Transcript
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Lecture No. 1 - 2
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Lecture No. 1 - 2
Presentation
Domestic v/s International Business
Motives for International Business
Orientations to International Business Operations
Matrix of marketing Ingredients
Quotable Quotes
International Trade Theories
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International Business
T R A D E F A C T S:Growing faster than most national economies
Barriers are shrinking
Many countries target export growth
Increasingly important to national economies
Increasingly important for firms to Increase MarketTodays firms encounter global competition compete with productsmanufactured in India by foreign firm and imports besides competitionfrom domestic firms.
Liberalization has led to global sourcing of technology, materials,finance, human resources etc.
No country can live in economic isolation or afford to keep out of theglobal economy except at its own risk
No country is self sufficient with regards to its needs and requirement,not can it consume all that it produces and thus cannot insulate itselffrom EXTERNAL INFLUENCES. [SEA- Rubber]
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International Business
It is the performance of business activities designed to plan, promote and direct the
flow of a companys goods and services to consumers or users in more than one
nation for profit.
Growing flow of commodities. Movements of goods and services become more
Responsive / elastic to differences between variables.
TYPES OF INTERTNATIONAL BUSINESS:
Trading [import export trading houses]
Manufacturing and Marketing MNCs
Sourcing and marketing [outsourcing products]
Global sourcing for products. Global sourcing of raw materials / intermediaries. [FORD MEMORANDUM THE HARBINGER OF AMERICAN BUSINESS TOCOME. 1919 to 1960: If its cheaper abroad, get it abroad.]
Services like IT, transportation, banking, insurance.
Investments FDIs
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International Business
SIMPLY PUT: Marketing mix decisions across national boundaries.
- OR
- WITH COMPLEXITY: It involves the firm in establishing manufacturing
facilities overseas and coordinating marketing strategies across theglobe.
- International Marketing is the multinational process of PLANNING andexecuting the conception, pricing, promotion, and distribution of ideas,
goods, and services to create exchanges that satisfy individual andorganizational objectives.
-
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International Business - Facets
Intangible dimensions birth control / aids - UN programs
- Applies not only to market or business transactions but alsoInternational non-profit marketing.
- Modified product for overseas market - recognizes that it is improper fora firm to create a product first and then look for a place to sell it
- acknowledges that place ( distribution ) is just part of the marketingmix, and that distance between markets makes it neither more nor less
important than the other parts of the mix
- Integration / Coordination of the 4 Ps across countries in order to bringabout the most effective marketing mix.
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International Business- Benefits
- Survival sufficient economies of scale.- Growth and better earning prospects
- Sales and profits larger turnovers and operating profits.
- Diversification to counter for cyclical factors recession and seasonalfactors like climate.
- Inflation and Price Moderation.- for domestic firms.- Employment improved GNP and enhanced opportunity in general for
al nations.
- Improved Standard of living.
- Understanding of market process more openness in International
trade.- Healthy Competition advantage to the end consumer.
- Intangible benefits like diffusion of benefits across nationalboundaries and free flow of innovative ideas across trading nations.
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International Business
DIFFERENCES IN INTL and DOMESTIC BUSINESSThe environment within which the marketing plans must beimplemented.
Uniqueness also come from unfamiliar problems and differentlevels of uncertainties.[COKE 1977 FORMULA]
Challenge to mould controllables 4ps within the framework ofuncontrollables. [competition/consumer behavior/ slept]
Two levels of uncontrollable uncertainties.
What also plays havoc are:
CURRENCYSELF REFERENCE CRITERION CULTURAL CONDITIONING
9/10 ths OF THE ICEBERG UNKNOWN.
[impedes the ability to assess a foreign market in its true light confront facts with our own assimilated knowledge / experience.]
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International Business
DOMESTIC INTERNATIONAL
Activities are limited tolength and breadth of thecountry.
Involves across country transactions oracross the country production orprovision of services.
Transactions are inter firm. Transactions are intra-firm. RM may flowbetween the parent and the subsidiary oramong different subsidiaries of the samefirm.
Relatively lessercomplexities.
Transactions carried out in unfamiliarconditions prevailing in host country.
Work in multi environment conditions.
