company mouthpiece; they are called on to simulta-neously build consensuss and understanding, create trust and harmony, articulate and in-fluence public opinion, anticipate conflicts, and resolve disputes. As companies become more involved in global marketing and the globalization of industries continues, it is important that company management recognize the value of international public relations. One recent study found that, internationally; PR expenditures are growing an average of 20

percent annually. Fueled by soaring foreign investment, industry privatization, and a boom in initial public offerings (IPOs), PR expenditures in India are reported to be growing by 200 percent annually. The number of international PR associations is growing as well. The new Austrian Public Relations Association is a case in point; many European PR trade associations are part of the Confederation Europeans des Relations Publiques and the Interna-tional Public Relations Association. Another factor fueling the growth of international PR is increased governmental relations between countries. Governments and organi-zations are dealing with broad-based issues of mutual concern such as the environment and world peace. Finally, the technology-driven communication revolution that has ush-ered in the information age makes public relations a profession with truly global reach. Faxes, satellites, high-speed modems, and the Internet allow PR professionals to be in contact with media virtually anywhere in the world. PERSONAL SELLING Personal selling is two-way, personal communication between a company representative and a potential customer as well as back to the company. The salespersons job is to cor-rectly understand the buyers needs, match those needs to the companys product(s), and then persuade the customer to buy. Effective personal selling in a salespersons home country requires building a relationship with the customer; global marketing presents additional challenges because the buyer and seller may come from different national or cul-tural backgrounds. It is difficult to overstate the importance of a face-to-face, personal selling effort for industrial products in global markets. In 1993 a Malaysian developer; YTL Corp, sought bids on a $700 million contract for power-generation turbines. Siemens AG of Germany and General Electric (GE) were among the bidders Datuk Francis Yeoh, managing director of YTL, requested meetings with top executives from both companies wanted to look them in the eye to see if we

can do business, Yeoh said Siemens com-plied with the request; GE did not send an executive Siemens was awarded the contract. The selling process is typically divided into several stages: prospecting, pre-approach-ing, approaching, presenting, problem solving, handling objections, closing the sale, and following up. The relative importance of each stage can vary by country or region. Expe-rienced American sales reps know that persistence is one tactic often required to win an order in the United States; however, persistence in the United States often means tenac-ity, as in dont take no for an answer. Persistence is also required if a global industrial marketing effort is to succeed; in some countries, however, persistence often means en-durance, a willingness to patiently invest months or years before the effort results in an actual sale. For example, a company wishing to enter the Japanese market must be prepared for negotiations to take from 3 to 10 years. SALES PROMOTION Sales promotion refers to any consumer or trade program of limited duration that adds tangible value to a product or brand. Saks promotion laws and usage vary around the world but may consist of any of the following: promotional pricing tactics, contests, sweepstakes and games, premium and specialties, dealer loaders, merchandising materials, tie-ins and crosspromotions, packaging, trade shows (also known as exhibitions), and spon-sorship. The EU, however, is working to harmonize promotional tactics across its member countries. It is considering mutual recognition that would allow a company to carry out promotional activities in another country as long as that tactic is legal in the companys I home country. The tangible value created by the promotion may come in venous forms, such as a price reduction or a buy one, get one free offer. The purpose of a sales promo-tion may be to stimulate customers to sample a product or to increase consumer demand. Trade promotions are designed to increase product availability in distribution channels.

The increasing popularity of sales promotion as a marketing communication tool outside the United States can be explained in terms of several strengths and advantages. Besides providing a tangible incentive to buyers, sales promotion also reduces the perceived risk buyers may associate with purchasing the product. From the point of view of the company, sales promotion provides accountability; the manager in charge of the promotion can immediately track the results of the promotion. Moreover, some con-sumer sales promotions, including sweepstakes and rebates, require buyers to fill out a form and mail it to the company. This allows a company to build up information in its database, which it can use when communicating with customers in the future. DIRECT MARKETING The use of direct marketing is growing rapidly in many parts of the world due to increased use of computer databases, credit cards, and toll-free numbers, as well as changing life styles. Direct marketing is a system of marketing that integrates ordinarily separate mar-keting mix elements to sell directly to both consumers and other businesses, bypassing retail stores and personal sales calls. It is used by virtually every consumer and business to-business category from banks to airlines to nonprofit organizations. Because the cus-tomer responds directly to the company making the offer, international considerations that apply to communications, distribution, and sales have to be considered. Direct marketing uses a wide spectrum of media, including direct mail; telephone; broadcast, in-cluding television and radio; and print, including newspapers and magazines. SPONSORSHIP PROMOTION Sponsorship serves purposes other than sales promotion. Sponsorship can be used to in-crease awareness and esteem, to build the brand identification, to-enhance the brands positioning

and sales, and to circumvent advertising restrictions in some countries. Examples of global sponsorship are the Olympics, the World Cup in Soccer, the Grand Prix, and the Tour de France. An example of a regional sponsorship event is the Pan American Games while a local sponsorship event is the Vasaloppet Ski Race in Sweden or sumo wrestling in Japan. Table below shows how Coca-Cola varies its sponsorship programs around the world.
ENVIRONMENTAL INFLUENCES:

. . . . . . . . . . .

Competitors in the Market. New Competitors in the Market. Competitors in the Trade Show. New Competitors in the Trade Show. Present Channel Members at the Show. New Channel Members in the Show. Number of Existing Suppliers at the Show. Number of New Suppliers at the Show. Number of Visitors. Quality of Visitors. Life Cycle Stage.

COMPANY INFLUENCES:

. . . . . . . . .

Annual Sales. Number of Customers. Customers' Concentration. Product Complexity. Trade Show Budget. Trade Show Cumulative Experience. The Value of Continuation to the Exhibiting Company. The Geographical Emphasis of the Company. Width and Length of Available Product Lines.

