Government Intervention

EU-US and Beef

1989 - EU bars growth hormone treated beef.
US exports decline form $231mm in 88 to
$98mm in 94.
With other countries, US files complaint to
WTO.
US wins (1998) - WTO Panel
declares ban to be illegal.
EU reluctant to comply and
appeals, but loses the appeal.
1999 - US threatens to raise
tariffs on hundreds of EU products.
Global Economy Jos Luis M Marn Arandia

Arguments for protectionism

To balance cost and prices
Barriers allow increase final price of import
products and balance the cost advantage of
foreing products against domestic ones.

Global Economy Jos Luis M Marn Arandia

Arguments for protectionism

National Security
The barriers maintain the local industries
motivating the self-sufficiency and specially
they can protect industries that are vital for
the national security.
Defense industries - semiconductors.

Global Economy Jos Luis M Marn Arandia

Arguments for protectionism

Protecting jobs and industries:
emerging industries.

The barriers protect the developing industries,

until these reach levels of international
efficiency and competitiveness.

Global Economy Jos Luis M Marn Arandia

Arguments for protectionism

Infant industry
Oldest argument - Alexander Hamilton, 1792.
Protected under the WTO.
Only good if it makes the industry efficient.
Brazil auto-makers - 10th largest - wilted when protection
eliminated.

Requires government financial assistance.

If a good investment, global capital markets would invest.

Global Economy Jos Luis M Marn Arandia

Arguments for protectionism

Consumer protection
Barriers are also fixed to restrain the product
entrance
that
does
not
fulfill
the
recommended standards for the market.

Global Economy Jos Luis M Marn Arandia

Arguments for protectionism

To restrain currency exit
When buying national and nonforeign
products the money remains in the country.

Global Economy Jos Luis M Marn Arandia

Arguments for protectionism

Protecting jobs and industries
When buying national products the domestic
production is stimulated and more jobs are
created.

Global Economy Jos Luis M Marn Arandia

Arguments for protectionism

To protect environment
Products that because of their production
attempt against the ecology or because the
consequences of their use damage
environment.

Protecting human rights

Global Economy Jos Luis M Marn Arandia

10

Trade Barriers
Trade barriers can be applied to the imports,
which are commonest, or to the exports in the
case of advance technology products or
products that become high-priority for the
national well-being.

Global Economy Jos Luis M Marn Arandia

11

Forms of protectionism

Tariff
Non tariff barriers

Global Economy Jos Luis M Marn Arandia

12

Tariff
The tariffs are dutties or taxes to articles
transported of the customs from a country to
the customs of another one.
Its main target is to increase the price of the
merchandise to be sell, reducing therefore the
possibility of competing with similar national
merchandise.

Global Economy Jos Luis M Marn Arandia

13

Tariff
Tariffs - oldest form of trade policy
Specific
ad valorem

Good for government

Good for producers
But reduces efficiency

Bad for consumers

Global Economy Jos Luis M Marn Arandia

14

Tariff
Specific
Monetary quantity per unit of goods, independently of the
invoiced value of the merchandise.

Ad valorem
Percentage that is applied based in the value of the
invoice of the product.

Mix

Global Economy Jos Luis M Marn Arandia

15

Non tariff Barriers

Bureaucratic rules designed to make it difficult

for imports to enter a country.
Japanese masters in imposing rules.

Global Economy Jos Luis M Marn Arandia

16

Instruments of Trade Policy

Subsidies
A payment to a domestic producer.

Cash grants
low-interest loans
tax breaks
government equity participation in the company
Airbus

Subsidy revenues generated from taxes.

Global Economy Jos Luis M Marn Arandia

17

Instruments of Trade Policy

Import Quotas and
Voluntary Export Restraints
Import Quota:
Restriction on the quantity of some good imported
into a country.

Voluntary Export Restraint (VER):

Quota on trade imposed by exporting country,
typically at the request of the importing country.

Global Economy Jos Luis M Marn Arandia

18

Results of Japanese VERs

Benefits producers by limiting import
competition
Japan - limited its exports of vehicles to
USA in ealry 80s
Cost to consumers - $1B/year between 81
- 85.
Money went to Japanese producers
in the form of higher prices.

Global Economy Jos Luis M Marn Arandia

19

Instruments of Trade Policy

Local Content Requirements
Requires some specific fraction of a good to be
produced domestically.
Percent of component parts.
Percent of the value of the good.
Initially used by developing countries to help shift
from assembly to production of goods.
Developed countries (US) beginning to implement.
Benefits producers, not consumers.

