International Mkt Test 3 Place/distribution

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Alternative International Marketing Strategies

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1. Adaptation
2. Standardization

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Place - Adapt if marking infrastructure is dissimilar to home country

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Adaptation (Localization)

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Place - Use same type of distribution channel around the world

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Standardization (Globalization)

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Which Strategy should be used?
It depends on

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1. Vision of the company
2. Attitude towards risk
3. Available Investment Capital
4. How much control is desired by management

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3 types of Exporting

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1. Indirect Exporting
2. Direct Exporting

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Via piggybacking, consortia, export management companies, trading companies

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Indirect Exporting

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1. Using market country agent or distributor
2. Using own sales subsidiary

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Direct Exporting

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Including mail order, telemarketing, or e-commerce

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Direct Marketing

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Export management companies perform all the transactions relating to foreign trade for the firm and are independent agents working for the firm in overseas markets, going to fairs, and contacting distributors

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Indirect Exporting

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Advantage is that the firm avoids the overhead cost and administration burden involved in managing their own export affairs.
Disadvantage is that the skills and know how developed through experiences abroad are accumulated outside the firm, not in it.

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Indirect Exporting

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The firm is able to more directly influence the marketing effort in the foreign market

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Direct Exporting

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Advantage over indirect exporting is the control of operations

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Direct Exporting

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Direct Exporting: Legal Issues

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1. Export License
2. Transferring Tile
3. Insurance
4. Hiring an Agent

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In the U.S. usually issued by the department of Commerce

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Export License

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Title of ownership follows the bill of loading

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Transferring Title

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Exporting Functions - Product Shipment

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1. Transportation
2. Clearing through Customs
3. Warehousing

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The shipment of the product to the border of the country is usually handled by an independent freight forwarder

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Transportation

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Unloaded at the national border, the product will go from the ship or airline to a customs-free depot before being processed through customs

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Clearing Through Customs

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After entering the country, the goods will often require storage

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Warehousing

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Exporting Functions - Export Pricing

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1. Price Quotes: CIF vs FOB (Free on board - no insurance or coverage)
2. Trade Credit
3. Price Escalation

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Prices quoted CIF (cost-insurance-freight-the seller accepts the responsibility for product cost, insurance and freight) is the recommended alternative for an export marketer.

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Price Quotes: CIF vs FOB

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A high price can often be counterbalanced by beneficial trade credit terms

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Trade Credit

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Due to transportation cost, tariffs and other duties, special taxes, and exchange rate fluctuations, export prices tend to escalate. Still, competitive conditions and a desire to penetrate a new market often makes overseas prices lower than at home.

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Price Escalation

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5 Terms of Shipment

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1. EX-WORKS (EXW)
2. Free alongside ship (FAS)
3. Free on Board (FOB)
4. Cost & Freight (CFR)
5. Cost, Insurance & Freight (CIF)

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Seller agrees to deliver goods at point of origin or some specified place, all other charges are borne by the buyer.

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EX-WORKS (EXW)

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Price for goods include charges for delivery of the goods alongside a vessel

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Free Alongside Ship (FAS)

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In addition to FAS, the seller loads the goods in the vessel

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Free On Board (FOB)

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Price for goods includes cost of transportation to a named oversea port

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Cost & Freight (CFR)

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Price includes insurance and all transportation and miscellaneous charges to the port of disembarkation for the ship or aircraft.

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Cost, Insurance, & Freight (CIF)

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2 Export Expansion Strategies

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1. Waterfall Strategy
2. Sprinkler Strategy

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The Firm gradually moves into overseas market

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Waterfall Strategy

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Advantage of this strategy are that expansion can take place in an overly manner and it is relatively less demanding in terms of resource requirements
Disadvantage of this strategy; it may be too slow in fast-moving market

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Waterfall Strategy

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The firm tries to enter several country markets simultaneously within a limited period of time.

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Sprinkler Strategy

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Advantages of this strategy are that it is a much quicker way to market penetration across the globe and it generates first- mover advantages
Disadvantage of this strategy is the amount of managerial, financial, and other resources required.