INTERNATIONAL PROMOTIONAL STRATEGY

In the international industrial market, the primary element of the promotional mix is personal selling, for only through personal selling can the coordination so essential to the industrial buyer-seller interface be effectively achieved. Sales promotion in the form of trade fairs is playing an increasingly important role in international marketing because so many prospects can be contacted in one place and because they enable quick comparisons of products. Direct mail is also becoming popular, although mailing lists are usually difficult to obtain. The use of publicity, although growing in popularity, is limited due to language difficulties and media coverage. Advertising is given little attention in the international industrial market, perhaps because of the difficulties in determining media coverage and numerous, widely varying, governmental regulations. Here our discussion concerns personal selling. 1.Introduction 1. Promotion -mix 2. Communication barriers 3. Export marketing promotion and communication decisions 1. PROMOTION-MIX Advertising Sales promotion Publicity Personal selling 2. Communication barriers + + + + + + Language differences Government regulations Media availability Economic differences Tastes and attitudes Buying process

3. Export marketing promotion and communication decisions

What message? What communications media? How much effort or money to spend?
2.SALES PROMOTION

+ + + + + + +

Foreign catalogs Samples House organ and company-published magazines Films, slides, and personal computers Trade fairs and exhibitions Point-of-purchase materials Consumer promotion materials

3. PUBLICITY AND PUBLIC RELATIONS 1. PR PR consists of a set of tools that can be classified under the acronym of PENCILS, namely: + Events (sponsoring athletic or art events or trade shows) + Publication (company magazines, annual reports, helpful customers brochures, etc.) + News (favorable stories about the company, its people, and products) + Community involvement activities (contributions of time and money to local community needs) + Identity media ( stationery, business cards, corporate dress codes) + Lobbying activity (efforts to influence favorable or dissuade unfavorable legislation and ruling) + Social responsibility (building a good reputation for corporate social responsibility) 2. Publicity: Any form of nonpaid, commercially significant news or editorial comment about ideas, products, or institution.
4. INTERNATIONAL ADVERTISING

1. Advertising involves making decisions on the five Ms + + + + + Mission Message Media Money Measurement

2. International advertising strategies + Uniform approach to advertising + Adapting domestic advertising to foreign Markets
UNIFORM
APPROACH TO ADVERTISING

+ There are no notable differences on customers product awareness. + Buying motives, purchase behavior, and product usage are identical or nearly so. + Copy translation does not lead to obvious misunderstanding, negative connotations or undesirable associations. + Product quality, design and package variations between markets are non-existent or insignificant. + In general, it appears that successful standardization is dependent on a similarly of the motivations for purchase and a similarity of use conditions Adapting domestic advertising to foreign markets Modification may be requires a company to adapt adverting strategy to current culture variations and trends. Literacy rates and standards of education will have a direct bearing on the amount of adaptation needed in advertising methods.
4.PERSONAL SELLING

One of the most expensive marketing communication tools is the companys sales force, especially when out in the field, traveling a lot, and Spending considerable time hunting for prospects and keeping existing customers satisfied. The salesperson sees the customer and can take him to lunch, gauge his interest, answer questions and objections, and close the sale. The more Complex the product or service, the more necessary it is to use salespeople. Todays salespeople needs a laptop computer, printer, copy machine, fax Machine, cellular phone, electronic mail, software, and so on. With their laptop, they can access industry, product, and customer data, download Brochures and print contracts. KEY ACCOUNT MANAGEMENT SYSTEM An increasing number of companies are setting up key account management system. Companies know that a few customers account for large share of their sales and profits. The company appoints key account managers to manage their more important accounts, thus increasing the likelihood that Important customers will be better served and will remain loyal.
6.P ROMOTIONAL
PROGRAM AND STRATEGY

This involves the following: + + + + Setting promotional objectives; Deciding on types of advertising and promotional messages; Selecting media; determining how much time, effort, and money to spend.

7.DIRECT MARKETING

Direct marketing includes a number of marketing approaches that involve direct access to the customer. Direct mail, door-todoor selling and telemarketing are the primary direct marketing tools used in some countries. Many companies posses proprietary databases comprising profiles on thousands or millions of customers and prospects. Consider the following: + General Motors has a database of 12,000,000 names showing everything that these customers charged to their GM credit cards. + Lands End has a database of more than2,000,000 names of people who bought one or more clothing items from Lands End. 4..DISTRIBUTION
AND

LOGISTICS

International Distribution Strategies The primary goal of international marketing is achieving wider distribution. E just as in the United States, distribution involves more than physically moving a product. It involves handling, storage, inventorying, sometimes assembling, protective packaging, paperwork, and forecasting. 1.CHANNEL STRUCTURE 1. Indirect export 2. Direct export + Home country based department: 1) Built-in department 2) Separate export department

3) Export sales subsidiary + Foreign sales branch + Storage or warehousing facilities + Traveling salesperson +Foreign based distributors and agents 2. MANAGING THE DISTRIBUTION SYSTEM

1. Motivating channel participants 2. Controlling channel participants 1. Motivating channel participants Financial incentives Annual conferences Help to the management of distributorship Special programs

2. Controlling channel participants Spell out the specific responsibilities The awarding of exclusive distribution rights 3. GAINING ACCESS TO DISTRIBUTION CHANNELS 1. The locked-up channel 2. Alternative entry approaches + + + + + Piggybacking Joint ventures Original equipment manufacturers (OEMs) Acquisitions Starting your ventures

4. GLOBAL TRENDS IN DISTRIBUTION SYSTEM Five major trends seem dominant throughout the world: Large-scale retailers International retailers Direct marketing Discounting Information technology 5. INTERNATIONAL PHYSICAL DITRIBUTION Export restrictions Foreign market import restrictions Export documentation The foreign freight forwarder Export packing
AND

INTERNATIONAL LOGISTICS INTERNATIONAL LOGISTICS

DISTRIBUTION

CONCEPTULIZATION, DESIGN, AND IMPLEMENTATION OF A SYSTEM TO DIRECT FLOW OF GOODS AND

SERVICES ACROSS NATIONAL BORDER COMPONENTS MATERIALS MANAGEMENT PHYSICAL DISTRIBUTION OF INTERNATIONAL DISTRIBUTION

C HANNELS

A SET OF INTERDEPENDENT ORGANISATIONS NETWORKED TOGETHER TO MAKE THE PRODUCTS OR

SERVICES AVAILABLE TO THE END CONSUMERS IN INTERNATIONAL MARKETS

INTERNATIONAL AGENTS

MARKETING CHANNELS

BROKER /COMMISSION AGENT IMPORTER S BUYING AGENT COUNTRY CONTROLLED BUYING AGENT BUYING OFFICE

MERCHANT INTERMEDIARIES MERCHANT EXPORTER INTERNATIONAL TRADING COMPANIES EXPORT

TRADING HOUSE

C RITERIA

FOR SELECTION OF INTERNATIONAL DISTRIBUTION CHANNELS

INTERNATIONAL MARKETING OBJECTIVES OF THE FIRM FINANCIAL RESOURCES ORGANISATIONAL STRUCTURE EXPERIENCE IN INTERNATIONAL FIRM S MARKETING IMAGE EXISTING MARKETING CHANNELS OF THE FIRM CHANNEL AVAILABILITY IN THE TARGET MARKET SPEED OF MARKET ENTRY REQUIRED LEGAL IMPLICATIONS INTERNATIONAL LOGISTICS