Global Economy Jos Luis M Marn Arandia

20

Instruments of Trade Policy

Antidumping Policies
Defined variously as:
Selling goods in a foreign market below production costs.
Selling goods in a foreign market below fair market value.

Result of:
Unloading excess production.
Predatory behavior.

Remedy: seek imposition of tariffs.

Global Economy Jos Luis M Marn Arandia

21

Other administrative barriers

Licenses
Exchange rate control
Consular documents
Quality norms
Packing and labels
Laws and regulations of Hygiene and health

Global Economy Jos Luis M Marn Arandia

22

Entry Mode Selection

MODEL FOR SELECTING

INTERNATIONAL MARKETS
Research at a macro level
Economic statistics
Political environment
Social structure
Geographic factors
PRELIMINARY OPORTUNITIES

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24

MODEL FOR SELECTING

INTERNATIONAL MARKETS
General market related to the products
Growing tendencies for similar products
Cultural acceptance of these products
Availability of market data
Market size
Development stage
Taxes and tariffs
POSSIBLE OPPORTUNITIES

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MODEL FOR SELECTING

INTERNATIONAL MARKETS
Research at a micro level (specific factors
afffecting the product)
Existence and potencial competitors
Entry barriers (facilities)
Confidence on information
Sales forecast
Entry costs

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MODEL FOR SELECTING

INTERNATIONAL MARKETS
Probable acceptance of the product
Utility potential
Experience and common sense

POSSIBLE OPPORTUNITIES
Target market
Implementation of the corporative factors
influence.

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27

INFORMATION SYSTEMS OF
INTERNATIONAL BUSINESS
An information system for international
business must be capable to follow up :
Demographic tendencies
Competitors
Social and cultural tendencies
Economic conditions

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28

INFORMATION SYSTEMS OF
INTERNATIONAL BUSINESS
Political environment
Financing environment
Legal environment
Technologic environment
Geographic environment (weather
characteristics)

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29

POTENTIAL SOURCES OF INFORMATION ABOUT THE

INTERNATIONAL ENVIRONMENT

ECONOMIC CONDITIONS
International stastistics
International Bank
Embassies
Public accounts of countries
Local mass communication
Competitors
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30

POTENTIAL SOURCES OF INFORMATION ABOUT THE

INTERNATIONAL ENVIRONMENT

DEMOGRAPHIC TENDENCIES
Domestic statistics
Local research centers
Domestic universities
Market research agencies
(domestic and international)

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31

POTENTIAL SOURCES OF INFORMATION ABOUT THE

INTERNATIONAL ENVIRONMENT

FINANCING ENVIRONMENT
Balance of payments analysis
Local and foreign banks
International traders
Finance magazines
Magazines

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32

POTENTIAL SOURCES OF INFORMATION ABOUT THE

INTERNATIONAL ENVIRONMENT

TECHNOLOGIC ENVIRONMENT
Domestic competitors
Local universities
Domestic research centers
Scientific publications
Registrated trademarks and patents

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33

POTENTIAL SOURCES OF INFORMATION ABOUT THE

INTERNATIONAL ENVIRONMENT

SOCIAL & CULTURAL TENDENCIES

Local mass comunication
Embassies
Local market research agencies
Local universities
Publications about culture and society

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POTENTIAL SOURCES OF INFORMATION ABOUT THE

INTERNATIONAL ENVIRONMENT

GEOGRAPHY AND WEATHER

Local information
International statistics
Encyclopaedias
World geography sources
Embassy personnel

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35

POTENTIAL SOURCES OF INFORMATION ABOUT THE

INTERNATIONAL ENVIRONMENT

COMPETENCY NATURE
Industry studies
Domestic statistics
Domestic bank
Local suppliers and clients
Corporative studies

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36

POTENTIAL SOURCES OF INFORMATION ABOUT THE

INTERNATIONAL ENVIRONMENT

POLITICAL ENVIRONMENT
Political risk analysis
Embassy personnel
Expatriated
Local news broadcast
Foreign publications

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37

POTENTIAL SOURCES OF INFORMATION ABOUT THE

INTERNATIONAL ENVIRONMENT

LEGAL ENVIRONMENT
International banking
Attorneys at law
Embassy personnel
International consultants
International brokers
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38

RELEVANT ASPECTS THAT MUST BE CONSIDERED

TO REALIZE A MARKET RESEARCH

1. What is the problem?

2. How do you get the information?
3. To whom may you ask?
4. What type of questions are used?
5. How are the questions going to be
analized?
6. What are the benefits obtained?