-USA child labor is not allowed.
-Mc Donald's does not serve beef
burgers in India.
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International Business
Obstacles to
Uniformitywithin Intlbusiness
PRODUCT PRICE PLACE PROMOTION
Economicfactors
VariedIncome
levels
Variedincome
levels
Differentretail
structures
MediaAvailability
and spread.Cultural Consumer
tastes andhabits.
Pricenegotiatinghabits.
Shoppinghabits.
Languageand attitudedifference.
Competitive Nature of
existingproducts
Competitors
cost andprice
Competitors
monopoly ofchannels
Competitors
budget andappeal.
Legal Factors Productregulations
PriceControls
Restrictionson
distribution
Advertisingand media
restrictions.
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Competing on International Basis.
What are the Key Organizational
Challenges for Firms Competing onInternational Basis ?
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International Business Orientations to
International Marketing Operations.
Domestic MarketExtension Concept Multi Domestic MarketConcept Global MarketingConcept
Internationaloperations are viewedas secondary and anextension. The primarymotive is market theexcess domesticproduction.
Believes that countrymarkets are vastlydifferent and successrequires almostdifferent program foreach country.
Market coverage is theworld efficiencies ofscale, standardizedproduct, dependablequality with reasonableprice to global market.
If it can sell in homecountry it can sell
anywhere. Thusminimal efforts aremade to adapt to themarketing mix toforeign markets.
ETHNOCENTRIC
Subsidiaries operateindependently of one
another in establishingmarketing objectives.
Separate mix for eachwith little interactionamong them.
POLYCENTRIC
World markets arebeing driven to a
convergingcommonality.Standardization wherever it isculturally effective only.
GEO / REGIO
CENTRIC.
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Competing on International Basis.
What is Basis of Resource Allocations ?
How to Manage Balance of Authority between Central Office and Business
Units.
Choice between Centralization / De-Centralization
Degree to Which Products & Services need to be customized
Integration of the Corporate Structure is it possible ?
Can issue of empowerment be tamed to infact become a source of
Specialized Innovation ?
Is close cooperation and interdependence among HQ, Operations,
International subsidiaries possible ?
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Key Philosophy andCharacteristics of a
TransnationalPhilosophy:
Adaptation to Environmental Situations & Achieving Flexibility by
Capitalizing on Knowledge Flows thru Two way communication.
Characteristics:
Differentiated Contributions by all units to by all its units to integrated
worldwide operations.
A joint innovation by headquarters and by some of the overseas units
leads to the development of relatively standardized and yet flexibleproducts and services that can capture several local markets.
Decision making and knowledge generation are distributed among the
units of a transnational organization.
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Key Philosophy andCharacteristics of a
Transnational
The combination of mechanisms needed is somewhat contradictory,because the structure need be.
a) centralized and decentralized,
b) integrated and nonintegrated, and
c) formalized and nonformalized.
Transnational companies often enter into strategic alliances with their
customers, suppliers, and other business partners to save time and capital as,
These alliances may bring to the firm specialized competencies.
This may result in a virtual corporation, consisting of several independent
firms that collaborate to bring products or services to the market.
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Key Philosophy andCharacteristics of a
TransnationalTransnational firms have higher degrees of coordination with low control
dispersed throughout the organization. The five implementation tacticsused for implementing the transnational model are:
a) mass customization-synergies through global research and development
(e.g., American Express, Time Warner, Frito-Lay)
b) global sourcing and logistics (e.g., Benetton, Citicorp)
c) global intelligence and information resources (e.g., Andersen Consulting,
McKinsey Consulting)
d) global customer service (e.g., American Express)
e) global alliances (e.g., British Airways and US Air; KLM and Northwest)
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Key Philosophy andCharacteristics of a
Transnational
King and Sethi (1999) define a comprehensive taxonomy of transnationalstrategy with the following five important dimensions of transnational
strategy:
1) the configuration of value-chain activities, which refers to the
geographic dispersal of a firm's value-chain components;2) the coordination of value-chain activities;
3) centralization;
4) strategic alliances; and
5) market integration, which refers to the extent to which the parent
corporation views the international market as a single competitive arena.