MARKETS

MANAGING -

MANAGING LOGISTICS IN INTERNATIONAL MARKETS IS COMPLEX DUE TO: PHYSICAL DISTANCE DIFFERENCES IN LOGISTICS SYSTEMS COMPATIBILITY OF LOGISTICS SYSTEMS DIFFERENCES IN LEGAL SYSTEMS NUMBER OF INTERMEDIARIES INVOLVED OF PHYSICAL DISTRIBUTION

C ONSTITUENTS

WAREHOUSING INVENTORY PACKING AND UNITISATION INFORMATION AND COMMUNICATION TECHNOLOGY TRANSPORTATION

TRANSPORTATION MODES OF TRANSPORT AIR TRANSPORTATION ROAD TRANSPORTATION RAIL TRANSPORTATION OCEAN TRANSPORTATION TRANSPORTATION

OCEAN

TYPES OF OCEAN CARGO

BULK BREAK BULK NEO - BULK CONTAINERIZED OF COMMERCIAL VESSELS

TYPES

ON THE BASIS OF DECKS

SINGLE DECK VESSEL TWEEN- DECK VESSEL SHELTER DECK VESSELS CONTAINER VESSELS ON THE BASIS OF VESSEL SIZE HANDY- SIZE HANDY- MAX PANAMAX CAPE- SIZE ON THE BASIS OF TYPE OF CARGO TANKERS BULK CARRIERS NEO - BULK CARRIERS GENERAL CARGO VESSELS BARGES COMBINATION CARRIERS SHIPPING

C HARTER

CHARTER VESSELS DO NOT HAVE ANY FIXED ITINERARY OR FIXED SAILING SCHEDULE THESE CAN BE HIRED OR ENGAGED TO SHIP A FIRM S CARGO ON CHARTER BASIS AS PER THE TERMS THE CONTRACT MADE BETWEEN THE CHARTERER AND THE SHIP OWNER IS KNOWN AS CHARTER

AND CONDITIONS OF THE CHARTER PARTY PARTY THAT CONTAINS DETAILS OF THE SHIP , ROUTES , MET HODS OF CARGO HANDLING , PORT OF CALL

FORMS

OF CHARTERING

VOYAGE CHARTER TIME CHARTER BARE BOAT CHARTER BACK- TO- BACK CHARTER TRIP TIME CHARTER CONTRACT OF AFFREIGHTMENT

CONTRACT

TERMS USED IN VESSEL CHARTERING

GROSS TERMS: THE SHIP OWNER IS RESPONSIBLE FOR THE COST OF LOADING, STOWING , NET TERMS:

TRIMMING , AND UNLOADING OF THE VESSEL

THE

SHIP OWNER IS NOT RESPONSIBLE FOR COST OF LOADING AND DISCHARGE

FREE IN AND OUT : THE CHARTERER HAS TO ARRANGE THE STEVEDORES AND TO LOAD/DISCHARGE LINER SHIPPING : REGULAR SCHEDULED VESSEL SERVICES BETWEEN TWO PORTS CONTAINER: TRANSPORT EQUIPMENT TO FACILITATE HANDLING AND

THE CARGO ON HIS OWN ACCOUNT

CARRIAGE OF GOODS BY ONE OR MORE MODES OF TRANSPORT

C ONTAINERISATION

AND MULTIMODAL TRANSPORTATION

BENEFITS OF TRANSPORTING THE CARGO BY CONTAINERS - FACILITATES DOOR-TO-DOOR DELIVERY - REDUCES COST OF PACKING AS THE CONTAINER ACTS
AS A STRONG PROTECTIVE COVER

REDUCES THE DOCUMENTATION WORK LOWERS WAREHOUSING AND INVENTORY COSTS PREVENTS PILFERAGE AND THEFT REDUCES SUSCEPTIBILITY TO CARGO DAMAGE

5.DOCUMENTATION
PROCEDURE

IN

INTERNATIONAL TRADE

FOR EXPORT - IMPORT

COMPLIANCE WITH LEGAL FRAMEWORK OBTAINING IMPORT-EXPORT CODE NUMBER REGISTRATION WITH EXPORT PROMOTION COUNCIL REGISTRATION WITH SALES TAX AND CENTRAL EXCISE AUTHORITIES CONCLUDING AN EXPORT DEAL ARRANGING EXPORT FINANCE APPOINTING C& F AGENT PROCURING MANUFACTURING OF GOODS ARRANGING CARGO INSURANCE PORT PROCEDURES AND CUSTOMS CLEARANCE PRESENTATION OF DOCUMENTS AT THE NEGOTIATING BANK CLAIMING EXPORT INCENTIVES RECEIVING PAYMENT AND EXPORT INCENTIVES

5. DOCUMENTATION

PROCEDURE FOR EXPORT

&

IMPORT

IMPORT PROCEDURES

e-filing of documents Goods should arrive at customs port/airport only. Most of customs procedures are computerized. E-filing of documents is required.

Import manifest or Import Report Entry Inwards Risk Management System

Person in charge of conveyance is required to submit Import Manifest or Import Report. Goods can be unloaded only after grant of Entry Inwards. Self Assessment on basis of Risk Management System (RMS) has been introduced in respect of specified goods and importers. Bill of Entry for home Importer has to submit Bill of Entry giving details of goods consumption on being imported, along with required documents. Electronic payment of customs submission of documents is done in major ports. duty White Bill of Entry is for home consumption. Imported goods are cleared on payment of customs duty. Bill of Entry for Yellow Bill of Entry is for warehousing. It is also termed as warehousing into bond Bill of Entry as bond is executed. Duty is not paid and imported goods are transferred to warehouse where these are stored. Green Bill of Entry is for clearance from warehouse on payment of customs duty. It is for ex-bond clearance. Noting, examination Bill of Entry is noted, Goods are assessed to duty, examined and assessment and pre-audit is carried out. Customs duty is paid after assessment. Bond Bond is executed if required if assessment is provisional (PD bond) or concessional rate of customs duty is subject to certain post import conditions. Out of customs Goods can be cleared outside port after Out of Customs charge order Charge order is issued by customs officer. After that, port dues, demurrage and other charges are paid and goods are cleared. Demurrage if Demurrage is payable if goods are not cleared from clearance from port port/airport within three days. Goods can be disposed of if not delayed cleared from port within 30 days.