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Sprinkler Strategy

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4 Government Programs that Support Exports

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1. Tax Incentives
2. Subsidiaries
3. Governmental Assistance
4. Foreign Trade Zones

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3 Governmental Actions to Discourage Imports and Block Market Access

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1. Tariffs
2. Import Controls
3. Non tariff Barrier (5)

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5 Non Tariff Barriers

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1. Quotas
2. Discriminatory Procurement Policies
3. Restrictive Customs procedures
4. Arbitrary Monetary Policies
5. Restrictive Regulations

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Test Question
3 r's of Global Business

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1. Rules
2. Rate Schedule
3. Regulations

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A contractual agreement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation.

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Licensing

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4 Types of Licensing

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1. Patent
2. Trade Secret
3. Brand Names
4. Product Formulation

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4 Advantages of Licensing

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1. Provides additional profitability with little initial investment
2. Provides method of circumventing tariffs, quotas, and other export barriers.
3. Attractive ROI
4. Law Costs to Implement

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5 Disadvantages to Licensing

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1. Limited Participation
2. Returns may be lost
3. Lack of Control
4. Licensee may become competitor
5. Licensee may exploit company resources

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2 Special Licensing Arrangements

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1. Contract Manufacturing
2. Franchising

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1. Company provides technical specifications to a
subcontractor or local manufacturer
2. Allows company to specialize in product design while contractors accept responsibility for manufacturing facilities

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Contract Manufacturing

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1. Contract between a parent company–franchisor and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies

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Franchising

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• Pro: The franchisor typically gets income as a royalty on gross
revenues.
• Con: The franchisor needs to establish controls over the use of the brand name and the level of quality provided by the local operation.

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The Franchisor

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• Pro: The franchisee can start a business with limited capital and
benefit from the business experience of the franchiser.
• Con: The franchisor’s ability to dictate many facets of business operation limits local adaptation.

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The Franchisee

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7 Franchising Questions

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1. Will the local consumer buy your product
2. How tough is the local competition?
3. Does the government respect trademark and franchiser rights?
4. Can your profits be easily repatriated?
5. Can you buy all the supplies you need locally
6. Are your local partners financially sound and do they understand the basic of franchisor.
7. Are your local partners financially sound and do they understand the basic of franchising?

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1. Entry strategy for a single target country in which the partners share ownership of a newly created business entry.
2. Involves the transfer of capital, manpower, and usually some technology from the foreign partner to an existing local firm.

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Joint Ventures

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4 Joint Ventures Advantages

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1. Allows for sharing of risk (both financial, and political)
2. Provides opportunity to learn new environment
3. Provides Opportunity to achieve synergies by combining strength of partners.
4. May be the only way to enter market given barriers to entry.

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5 Joint Venture Disadvantages

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1. Requires more investment than a licensing agreement
2. Must share rewards as well as risk
3. Requires strong coordination
4. Potential for Conflict among partners
5. Partner may become a competitor

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In Russia if your a foreign investor you can only have 49% of ownership

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In Russia if your a foreign investor you can only have 49% of ownership

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Start up of new operations
Manufacturing Subsidiaries or
Greenfield investment - factory or Retail business
Merge with an existing enterprise
Acquisition or an existing enterprise

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Investment via Ownership or Equity Stake

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Wholly owned manufacturing Subsidiaries
Undertaken by the international firm for several reasons

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1. To acquire raw materials
2. To operate at lower manufacturing costs
3. To avoid tariff barriers
4. To satisfy local content requirements

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Instead of a "greenfield" investment, the company can enter by acquiring an existing local company.

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FDI: Acquisition

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Advantages
1. Speed of Penetration
2. Quick market penetration of the company's produt
ex. P+G + Canada

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FDI: Acquisitions

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Disadvantages
1. Existing product line and new products to be introduced might not be compatible
2. Can be looked at unfavorably by the government, employees, or others
3. Necessary re-education of the sales force and distribution channels

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FDI: Acquisitions

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Aside from the aforementioned strategies . . .

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• Also think about the actual location inside the host country.
• Cities
• Airports
• Free-standing buildings • Malls