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Key Philosophy andCharacteristics of a
Transnational
Nestl CEO Peter Brabeck recently questioned the idea of a so-called
global consumer. The firm appears to be successfully implementing a
transnational strategy by making centralization decisions based partly on
whether value-chain activities are upstream or downstream.
According to Brabeck: "The closer we come to the consumer, in branding,
pricing, communication, and product adaptation, the more we decentralize.
The more we are dealing with production, logistics, and supply-chain
management, the more centralized decision making becomes.
After all, we
want to leverage Nestl's size, not be hampered by it" (Wetlaufer, 2001).
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International Business - Motives
1] PULL FACTORS:Companies are motivated to internationalize because of
attractiveness of the foreign market. [profit and growth prospects.]
2] PUSH FACTORS:
Refer to the compulsions of the domestic market say saturation. ofreactive nature. COST QUANTITY CURVE.
3] GROWTH OPPORTUNITIES:
Take advantage of NICs. East Europe and Peoples republic of China.[9700jvs in Poland/ Hungary and Czech 1989 after collapse of communism.]
4] DOMESTIC MARKET CONSTRAINTS:
TV sets in USA, Phillips in Holland 8%, Nestle in Switzerland only
contributes 2%
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International Business - Motives
5] COMPETITION:Strategy of country competition and impede cash flow which limits
production. IBM taking on Hitachi [national semi conductors] and
Fujiitsu [trw]
6] GOVERNMENT POLICIES ANS REGULATIONS:Benefits, Subsidies, Tax holidays, Export promotion zones etc.
7] MONOPOLY POWER:
Monopolization of certain resources Australia and China COKE,
Patent Rights - Indian Basmati, Pharma etc.
8] SPIN OFF BENEFITS:
Improve image of the company, help earn foreign exchange for the
country.
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International Business
QUOTABLE QUOTES:
From American Economists:
Every American company is international at least to the extent that its
business performance is conditioned in part by the events that occur
abroad / world wide.
Foreign is foreign to CNN / Coca Cola.
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International Business Trade Theories
Which is preferable: balanced trade or a higher standard of living?Is it better to have relative wealth or absolute wealth?
Which is more desirable: profits for India-Inc or good jobs forIndians ?
What are the relative costs and benefits?
How does a country come out ahead?Trade theories seek to
Explain observed trade patterns
Influence government policy
Trade theory >govt policy>business opportunities and threats
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International Business Trade Theories
INTERNATIONALTRADE
National Competitive
Advantage
International Product
Life Cycle
Factor Endowments
Mercantilism
Comparative Advantage
Absolute Advantage
W.O.N.
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International Business Theories
International trade- RATIONALE:
provides the opportunity for less endowed countries toacquire goods and products that are either not available orin short supply within the local economy
Generally traced to: Adam Smiths Wealth of Nations
Based On: Principles of AbsoluteAdvantage
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PERIOD APPROACH
2000 BC Greece and Mesopotamia trade forNational Independence
1776 Adam in his Wealth OF Nationsemphasized the importance of specializationas a source of increased output and treatedinternational trade as a particular instance of
specialization. FOR GAINING ABSOLUTEADVANTAGE.
The Historical Journey.
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PERIOD APPROACH
2000 BC Greece and Mesopotamia trade forNational Independence
1969 -Michinton West European Focus on EconomicActivity
Divergence in factor endowments ofterritories created new opportunities forcomparative advantage.
MERCANTILISM: Welfare of nations thruincreased exports, ban imports and reservein GOLD
The Historical Journey.
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The impetus for the trade theories stems from the knowledgethat although most nations may have a sufficient variety ofproductive factors to produce almost everything every kindof good and product, they are unable to produce somekind of good or service with same level of effectiveness.
Theories.
- May not be definitely conclusive
- However do have effect on formulation of trade policies bythe national government.
International Business Theories
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Theory of MERCANTILISM
GOLD AND SILVER ARE THE MAIN STAYS OF NATIONALWEALTH AND ESSENTIALS TO RIGOROUS COMMERCE.
- The earliest attempt to explain the role of international trade.
- Basic Belief = Existing correlation between national wealth, power and
security.