EXPORT PROCEDURES

Entry Outward Export

Loading in conveyance can start after Entry Outward is given by customs officer. Person in charge of conveyance is required to submit Export

manifest/Export report Registration with DGFT and EPC Third party exports

Manifest or Export Report. Exporter has to be obtain IEC number from DGFT is advance. He should be registered with Export Promotion Council if he intends to claim export benefits. Export can be by manufacturer himself or third party (i.e. by exporter on behalf of another). Merchant exporter means a person engaged in trading activity and exporting or intending to export goods [para 9.40 of FTP] Advance authorisation, DEPB etc. should be registered if exports are under Export Promotion Scheme.

Registration of documents under Export Promotion Scheme Shipping Mill

Export is required to submit Shipping Bill with required documents for obtaining permission to export. There are five forms : (a) Shipping Bill for export of goods under claim for duty drawback - these should be in Green colour (b) Shipping Bill for export of dutiable goods - this should be yellow colour (c) Shipping bill for export of duty free goods it should be white colour (d) shipping bill for export of duty free goods ex-bond - i.e. from bonded store room - it should be pink colour (e) Shipping Bill for export under DEPB scheme - Blue colour. FEMA formalities GR/SDF/Softex form (under FEMA) is required to be submitted. Noting, assessment, The shipping bill is noted, goods are assessed and examination examined. Export duty is paid, if applicable. Certification of If export is under export incentives, relevant documents are documents for export checked and certified. Then proof of export is obtained on incentives ARE-1. Let export order Conveyance can leave only after Let Export order is issued.
..

Module 5. Financial Decisions in International Market

WHAT

IS

ECGC?

Export Credit Guarantee Corporation of India Limited was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit. Provides a range of credit risk insurance covers to exporters against loss in export of goods and services Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan How does ECGC help exporters? Offers insurance protection to exporters against payment risks Provides guidance in export-related activities Makes available information on different countries with its own credit ratings Makes it easy to obtain export finance from banks/financial institutions Assists exporters in recovering bad debts Provides information on credit-worthiness of overseas buyers Need for export credit insurance Need for export credit insurance Risks even at the best of times War or civil war may block or delay

Payment

Coup or an insurrection Balance of payment problems Insolvency or protracted default of buyers

2. INTERNATIONAL MONETARY FUND (IMF)

Origin of International Monetary Fund (IMF)

Even before the Second World War ended, monetary experts in the U.S.A. and the U.K. began planning to solve the monetary problems likely to be faced after the war. Known after their authors as the Keynes Plan and the White Plan, both sets of proposals were subjected to intensive discussion and furnished the basis for the Bretton Woods Conference, which decided to set up the two organizations, the IMF and the IBRD. The creation of the Fund represents a major effort at international monetary co-operation. Its main objectives are: 1. To promote exchange stability and orderly exchange arrangements and to avoid competitive devaluation. 2. To help re-establish multilateral system of trade and payments and to eliminate foreign exchange restrictions. 3. To provide for international adjustment, superior to deflation, by making available increased international reserves. 4. To facilitate the expansion and balanced growth of international trade.

The IMF has six prescribed objectives:

1. To promote international cooperation among members on international monetary issues. 2. To facilitate the balanced growth of international trade and to contribute to high levels of employment, real income, and productive capacity. 3. To promote exchange stability and orderly exchange arrangements while avoiding competitive currency devaluation. 4. To foster a multilateral system of payments and transfers while eliminating exchange restrictions. 5. To make financial resources available to members.

6. To seek reduction of payment imbalances. IMF has 180 members, with Brunei Darussalam being the latest. Membership in the IMF is open to any nation that controls its own foreign relations and is will-ing and able to fulfill the obligations of membership. Each member has a quota based on its subscription contribution to the fund. This quota determines the members voting power and access to the IMFs financial resources. The-IMF employs a system of weighted voting power that combines a basic allotment with a variable allotment. To recognize the sovereign equality of nations, each member has a basic allotment of 250 votes. To protect the interest of members with a greater magnitude of inter-national trade and financial transactions as well as to account for the differences in subscriptions, variable allotment is used as well, resulting in one vote for each part of the members quota that is equivalent to a special drawing right (SDR) of 100,000. The United States accounts for some 19 percent of the total.
Functions of IMF The basic functions of IMF are: 1.To lay down ground rules for the conduct of international finance.

2. To provide short and medium-term assistance for overcoming short-term balance of payments deficits. 3. Creation and distribution of reserves in the form of SDRs. The fund has 182 member-countries, accounting for about 80 per cent of the total world production and 90 per cent of the world trade. Members quotas in the Fund amount to approximately SDR 212 billion (April, 1999). Quotas are used to determine (i) the voting power of members, (ii) their contribution to the Funds resources, (iii) their access to these resources, and (iv) their share in the allocation of SDRs. Indias quota in the Fund is SDR 4,158.2 million. Main features of the international monetary system as it existed upto 1973 1. Par value system: The exchange value of a members currency was fixed in terms of gold. Since the price of gold was officially fixed at U.S. $ 35 per ounce, it also meant that par values were fixed in terms of dollar. Dollar was used as the intervention currency as at that time dollar was as good as gold. In fact, members preferred to keep dollars in reserve, in as much as dollars earned interest while gold reserves did not. 2. Change in par value: In order to achieve short-term balance of payments equilibrium, members could borrow funds from the international Monetary Fund. If the IMF help did not serve the purpose, the IMF was required. If the proposed change was greater than 10 per cent, it could be allowed provided (i) there was a fundamental disequilibrium, and (ii) devaluation would be

the right remedy for solving the fundamental disequilibrium. Fundamental disequilibrium was nowhere defined, but experience has shown that severe depression abroad with prolonged unemployment at home and cases of structural disequilibrium could be taken as cases of fundamental disequilibrium. 4.Exchange control was not permitted on current transactions except (i) when a members currency was under massive attack, and (ii) when the Fund declared some currency as scarce. Members could use exchange control so far as the use of that currency was concerned.