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39

ADDITIONAL PROBLEMS IN THE INTERNATIONAL

MARKET RESEARCH

SECONDARY SOURCE
Source date
Data availability
Data confidence
Data comparability between countries

PRIMARY SOURCE
Questionnaire design (by phone, mail, personal)
Language (traduction and meaning)

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40

ELEMENTS OF THE MARKET PORTFOLIO MATRIX

I. Countrys attractiveness
II. Competitive strengthen of the
company
Which is the main purpose to do the
matrix?
Selection of the new foreign markets
Improve of the competitive position in the
actual markets
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41

HOW INFORMATION IS OBTAINED FROM BOTH

ELEMENTS OF THE MATRIX?

I. Countrys attractiveness
Countrys size
Market growth
Government regulations
Price control
Non tariff barriers
Local components / exports

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42

HOW INFORMATION IS OBTAINED FROM BOTH

ELEMENTS OF THE MATRIX?

Economic & political stability

Inflation
Trade balance
Political stability

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43

COMPANYS COMPETITIVE STRENGTHEN

It is composed by:
1) Market participation
Market share
Competitive position

2) Product adaption

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44

COMPANYS COMPETITIVE STRENGTHEN

3) Contribution margin
Profit per sold unit (dollars)
Percentage

4) Market help
Market participation
Marketing strategies

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45

PREFERENCE FISHBEIN MODEL

P ijk =

Sum Wijk * Aijk

P = preference
i = attribute
k = market segmentation
W = relative importance
A = evaluation of each trademark

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46

Simplified Grid to Compare Countries for Market Penetration

VARIABLE

WEIGHT

V
1. Acceptable (A), Unacceptable (U) factors
a. Allows 100% ownership
A
b. Allows licensing to majority-owned subsidiary
A

---

II

III

IV

---3
---

4
3
2
2
2
2

3
1
1
4
1
1

3
2
2
1
3
2

3
2
2

--

2
18

2
0
0
1
0

1
3
1
0
1

3
3
2
4
2

14

--

2. Return (higher number = preferred rating)

a. Size of investment needed
0-5
b. Direct costs
0-3
c. Tax rate
0-2
d. Market size, present
0-4
-e. Market size, 310 years
0-3
f. Market share, immediate potential (02 years) 0-2
g. Market share, 310 years
0-2

TOTAL
3. Risk (lower number = preferred rating)
a. Market loss, 310 years
b. Exchange problems
0-3
c. Political-unrest potential
d. Business laws, present
e. Business laws, 310 years
TOTAL

11/20/16

0-4
-0-3
0-4
0-2

-0
----

10

47

1
1

18

2
3
3
2

Country Attractiveness-Company Strength Matrix

High
Dominate/divest
Joint venture

Country attractiveness

Invest/grow

Individualized
strategies

Medium

Individualized
strategies

Harvest/divest
Combine/license

Low
High

Medium

Low

Competitive strength

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48

Basic Entry Decisions

Which markets to enter?

When to enter the markets?
What scale of entry?

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49

Which Foreign Markets

Favorable benefit-cost-risk-trade-off:
Politically stable developed and developing
nations.
Free market systems
No dramatic upsurge in inflation or private-sector
debt.

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50

Which Foreign Markets

Unfavorable
Politically unstable developing nations with a
mixed or command economy or where
speculative financial bubbles have led to excess
borrowing..

Timing of Entry

Advantages in early market entry:

First-mover advantage.
Build sales volume.
Move down experience curve and achieve
cost advantage.
Create switching costs.

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52

Timing of Entry

Disadvantages:
First mover disadvantage - pioneering
costs.
Changes in government policy.

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McGraw Hill
Companies, Inc., 2006

53

Scale of Entry

Large scale entry

Strategic Commitments - a decision that has
a long-term impact and is difficult to reverse.
May cause rivals to rethink market entry.
May lead to indigenous competitive
response.

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54

Scale of Entry

Small scale entry:

Time to learn about market.
Reduces exposure risk.

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55

Entry Modes

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Exporting
Turnkey Projects
Licensing
Franchising
Joint Ventures
Wholly Owned Subsidiaries

RISK
VS
CONTROL

56

Exporting

Advantages:
Avoids cost of establishing manufacturing
operations.
May help achieve experience curve and location
economies.