- Focus of Mercantilist approach = ACQUIRE GOLD
- Nation can demonstrate Power + Influence by accumulation of wealth preferably in GOLD.
- FUNDAMENTALLY NATIONALISTIC APPROACH
- All other export proceeds also convert in GOLD. Increase trade (predominantly exports ) at any / all costs to other nations
- Total Prohibition on Imports.
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Theory of MERCANTILISM
Doctrine ofMercantilism:
Zero Sum Game wherein one gains by loss of others, however it should
be positive sum game in which all countries can benefit.
Export as much as possible to gain as much gold Payment currencybased on Gold Standard.
DISADVANTAGES:
- Winner and loser concept
- Accumulation of gold synonymous with accumulation of wealth.
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Theory of ABSOLUTE ADVANTAGE
- Anti- Mercantilist school of thought.- Reaction from English School ofClassical Economics.
- Founded by ADAM SMITH (1723 1790 )
PRINCIPLE: Intl Trade should be based on primarily cost considerationsand not on Nationalism.
- Wealth Of Nations- Goods can be obtained more cheaply than bydomestic manufacture.- W.O.N.
- Each Nation possesses absolute advantage in the production ofcertain goods and should specialize in these goods as it isparticularly well equipped to produce.
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Theory of ABSOLUTE ADVANTAGE
Incentive to trade is based on each country having an absolute
advantage in a product.
- Exchange of English Textile with the French Wine.- Attempt to move from zero sum game to positive game.
DISADVANTAGES / CRITICISM:
- Suppose a country did not have absolute advantage in any product ?
- Suppose a country had absolute advantage in producing all goods ?
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THEORY OF COMPARATIVE ADVANTAGE.which argues that if acountry could produce all goods more efficiently than another, itshould specialize in export that product in which it was comparativelymore efficient.
Arrives out of complication in the W.O.N. theory if both the countrieshave absolute advantage in production of goods.
Look at apparent advantage and disadvantage with the RELATIVE
ASPECT and thus arrive at a +ve + ve sum game.
Theory of COMPARATIVE ADVANTAGE
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THEORY OF COMPARATIVE ADVANTAGE
Countries will trade without having to have an absolute advantage theyonly need a comparative.
Trade happens because of difference in Relative cost of doing businessis different in different countries.
"there may still be global efficiency gains from trade if a countryspecializes in those products that it can produce more efficiently than
other products - regardless of whether other countries can producethose same products even more efficiently
Theory of COMPARATIVE ADVANTAGE
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a) Comparative Differences in Cost:
Country A:Marginal cost of producing wheat = Rs 70 / quintalMarginal cost of producing cotton = Rs. 140 / quintal
Country B:Marginal cost of producing cotton = Rs 70 / quintalMarginal cost of producing wheat = Rs. 50 / quintal
- B can produce both cotton and wheat cheaper than A but comparative advantage is higher incotton than wheat
- A has comparative disadvantage in in both but disadvantage is lower for wheat than for cotton
Thus.Country A: 1 quintal of wheat =1/2 of cotton ; 1:2 cost ratio andCountry B: 1 quintal of wheat = 5/7 or 0.71 of cotton i.e. 1: 2/5 cost ratio.
THEREFORE IT WILL PAY COUNTRY B TO SPECIALIZE IN COTTON PRODUCTION AND A INWHEAT PRODUCTION.
Theory of COMPARATIVE ADVANTAGE
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b) Gain with Comparative Differences in Cost:
Trade without Specialization:
A = 1 quintal of wheat + 0.5 quintal of cottonB = 1 quintal of wheat + 0.71 quintal of cotton
A + B = 2 quintal of wheat + 1.21 quintal of cotton = 3.21 as total produce.
Trade with Specialization:
A producing only wheat and B producing only cotton
A = 2 quintals of wheatB = 1.42 quintals of cotton
A + B = 2 quintals of wheat + 1.42 quintals of cotton = 3.42 as total produce.
THUSA GAINOFOVERALL TRADEOF 0.21 QUINTALSOF COTTON
Theory of COMPARATIVE ADVANTAGE
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Disadvantages:
- Loss to industry / nation which produces goods with comparativedisadvantage and comparative higher costs.