4. WORLD TRADE ORGANISATION (WTO)

The World Trade Organization (WTO) was established on 1 January 1995. Governments had concluded the Uruguay Round negotiations on 15th December 1993 and ministers had given their political backing to the results by signing the Final Act at a meeting in Marrakech, Morocco, in April 1994. The Marrakech Declaration of 15th April 1994, affirmed that the results of the Uruguay Round would strengthen the world economy and lead to more trade, investment, employment and income growth throughout the world. The WTO is the embodiment of the Uruguay Round results and the successor to the General Agreement on Tariffs and Trade (GATT). The WTO has a larger membership than GATT (145 by the end of March 2002). India is one of the founder members of the WTO. WTO, contrary to popular belief, is not a free trade institution. It permits tariffs and other forms of protection but only in limited circumstances. It is a system of rules dedicated to open, fair and undistorted competition. Objectives of WTO In its preamble, the agreement establishing the World Trade Organization reiterates the objectives of GATT. These are: raising standards of living and incomes, ensuring full employment, expanding production and trade and optimal use of the worlds resources. The preamble extends these objectives to services and makes them more precise. It introduces the idea of sustainable development in relation to the optimal use of the worlds resources, and the need to protect and preserve the environment in a manner consistent with various levels of national economic development. It recognizes that there is a need for positive efforts to ensure that developing countries, and especially the least developed among them, secure a better share of the growth in international trade. Functions of WTO The agreement establishing WTO provides that it should perform the following four functions: First, it shall facilitate the implementation, administration and operation of the Uruguay Round legal instruments and of any new agreements that may be negotiated in the future.

 Second, it shall provide a forum for further negotiations among member countries on matters covered by the agreements as-well as on new issues falling within its mandate. Third, it shall be responsible for the settlement of differences and disputes among its member countries. Fourth, it shall be responsible for carrying out periodic reviews of the trade policies of its member countries. The WTO structure Its highest authoritythe Ministerial Conference dominates the structure of the WTO. This body is composed of representatives of all WTO members. It meets at least every two years and is empowered to make decisions on all matters under any of the multilateral trade agreements. The day-to-day work of the WTO is entrusted to a number of subsidiary bodies, principally, the General Council, also composed of all WTO members, which is required to report to the Ministerial Conference. The General Council also convenes in two particular forms- as the Dispute Settlement Body and the Trade Policy Review Body. The former overseas the dispute settlement procedure and the latter conduct regular reviews of trade policies of individual WTO members. The General Council delegatesresponsibility to three other bodies, namely the Councils for Trade in Goods; Trade in Services and Trade-Related Aspects of Intellectual Property Rights (TRIPS). The Council of Goods overseas the implementation and functioning of all the agreements covering trade in goods, though many such agreements have their own specific overseeing bodies. The latter two Councils have responsibility for their respective WTO agreements and may establish their own subsidiary bodies as necessary. Agreements of the WTO There are 28 agreements that had been signed in the Uruguay Round of the GATT, 1994. The details of these agreements are given below: A. Trade in Goods General Agreement on Tariffs and Trade 1994 (GATT, 1994) Associate Agreements 1) Agreement on Implementation of Article VII of GATT 1994 (Customs Valuation) 2) Agreement on Pre-shipment Inspection (PSI) 3) Agreement on Technical Barriers to Trade (TBT) 4) Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) 5) Agreement on Import Licensing Procedures 6) Agreement on Safeguards 7) Agreement on Subsidies and Countervailing Measures (SCM) 8) Agreement on Implementation of Article VI of GATT 1994 (Ami-dumping) (ADP) 9) Agreement on Trade-Related Investment Measures (TRIMS) 10) Agreement on Textiles and Clothing (ATC) 11) Agreement on Agriculture 12) Agreement on Rules of Origin

 Understanding and Decisions 1) Understanding on Balance of Payments Provisions of GATT 1994 2) Decisions Regarding Cases where Customs Administrations have Reasons to Doubt the Truth or Accuracy of the Declared Value (Decision on Shifting the Burden of Proof) 3) Understanding on the Interpretation of Article XVII of GATT 1994 (State trading enterprises) 4) Understanding on Rules and Procedures Governing the Settlement of Disputes 5) Understanding on the Interpretation of Article II: l(b) of GATT 1994 (Binding of Tariff Concessions) 6) Decision on Trade and Environment 7) Trade Policy Review Mechanism B. Trade in Services General Agreement on Trade in Services (GATS) C. Intellectual Property Rights (IPRs) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Plurilateral Trade Agreements Agreement on Trade in Civil Aircraft Agreement on Government Procurement International Dairy Agreement International Bovine Meat Agreement

5. WORLD BANK

The World Bank is owned by the governments of the 178 countries that have sub-scribed to providing its capital. Only countries that are members of the International Monetary Fund can qualify for World Bank membership. The United States, with 22.4 percent of the subscribed capital and 20.6 percent of the voting power, is the banks largest shareholder. By tradition, the World Banks president is an American. The members are quite diverse in their characteristics, ranging from China, the most populous, to Vanuatu, which has a population of slightly more than 100,000, and from the United Arab Emirates, with a per capita GNP of more than $30,000, to Bhutan, which has a $180 per capita GNP. Eritrea joined in 1996. The IBRD obtains most of

its funds through borrowing in the capital markets of the United States, Europe, Japan, and the Middle East the process is not unlike a private firms seeking debt financing through the sale of securities. Such funds, in turn are made available only to creditworthy borrowers, mainly for those projects that have high real rates of economic return. The banks decisions are based on economic considerations only, and the political character of a member country is irrele-vant. As a result, the World Bank does not make loans in support of military or po-litical goals. Financial assistance is otherwise restricted in the sense that it may be used to purchase goods and services from any member country as well as from Switzer-land, which is not a member. IBRD loans are usually repayable over fifteen to twenty years, with a grace pe-riod of three to five years. Each loan must be made to, or be guaranteed by, the gov-ernment concerned. The interest rate that IBRD loans carry depends on the cost at which the Bank raises funds in capital markets. In order not to expose the World Bank to excessive interestrate risk, a pool -based variable-rate lending system was initiated in 1982. Interest charges applicable to the outstanding balance on all loans are uniformly adjusted every six months up or down, in accord with the average cost of the pool of IBRD borrowings. A spread of fifty basis points is added to the World Banks own cost of borrowings. Because the new lending system has added a potential element of votality to borrowers costs, the bank strives to find a point at which there is a balance between the susceptibility of the lending rate to change and the pursuit of the banks other important objectives. In any case a degree of volatility is inevitable, though the World Bank attempts through its policies to reduce the impact of these variations.
5. INTERNATIONAL FINANCE CORPORATION (IFC)