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57

Exporting
Disadvantages:
May compete with low-cost location
manufacturers.
Possible high transportation costs.
Tariff barriers.
Possible lack of control over marketing reps.

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58

Turnkey Projects
Advantages:
Can earn a return on knowledge asset.
Less risky than conventional FDI.

Disadvantages:
No long-term interest in the foreign country.
May create a competitor.
Selling process technology may be selling
competitive advantage as well.

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59

Licensing
Advantages:
Reduces costs and risks of establishing
enterprise.
Overcomes restrictive investment barriers.
Others can develop business applications of
intangible property.

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60

Licensing
Disadvantages:
Lack of control.
Cross-border licensing may be difficult.
Creating a competitor

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61

Franchising
Advantages:
Reduces costs and risk of establishing
enterprise.

Disadvantages:
May prohibit movement of profits from one
country to support operations in another
country.
Quality control.

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62

Joint Ventures
Advantages:
Benefit from local partners knowledge.
Shared costs/risks with partner.
Reduced political risk.

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Joint Ventures
Disadvantages:
Risk giving control of technology to partner.
May not realize experience curve or location
economies
Shared ownership can lead to conflict.

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Wholly Owned Subsidiary

Advantages:
No risk of losing technical competence to a
competitor.
Tight control of operations.
Realize learning curve and location economies.

Disadvantage:
Bear full cost and risk.

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Advantages and Disadvantages

of Entry Modes
Entry Mode

Advantage

Exporting

Ability to realize location and

experience curve economies

Turnkey
contracts

Ability to earn returns from

process technology skills in
countries where FDI is
restricted

Licensing

Low development costs and

risks

11/20/16

Disadvantage
High transport costs
Trade barriers
Problems with local marketing
agents
Creating efficient competitors
Lack of long-term market
presence
Lack of control over technology
Inability to realize location and
experience curve economies
Inability to engage in
global strategic
coordination
66

Advantages and Disadvantages

of Entry Modes
Entry Mode

Advantage

Disadvantage

Franchising Low development costs and Lack of control over quality

risks
Inability to engage in global strategic
coordination
Joint
ventures

Access to local partners

Lack of control over technology
knowledge
Inability to engage in global strategic
Sharing development costs
coordination
and risks
Inability to realize location and
Politically acceptable
experience economies

Wholly
Protection of technology
High costs and risks
owned
Ability to engage in global
subsidiaries strategic coordination
Ability to realize location and
experience economies
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67

Selecting an Entry Mode

Technological Know-How

Wholly owned subsidiary, except:

1. Venture is structured to reduce
risk of loss of technology.
2. Technology advantage is
transitory.
Then licensing or joint venture OK.

Management Know-How

Pressure for Cost

Reduction

11/20/16

Franchising, subsidiaries
(wholly owned or joint
venture).
Combination of exporting and
wholly owned subsidiary.

68

Strategic Alliances
Cooperative agreements between potential or
actual competitors.
Advantages:
Facilitate entry into market.
Share fixed costs.
Bring together skills and assets that neither company
has or can develop.
Establish industry technology standards.

Disadvantage:
Competitors get low cost route to technology and
markets.
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Alliances Are Popular

High cost of technology development
Company may not have skill, money or
people to go it alone
Good way to learn
Good way to secure access to foreign
markets
Host country may require some local
ownership
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Global Alliances, however, are different

Companies join to attain world leadership
Each partner has significant strength to bring
to the alliance
A true global vision
Relationship is horizontal not vertical
When competing in markets not part of
alliance, they retain their own identity

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Partner Selection
Get as much information as possible on
the potential partner
Collect data from informed third parties
former partners
investment bankers
former employees

Get to know the potential partner before

committing
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Structuring the Alliance to

Reduce Opportunism
Walling off
critical technology

Establishing
contractual
safeguards

Opportunism by partner
reduced by:

Agreeing to swap
valuable skills
and technologies

Seeking credible
commitments

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Characteristics of a Global Alliance

Players are independent prior to the
creating of the alliance
Players share
benefits of the alliance
control over operations

Players continue to contribute

technology
products

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Companies, Inc., 2006

74

Problems with Strategic Alliances

Have to give up some authority/control

Could be strengthening a future
competitor
Technology transfer
Management practices
Operating procedures

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