- Simplistic assumptions regarding the distribution of loss / gain in
producing / trading.
Theory of COMPARATIVE ADVANTAGE
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FACTOR ENDOWMENT / HECKSCHER OHLIN THEORY:- Tried to explain why differences in productivity exist between
countries and the impact of these differences in international trade
Guiding Principles:
- Countries differ in their relative factor intensities.
In other words
- Countries will have a comparative advantage in producing the goodsusing their abundant factor relatively intensively and each country will
export its abundant factor good in return for the import of the goodwhich uses it scarce factor relatively intensively.
FACTOR ENDOWMENT Theory
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Leontief Pradox. ( to factor endowment theory)
General Assumptions for the US of A.
- Has comparative advantage in production of capital intensive goods.
- Has comparative less advantage in labor intensive goods.
However using 1947 Intl Trade Data he proved that..
- Exports of Capital intensive goods = US $ 14,010.
- Exports of Labor intensive goods = US $ 18,180.
Other economists reaffirmed this data but still H-O theorem provides ananalytical framework for predicting the likely pattern between two
countries.
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International Product Life Cycle
Nations export becomes the main import
Product life cycle theory - as the product matures it becomes more laborintensive and the comparative advantage shifts to different countries.
Step 1] Xerox [USA] exports to Japan and Europe
Assumptions and Facts:A] Japan growing demand
B] Technologically competent
C] Good market potential.
D] No entry barriers
E] Scenario post patent expiry not clear.
Step 2] JVs: Fuji Xerox and Rank Xerox
Step 3] Post e] above other collaborators enter the market eg Cannon andOlivetti.
Step 4] Costs increase therefore decide to shift base to Singapore.
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NationalCompetitive Advantage.
Related and
SupportingIndustries.
Factor Endowments
Firm Strategy
and Rivalry
Demand Condition
The effect of one is contingent with the other.
EXPORT PRODUCTSFROM THOSE COUNTRIESWHEREALL FOUR COMPONENTSOF THE DIAMOND AREFAVOURABLE WHILEIMPORT WHERE PARTSARE
UNFAVOURABLE.
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NationalCompetitive Advantage.
A nations competitiveness depends on the capacity of its industry to
innovate and upgrade.
Companies gain competitive advantage because of pressure andchallenge. They benefitfrom havingstrong domestic rivals, aggressive
home-based suppliers and demanding local customers.
Differences in national values, culture, economic structures, institutions,and histories all contribute to competitive success
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NationalCompetitive Advantage.
Doctrine:
Comparative advantage resides in (inherited) factor endowments like land,labor, population.
Nations can however add to and create new advanced factor endowments like
technology, government support, investment and industrialization culture, skillsets etc.
Production factor endowment and creation: local disadvantages and adverseconditions force to innovate which leads to national comparative advantage.
- Human resources, infrastructure, knowledge resources, physical and capitalresources
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Competitive advantage of nations
Domestic demand conditions:More demand leads to national advantage + trendsetting local market helps anticipate global trends.
- Buyer sophistication, anticipatory demand, demand size
Related and supporting industries :Increases efficiency + cost effectiveness.- Competitive, compatible domestic suppliers
Firm strategy, structure, and rivalry:Initially favorable but not in long run.
Local rivalry force firms to look beyond home country & thus innovate + improve.
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Triad CountriesUniversalization Of Needs.
Triad countries (US, Japan, Canada, W/Europe) represent approximately14% of the population and 70% of the world gross product.
Why are Triad Patterns universally accepted ?
- Mecca for Product Innovations
- Consumers as opinion leader and mold formers.
- Consumer rights, demand and pattern.
- High Purchasing power , High Education level
- Superior technological and transportation infrastructure.
- TV = 94% penetration , CNC tools, Computers = 90% usage in Triad.A COMPANY THAT IGNORES THE MARKET POTENTIAL OF THE
TRIAD, DOES SO AT ITS OWN PERIL.
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Major Decisions in International Marketing
Deciding whether to go abroad
Deciding which markets to enter
Deciding how to enter the market
Deciding on the marketing program
Deciding on the marketing organization
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Deciding whether to go abroad.