Although the IDA shares the World Banks staff, the IFC has its own operating and legal staff. Unlike the bank and the IDA, which have many operating aspects in com-mon, the IFC works closely

with private investors. In addition to providing convert-ible debentures, underwriting, and standby commitments, the IFC invests in com-mercial enterprises within developing countries and is able to take equity positions. By functioning in this area, the IFC complements the work of the Word Bank by providing assistance in business areas that are impractical for the bank to operate. As of 1996, the IFCs total membership has become 165 countries. The IFCs main function is to assist in the economic advancement of LDCs by promoting growth in the private sector of their economies and by helping to mobi-lize domestic and foreign capital for this purpose. The IFC provides financial, legal, and technical advice and contributes an element of confidence to the venture of the parties. Its special role is to mobilize resources on commercial terms for business ven-tures and financial institutions where a marketoriented approach is both applicable and preferable. It will not, however, provide financing if sufficient capital can be ob-tained on reasonable terms from other sources. Its lending criteria include foreign ex-change earnings, increased employment, skill improvement and acquisition, higher productivity, and development of a countrys natural resources on reasonable terms. The International Finance Corporation has become more active in helping companies in developing countries raise financing through international offerings of in-vestment funds and individual corporate securities. Toward this goal, the International Securities Group (ISG) was established in 1989 to provide investment-banking ser-vices to corporate clients in developing countries.
6.

THE FOREIGN EXCHANGE MARKET

Since the advent of generalized floating in 1973, the currency rates in the Foreign Exchange Market are determined by the forces of demand and supply under the present arrangement. This courses a tremendous variability in the exchange rates of

major currencies on day-to-day basis. This enhanced variability has proved to be major problem both for the policy-markers at national level as well as the corporate manager. A great deal of time has to be devoted in managing foreign currency risks, and the cost of buying a cover to protect against foreign currency fluctuations has to be incorporated in normally international business transactions. On the other hand, however, however, variability in exchange rates has opened up profit opportunities for the speculators who take positions in a currency as well as the arbiters who take advantage of the differences in rates in various markets at a given point of time. An arbiter buys a particular currency ina market where it is cheaper and sells the same currency (same amount) in another market where the rate is slightly higher and makes the profit in the process: This has forced the foreign exchange markets continuously buy and sell different currencies with a view to make profit. The developments in information technology have also helped the spatially dispersed markets to come closer. The foreign exchange market happens to be the largest market where transactions worth $500-700 billion take place every day. There are a lot of new hedging products such as forward rates, currency options, currency futures, and roll over covers etc. which have become available in the recent times.
TYPES
I OF

FOREIGN EXCHANGE MARKET

MARKET:

INTER-BANK

Dealings between banks who are authorized dealers in foreign exchange Used to be large in size. About 700 banks worldwide act as market makers in Foreign exchange. Non-bank dealers account for about 20% of the market. International commercial banks communicate with one another instantly and securely with: (a) SWIFT: Society for Worldwide Interbank Financial Telecommunications. (b) CHIPS: Clearing House Inter-bank Payments System (c) ECHO: Exchange Clearing House Limited, the first Global clearinghouse for settling inter-bank FOREX transactions.
II

MERCHANT

DEALS MARKET:

Dealings between authorized dealers and others such as business entities. This is generally retail market or client market, as it is alternatively called.

III

WHOLESALE

MARKET:

Large scale foreign exchange dealings especially interbank deals and some deals involving large corporations.
IV

RETAIL

MARKET:

Small foreign exchange deals involving less than, say $10000.

V

OVER

THE COUNTER MARKET :

In over the counter the dealers or parties directly settle accounts. No clearing house is involved.
VI

EXCHANGE

MARKET :

Foreign exchange dealings are done in an exchange and settlements are through the clearing house of the exchange.
VII

TRANSACTION

MARKET :

Foreign exchange deals representing trade or financial transactions.

VIII

HEDGING

MARKET :

Foreign exchange deals that are done to cover risk of exposure in currencies
IX

SPECULATION:

Opendeals that involve taking position in the exchange to make profit when expected price movement materializes.
X

SPOT MARKET:

Spot market is market for delivery normally two days after the deal. Suppose on 21-2008 you buy $100,000 in the spot market. It is to be delivered on 4-1-2008. If 41-2008 happens to be a banking holiday, you will get delivery the next day, that is 5-1-2008. You dont prefer this. Then

you should book the contract on tom basis on 2-1-2008 so that you can take delivery on 3-1-2008 itself. FORWARD MARKET:

XI

Forward market is a market for future delivery, but rate or price is predetermined. Forward market is used by importers to buy forward forex needed in future and by exporters to sell forward the forex receivable in future. Speculators use forward market to speculate. If speculators expect a particular currency to depreciate they will sell forward that currency. If their expectation is appreciation of a currency, they will buy forward the currency.

7.EXCHANGE RATE SYSTEM Exchange Rate: Exchange Rate is the value of one currency expressed in terms of another. The exchange rate (a.k.a the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 39 Indian rupees (INR) to the United States dollar (USD) means that a sum of Rs 39 is worth the same as USD 1. Exchange Rate System Exchange rate system refers to the assemblage of institutions, investments and their interplay on exchange rate behaviour. Traditionally there are two extreme systems at the poles, namely fixed rate system and floating rate system and in between diverse combinations exist. These systems are diagrammatically presented in figure 1 and discussed below.
I

FIXED

OR

PEGGED EXCHANGE RATE SYSTEM:

Pegging means fixing. Under currency pegging, the external value of a currency is fixed, that is pegged at certain values adopting one standard or other. Gold standard, purchasing power parity and IMF pegging system or other forms of currency pegging. The pegged rates remain fixed for a time, until refixed or repegged.

Currency Pegging Under the IMF Charter with USD: After the Gold standard and purchasing power standard, currency under the IMF charter resulted which required every member-country to fix and maintain the par value of its currency in terms of gold or dollar. This system of fixed exchange came to be known as pegged exchange rates or par values. The schemes provided that: Each member country should declare the external value of its currency in terms of gold and US dollar. This was known as the par value of the currency price. The value of US dollars is fixed at USD 35 per ounce of the gold. The USA committed itself to convert dollars into gold at the above official price. Following the above, the monetary reserves of member-countries came to consist of gold and US dollars. Thus US dollar got the position of a reserve asset. Each country agreed to maintain the market value of its currency within a margin of 1% of the par value. Where the variation in the market was more than the permitted level, the country should take steps to devalue the currency to correct the position. Members were free to devalue their currencies. But, if the evaluation exceeded 10% of the par value, approval of the IMF should be obtained. The IMF might approve it or advise a lower rate. However, it had no power to reject the proposal. The IMF granted short-term financial assistance to its members to tide over their temporary balance of payments problems. For chronic problems the members were expected to use permanent solutions like devaluation. This system was known as adjustable pegged exchange rate with a band of 2%. The system worked till 1971. Currency Pegging Under the IMF Charter with SDR: In the on-going search for a truly international currency, Special Drawing Rights, (SDRs) the currency of IMF emerged pushing down both gold and the greenback, i.e., the dollar in the late 1970s. Basket Pegging of currency: Basket pegging involves the domestic currency is pegged to a basket of currencies. When no international currency is strong and steady, basket pegging is resorted to.

To support fixed exchange rate system a web of exchange control measures are needed. These include: Exchange control measures adopted include: Intervention, Exchange restrictions, Blocked Accounts, Multiple Exchange rates, Exchange clearing agreements, Payment agreements and Gold policy.
II

MANAGED FLOATS:

In April 1978, second Amendment to the IMFs Articles of Agreement came into effect and with that member countries were free to choose own exchange rate system. But member countries should ensure order and stability in exchange rate system. IMF has surveillance or watchdog role over the exchange rate policies of countries, but are subject to regulations to keep the movements within limits. Under the system, some currencies are pegged to certain currency, some are pegged to the SDR, some are pegged to a basket of currencies and some are subject to mutual intervention and some are partially floating and partially pegged (i.e., dual exchange rate system).
III

FREE FLOAT:

USD, Yen and PS became free floating since 1978. Under free floating exchange rates are determined by demand and supply. Central banks do intervene, but at market determined rates only. Rupee has become a free floating currency partially in 1992 and near-fully on current account in 1993. In a freely floating rate system market forces decide the rate. Most nations now adopt this system now. There is no undervaluation or overvaluation. Exporters and importers get and pay, as the case may be, the market value and the system is equally poised in respect of both, unlike fixed ERS where with overvaluation of domestic currency exporters benefit and with undervaluation the importers benefit. Floating ERS is an open-door policy and this attracts more flow of foreign capital and that domestic economy is poised for growth. Floating ERS does not strain domestic economy or fiscal policies much as the exchange rate gets suitably altered. The Government does not feel the pressure of maintaining an unsustainable overvalued / undervalued position of domestic currency. But fluctuations in rates will be there every time. The market may go haphazardly volatile abetted by speculation, capital flight at will, currency contagion effect and so on.

8.SOURCES

OF

FINANCE

Internal sources include: Retained profit - profit made is reinvested into the business. Controlling working capital - reducing costs, delaying outflows and speeding up inflows. Sale of assets - Assets the company owns can be sold and then leased back which frees up a large amount of capital in the short term. External sources of finance: Increasing trade credit - delaying payments on purchases for as long as possible. Factoring - use a company to collect all debts. Overdraft - an agreement with a bank to be allowed to overdraw a certain amount. Grants - an agreed amount of money given for a special reason by government or other organisation. Venture capital - people invest in the company when it is unable to float on the stock market. Debentures - business equivalent of a mortgage. Loan for a set length of time at a set interest rate. Share issues - selling of new shares to raise capital. Owners savings - the owners investing money into the business. Bank loans - medium or long term loans but interest is charged. Leasing - instead of buying.

OR

Ordinary shares preference shares debentures bank loans grants leasing retained earnings. Eurobonds mortgages convertible loan stock

OR

There are different sources which the company can gather through different sources. One of the methods is loans from industrial and financial institutions. A company also meets its long and medium term capital requirements from the industrial and financial institutions like Industrial Development Bank of Pakistan, PICIC commercial bank and National Investment Trust. Such financial institutions help in promoting new companies, expanding and development of existing companies, providing underwriting facility, provision of local and foreign currency for the purchase of machinery. The second source which can be availed by the company is leasing. A leasing is now a popular method of long term finance. It is gradually gaining ground in developing and developed countries of the world. It is a contract for the hire of a specific asset. A business may get plant, equipment and land on along term hire purchase. The business in this way has the use of assets which it does not own. It has however to pay regular payments to the lessor under the agreement. The advantages claimed for leasing are that there is no pressure on existing resources of the

business. It assets are also not tied up as security of loan. The rent is paid from income generated by the use of asset.

OR

There are different sources of long term finance which can be used to generate the finance for the business for long period of time. One of the most commonly used is Equity Shares, the issuing of equity shares is the most important source for raising the long term capital by the company. These shares are the best source because they are only paid back on winding up of company. Equity shareholders are the real owners of the company. Equity shareholders get dividend when the company is earning profits. A company can now issue different classes and kinds of shares to raise its owned capital. The kind of shares will be issued according to the needs of the company and preferences of the investors. There are two types of shares one is right shares. A public company may increase its subscribed capital by issue of right shares. Right shares are offered to the shareholders in proportion to their present holding often at a price which is less than the currently quoted price on the stock exchange. The other source is debentures a company also raises long term finance through borrowing. These loans are raised by the issue of debentures. A debenture is an instrument issued by a company to acknowledge the loan taken by the company under its common seal.

THE ADVANTAGES

OF

SHORT TERM SOURCES

OF

FINANCE

1.
o

A company that needs money has a choice of three types of funding: capital raised through selling ownership shares (stock), long term borrowings and short term finance. Selling shares and borrowing long term are appropriate for starting a company or financing expansions and new facilities; but once a company is in operation, it will most likely need short term sources of money to fund inventory, payroll and unexpected expenses. It is never a good idea to borrow long term to fund short term obligations, so it is advisable for your company management to cultivate sources of short term money.

Banks
o

It is always wise for the management of a company to develop a good working relationship with the local banker because banks are excellent sources of short term funding. Banks offer revolving credit lines that can be drawn down and repaid numerous times without re-applying for credit, and they are generally less expensive than credit cards. Banks also provide payroll services and can finance payroll when your company's cash is low. Small business banks depend on local companies, so they focus on giving personal attention and assistance to their customers. It is much easier to call up your banker with a request for quick money to cover an emergency if you have already devoted the time and effort to establishing your company's creditworthiness and reliability through developing a strong working relationship with that banker.

Finance Companies
o

Receivables factoring and invoice discounting are two ways finance companies provide short term financing. When they factor your receivables, they buy your invoices at a fairly steep discount and conduct any collection activities needed. This is an expensive manner of obtaining funding because the finance company is taking on the risk of collection, and many companies factor only their slow paying invoices. Invoice discounting involves using your invoices as collateral for short term borrowing. Your company maintains ownership of the invoice assets and must replace any pledged invoices that are paying slowly, but this financing method preserves the balance sheet asset value and is less expensive than factoring because the finance company doesn't assume the same degree of risk. A good relationship with a finance company is beneficial when it comes time to lease equipment or vehicles; but since your company does not maintain any deposit accounts with a finance company, maintaining a good payment record is vital.