Assumption at stage 1)
potential risks have been weighed- foreign customer preferences have been understood
- Proper Understanding of the forex regulations / commerciallaws
- Proper understanding of the SLEPT-factors
Also look at factors like:
- huge foreign indebtedness
- Unstable governments
- Tariffs and trade barriers
- Technological pirating- High cost of communication and adaptation.
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Deciding which markets to enter.
- Define its international marketing objectives and strategies.
- Define what proportion of foreign to total sales will it seek ?
- Decide whether to market in a few countries or many countries
- (market entry and control costs are high / product &communication costs / population and income size and growth /dominant foreign firms can establish high barriers to entry.)
- DECISION VARIABLE:-
- Index points on the MARKET ATTRACTIVENESS vis--visCOMPETITIVE ADVANTAGE grid.
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Deciding which markets to enter.
Five steps in estimating the probable rate of return on investment:
a) Estimate of the current market potential
b) Forecast of future market potential and risk
c) Forecast of the Sales potentiald) Forecasts of Costs and Profits
e) Estimates of rate of ROI
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Deciding How to enter the market.
- An entry strategy should reflect an analysis of market potential,company stabilities and the degree of marketing involvement andthe commitment the management is prepared to make.
- Approaches could either require minimal investment and be
limited to infrequent exporting or large investments of capital andmanagement effort to capture and maintain a permanent,specific share of world markets. BOTH APPROACHES CANBE PROFITABLE.
Look at factors of commitment, risk, control and profit potential.
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Deciding How to enter the market.
Some of the common entry strategies are:- Indirect Exporting
- Direct Exporting
- Licensing
- Joint Ventures
- Direct Investments
- Franchising
- Consortia
- Contract Manufacturing
What will be the direction of the C-R-C-P
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Entry Strategies Criteria for Selection
- Speed ofMarket Entry Desired:
Setting up a WOS vis--vis Agent / Distributor to ensure quick /
effective distribution in the foreign market.
- Costs (to include direct as well as indirect):
Indirect like inland freights, strikes, disruptions to output, lack of
power supply, irregularity of raw materials.
- Flexibility Required:
Appointment of agent / distributor required only where it is deemed
unlikely that there will be much future expansion by the companydirectly into that market.
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Entry Strategies Criteria for Selection
- Risk Factors:
Risk may be diminished by minimizing the investment stake in the
company by accepting local joint venture partner etc. Also important
are third country risks boycotts (Arab world for Israel )
- Investment Payback Period:
Short term pay back realized from licensing and franchising deals
whereas joint ventures or wholly owned subsidiaries will tie up
capital for a number of years.
- Long-term profit Objectives:
Related to the growth envisaged in that market for the years ahead.
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Entry Strategies Outward Manifestations of a Company
The main features of the alternative modes of foreign market entry:
FEATURE CHARACTERISTIC
Ethnocentric Perceived as being closely related to its
country of origin
Polycentric Based in a few countries with no conspicuousimage
Regiocentric Overall image identifiable not with a country
but a region.P&G in Europe
Geocentric Globally coordinated with their own complex
global sourcing, management reporting
systems etc Pepsi, IBM, Coca-Cola
National
Responsiveness
Unilever in India
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DirectExporting
- from home country
- This means is the easiest and most common
- Risks and financial losses can be minimized ( over indirectexporting )
- Early motives are to skim the cream form the market or gainbusiness to absorb overheads.
Forms:
- A) export department
- B) overseas sales branch or subsidiary
- C) Traveling representative- D) Foreign based distributors / agents who would buy the
goods and own it might be given exclusive rights to representthe manufacturer.
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Licensing
Means of establishing foothold in foreign markets without large
capital outlays
- Patented rights / trademark rights and rights to use technologicalprocesses are granted in foreign licenses
- Confers only a right to use a company specific and paten-
protected process in manufacturing.
- Right is conveyed in the transferal of original blueprints anddesigns.
- In its simplest form, it may involve the transmittal of originaldesigns.
- Important criteria = KNOW HOW agreements.
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Licensing - Advantages
Advantageous when / Advantages:
- capital is scarce
- import restrictions forbid other means of entry
- a country is sensitive to foreign ownership or
- when it is necessary to protect patents and trademarks against
cancellation or non use.- Increases the income on products developed as a result of
expensive research.
- To retain a market to which export is no longer viable cos ofimport prohibitions, quotas, duties, transportation costs, lack ofproduction facilities etc.
- To make possible the rapid exploitation of new ideas on worldmarkets before competitors get into the act.
- For the licensor it becomes easier to handle more export marketsthis way.
- Licensing is a viable option where manufacture near to the
customers base is required.
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Licensing - Disadvantages
Potential Disadvantage:
- the firm has less control over the licensee than if they were to setup their own facility.
- The danger of fostering competition
- The fact that there is often a ceiling to licensing income perproduct, sometimes about 5% on the selling price.innovatingproducts at least could rate higher rewards if marketed in otherways.
- The licensee may prove less competent than expected atmarketing or other management activities, hence the licensor
may find his commitment is greater than expected. Eventuallycosts may grow faster than income.
- Negotiations with licensee and or the local govt are costly andoften protracted.
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Joint Ventures
- One of the more important types of collaborative relationships
- Provide less risky way to enter markets that pose legal andcultural barriers than would be the case in an acquisition of anexisting company.
- ( eg in mid 90s USA acquired 225 Eu firms and entered into67 JVs , however in Asia, they acquired only 27 existingcompanies but formed 97 JVs )
- A JV is differentiated from other types of SAs or Collaborative
relationships in that a JV is a partnership of two or moreparticipating companies that have joined forces to create aseparate legal entity. JVs are classified as SAs but not all SAaare in the strictest sense a JV.
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Joint Ventures
- Can be defined as The commitment for more than a shortduration of funds, facilities and services by two or more legallyseparate interests to an enterprise for their mutual benefit
- JVs go deeper than mere trade relationships since it
concentrates on the deliberate alliance of resources betweentwo independent organizations in order to mutually improvetheir market growth potential.
- JVs are of TWO TYPES:
a) Joint Equity Venture
b) Contractual joint Venture.
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Joint Ventures
Joint Equity Venture
- Wherein each of the respective partners contributes a sumeither in equity or technological know-how in return for a givenstake in the operation of a joint venture.
- Are open ended and not fixed.
- Suffer in that the absorption of local equity capital from theforeign market will dilute the company / country equity base.
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Joint Ventures
Four factors associated with JVs:
- 1) are established , separate legal entities
- 2) they acknowledge intent by the partners to share in themanagement of the JV
- 3) they are partnerships between legally incorporated entitiessuch as companies , chartered organizations or governments
- 4) equity positions are held by each of the partners.
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Joint Ventures
POSSIBLE DRAWBACKS:
- The partners might disagree over investment , marketing , andother policies
- Can hamper a MNC from carrying out specific manufacturing andmarketing policies on a worldwide basis.
- Difficulty of integrating into a global strategy with cross-bordertrading.
- Operational conflicts of interests eg as in pricing of a singlesource input or raw material.
- Conflict in tax interests between the partners particularly whereone may represent the local government interests.
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- FRANCHISING:
- Is a rapidly growing form of licensing in which the franchisorprovides a standard package of products, systems andmanagement services and the franchisee provides market
knowledge, capital and personal involvement in management.
- Potentially the franchise system provides an effective blending ofskill centralization and operational decentralization
- In England for eg annual franchised sales of fast foods isnearly 2 Billion US $ , which accounts for 30% of all foods eatenoutside the home.
- - eg Beijing KFC has the highest sales volumes of any KFCstore in the world.
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- TYPES OF FRANCHISE AGREEMENTS:
- A) master franchise gives the franchisee the rights to a specificarea with the authority to sell or establish sub franchises.
- ( eg McDonalds)
- B) LICENSING franchise right to use a product / good / serviceor any other asset for a fee
- ( eg Coco Cola licenses local bottlers in a an area or region tomanufacture and market Coco Cola using syrup sold by CocoCola. Rental car companies often enter foreign market bylicensing a local franchisee to operate a rental system under atrade mark of the parent company. )
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- CONSORTIA:
Are developed for pooling financial and managerial resources andto lessen risks.- eg for huge construction projects.