Trade Credit
o

The best way to finance inventories is through trade credit, which is the number of days your vendor will allow before payment is due on your invoices. For a new customer, most vendors will require cash-on-delivery. As trust develops, the vendor will allow 30, 60 or 90 days to pay invoices, which may be enough time for your company to sell the inventory and collect payment. Trade credit normally does not cost anything because the vendors offer it to their best customers as an inducement to continue doing business.

Competition
o

The better and more dependable your short term sources of financing, the more competitive your company will be in your industry. Short term financing allows you to take advantage of sudden opportunities to make additional revenues or capture business ahead of your competition. Good short term funding sources give a company flexibility and versatility.

Following are the international sources of finance: 1. 2. 3. 4. 5. Foreign Direct Investment GDR/ADR FII IMF ADB

OR

SHORT-TERM

AND

LONG-TERM SOURCES

OF

EXTERNAL FINANCE

Especially in the current economic climate, external financial sources may be required by organizations both in the short and long-term. Short-term financial sources are usually used to fund day to day business operations or 'working capital' while long-term external finances may typically be necessary to purchase or maintain fixed assets such as machinery and the workplace building itself. A major difference between the two is that short-term loans will require repayment within the time frame of one year and long-term loans include those lasting for more than a year.
Short-Term External Finance Sources: Bank Overdrafts and Trade Credit

Fearns (2003) identifies several sources for acquiring short-term external finance which include the following: bank overdrafts, bank loans, debt factoring, trade credit and leasing. Bank overdrafts are one of the most commonly used sources and involve the bank allowing one to

withdraw money beyond one's bank balance up to an agreed limit. However, as most students past and current will know this is not always the best solution although it is certainly less expensive than taking out a loan. Trade credit is particularly helpful for smaller organisations as it can be used to purchase various goods and services in advance of payment. This involves suppliers offering the business a time frame of credit of anywhere between 30 to 90 days by which time full payment is required.

Short-Term External Finance Sources: Debt Factoring

Debt-factoring is an arrangement resulting in increasing the immediate flow of cash into a business or organization. In this type of arrangement the factoring house 'buys' off the company debts as they occur with the factoring house then advancing a maximum of 80% of any outstanding trade debts following the deduction of charges. A major benefit of an organisation using debt factoring is the fact that it provides the business with an opportunity to receive a proportion of funds from sales immediately therefore taking away the burden associated with credit control. Another means of understanding the difference between short-term and long-term external financial sources is that short-term finance is used to alleviate temporary problems while longterm finance is used for capital investment.
Long-Term Sources of External Finance

As highlighted by Brindley (2008) the main sources of long-term finance include loans, hire purchase agreements, leasing and mortgages. Loans are a formal type of agreement which require repaying within a time-frame including interest. Hire purchase involves paying a deposit on an asset and then repaying regular installments until the asset is no longer owned by the finance house. Leasing is the same as renting; equipment is borrowed from a leasing company until the end of the lease when it is returned. Mortgages are usually very long-term (as most home-owners know only too well!) loans which are used in order to purchase property. It is well worth finding out more about different offers available with various banks and building societies so as to get the best rates possible. As highlighted above, external finance sources are either short or long-term and may be obtained in a number of different ways such as through bank overdrafts, trade credit, leasing and hire purchase agreements. It is crucial, however, that any risk to a business is first calculated, regardless of the type of external finance being sought. OR

Sources of Finance The Long-Term Finance may be Raised by the Companies from the following Sources:Capital Market Capital market denotes an arrangement whereby transactions involving the procurement and supply of long-term funds take place among individuals and various organisations. In the capital market, the companies raise funds by issuing shares and debentures of different types. When long-term capital is initially raised by new companies or by existing companies by issuing additional shares or debentures, the transactions are said to take place in the market for new capital called, as 'New Issue Market'. But, buying and selling of shares and debentures already issued by companies takes place in another type of market called as 'the Stock market'

Special Financial Institutions

A large number of financial institutions have been established in India for providing long-term financial assistance to industrial enterprises. There are many all-India institutions like Industrial Finance Corporation of India (IFCI); Industrial Credit and Investment Corporation of India (ICICI); Industrial Development Bank of India(IDBI), etc. At the State level, there are State Financial Corporations (SFCs) and State Industrial Development Corporations (SIDCs). These national and state level institutions are known as 'Development Banks'. Besides the development banks, there are several other institutions called as 'Investment Companies' or 'Investment Trusts' which subscribe to the shares and debentures offered to the public by companies. These include the Life Insurance Corporation of India (LIC); General Insurance Corporation of India (GIC); Unit Trust of India (UTI), etc.

Leasing Companies
Manufacturing companies can secure long-term funds from leasing companies. For this purpose a lease agreement is made whereby plant, machinery and fixed assets may be purchased by the leasing company and allowed to be used by the manufacturing concern for a specified period on payment of an annual rental. At the end of the period the manufacturing company may have the option of purchasing the asset at a reduced price. The lease rent includes an element of interest besides expenses and profits of the leasing company.

Foreign Sources
Funds can also be collected from foreign sources, which usually consists of:

Foreign Collaborators:- If approved by the Government of India, the Indian companies may secure capital from abroad through the subscription of foreign collaborator to their share capital or by way of supply of technical knowledge, patents, drawings and designs of plants or supply of machinery. International Financial Institutions:- like World Bank and International Finance Corporation (IFC) provide long-term funds for the industrial development all over the world. The World Bank grants loans only to the Governments of member countries or private enterprises with guarantee of the concerned Government. IFC was set up to assist the private undertakings without the guarantee of the member countries. It also provides them risk capital.

Non-Resident Indians:- persons of Indian origin and nationality living abroad are also permitted to subscribe to the shares and debentures issued by the companies in India.

Retained Profits or Reinvestment of Profits

An important source of long-term finance for ongoing profitable companies is the amount of profit which is accumulated as general reserve from year to year. To the extent profits are not distributed as dividend to the shareholders, the retained amount can be reinvested for expansion or diversification of business activities. Retained profit is an internal source of finance. Hence it does not involve any cost of floatation which has to be incurred to raise finance from external sources.
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