Similar to a JV except for the following two characteristics:
- 1) they typically involve a large number of participants
- 2) they frequently operate in a country or market in which none ofthe participants is currently active.
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Deciding on the Marketing program
StraightExtension
PRODUCT
Dual AdaptationCommunicationAdaptation
Product Adaptation Product
invention
P
R
O
M
OT
I
O
N
Do not change Adapt Product Develop new product
Adapt Promotion
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Triad CountriesUniversalization Of Needs.
Straight Line Extension:
- Find customers for the product as it is [after finding usage]- eg Cameras, consumer electronics, machine tools.
Product Adaptation:
- altering the product to meet local conditions.
- eg- general foods coffee blends - British with more milk, French black coffee, no frills packaging in India, nokia higher volume ringtones, Hyatt fen-shui in Singapore etc.
Product Invention: [backward / forward]
- theory of IPLC.- eg National Cash Register: Crank operated in Latin America.
Promotion:
KFC [artificial, mechanical, unhealthy] in Japanese households.- My oldKentucky household.
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Triad CountriesUniversalization Of Needs.
Straight Line Extension:
- Find customers for the product as it is [after finding usage]- eg Cameras, consumer electronics, machine tools.
Product Adaptation:
- altering the product to meet local conditions.
- eg- general foods coffee blends - British with more milk, French black coffee, no frills packaging in India, nokia higher volume ringtones, Hyatt fen-shui in Singapore etc.
Product Invention: [backward / forward]
- theory of IPLC.- eg National Cash Register: Crank operated in Latin America.
Promotion:
KFC [artificial, mechanical, unhealthy] in Japanese households.- My oldKentucky household.
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Triad CountriesUniversalization Of Needs.
Triad countries (US, Japan, Canada, W/Europe) represent approximately14% of the population and 70% of the world gross product.
Why are Triad Patterns universally accepted ?
- Mecca for Product Innovations
- Consumers as opinion leader and mold formers.
- Consumer rights, demand and pattern.
- High Purchasing power , High Education level
- Superior technological and transportation infrastructure.
- TV = 94% penetration , CNC tools, Computers = 90% usage in Triad.A COMPANY THAT IGNORES THE MARKET POTENTIAL OF THE
TRIAD, DOES SO AT ITS OWN PERIL.
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Triad CountriesUniversalization Of Needs.
Triad countries (US, Japan, Canada, W/Europe) represent approximately14% of the population and 70% of the world gross product.
Why are Triad Patterns universally accepted ?
- Mecca for Product Innovations
- Consumers as opinion leader and mold formers.
- Consumer rights, demand and pattern.
- High Purchasing power , High Education level
- Superior technological and transportation infrastructure.
- TV = 94% penetration , CNC tools, Computers = 90% usage in Triad.A COMPANY THAT IGNORES THE MARKET POTENTIAL OF THE
TRIAD, DOES SO AT ITS OWN PERIL.
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Triad CountriesUniversalization Of Needs.
Triad countries (US, Japan, Canada, W/Europe) represent approximately14% of the population and 70% of the world gross product.
Why are Triad Patterns universally accepted ?
- Mecca for Product Innovations
- Consumers as opinion leader and mold formers.
- Consumer rights, demand and pattern.
- High Purchasing power , High Education level
- Superior technological and transportation infrastructure.
- TV = 94% penetration , CNC tools, Computers = 90% usage in Triad.A COMPANY THAT IGNORES THE MARKET POTENTIAL OF THE
TRIAD, DOES SO AT ITS OWN PERIL.
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Triad CountriesUniversalization Of Needs.
Triad countries (US, Japan, Canada, W/Europe) represent approximately14% of the population and 70% of the world gross product.
Why are Triad Patterns universally accepted ?
- Mecca for Product Innovations
- Consumers as opinion leader and mold formers.
- Consumer rights, demand and pattern.
- High Purchasing power , High Education level
- Superior technological and transportation infrastructure.
- TV = 94% penetration , CNC tools, Computers = 90% usage in Triad.A COMPANY THAT IGNORES THE MARKET POTENTIAL OF THE
TRIAD, DOES SO AT ITS OWN PERIL.
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