foreign entry strategies (2)

8/13/2019 Foreign Entry Strategies (2)

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MODES OF ENTRY INTO FOREIGN MARKETS (foreign mkt entry strategies)

Selecting the mode of entry into a foreign market is a task of critical importance. It hasmajor implications concerning the firms entire marketing mix and the firms own control overit. In broad terms, a company has three types of entry possibilities.

1. Indirect export sales to domestic intermediaries who resell the prodct tocstomers overseas.

!. "irect export sales to a cstomer overseas who may be a reseller or an end#ser.$. %verseas &anfactrer either independently or in some form of joint ventre.

CRITERIA FOR SEECTING MODE OF ENTRY

'he appropriateness of particlar modes of entry varies both among firms and for anyindividal firm across markets and time. In choosing an entry method for a particlar marketa firm shold evalate the following criteria.

1. (%&)*+ %-/('I0/S in relation to volme timescale and segmental coverage.'hs, for small or short#term volmes overseas prodction is probably inappropriate.

! (%&)*+ SI/. Small firms are nlikely to possess sfficient resorces to facilitateprodction abroad.

$. &%"/ *0*I2*-2I2I'. "ifferent markets re3ire different modes. India, forexample is generally hostile toward foreign prodcers wishing to locate there.

4 &%"/ 56*2I'. It may be that all modes are possible for a particlar market btsome are of 3estionable 3ality. 'hs an absence of sitably 3alified

intermediaries wold preclde indirect or direct exporting of say, high technologygoods.

7. I+0/S'&/+' 8/56I8/&/+'S. 'hese will be highest for overseas prodctionwhich may ths be preclded. /ven so, investment may be re3ired to finance sayoverseas intermediaries stocks.

9. %)/8*'I+: (%S'S. 'he recrring costs of entry mst be evalated. +otably, themanfactrers incremental marketing costs rise in the se3ence rnning fromindirect, throgh direct exporting to overseas prodction.

;. *"&I+IS'8*'I0/ "6'I/S. 'hese are costly and inconvenient and they vary

across entry modes. 'hs, administrative tasks are far fewer for indirect exportersthan for direct exporters.


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E!"ORT #O$SES

'hese are firms which facilitate exporting on behalf of the prodcer. 'hey fall into three maingropsG

AaB /xporting &erchants these act as export principals, bying and selling the goodsthey export.

AbB (onfirming Doses also act as principals and their main fnctions to provide creditfor foreign cstomers when the prodcer is nwilling to do so.

AcB /xport *gents sell abroad for the prodcer in his own name or the prodcers.6sally cover a particlar grop of related prodcts Afor exampleB tableware.8emneration by commission.

Advantages of trading via these three are similar to each other

1. 'he prodcer gains the benefit of the merchants market knowledge and contracts.

!. De is relieved of the need to finance the export transaction and of the credit risk,export docmentation, shipping and insrance. /tc. 'his does not apply thoghwhen an export agent is sed.

$. 'he manfactrer does not bear the overhead costs of export marketing. Dence, hedoes not need to lay ot investment fnds.

4. &any merchants and agents have specialist skills re3ired for conter trade, switchtrading and so on.

7. In some cases merchants receive preferential treatment from instittional and

organiFational cstomers.

9. In the case of export agents, the manfactrer retains mch control over the marketwhen the sale is made in his own name.

Disadvantages of exporting via export houses:

1. :enerally and critically, the prodcer has little or no control over his market Aexceptregarding export agentsB and his prodct may be dropped whenever the merchantdecides.

!. *ny goodwill created in the market is sally the merchants and not themanfactrers.

$. 'here are problems in secring the merchants effort and loyalty vis##vis other itemsin his prodct line.

4. &erchants and agents are best sited to short#term arrangements they tend not tobe motivated toward long#term relationships.

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SE"CIAIST E!"ORT MANAGERS

'hese firms, known as (ombination /xport &anagers, in the 6S*, offer a fll exportmanagement service. In essence, they become the prodcers export department, acting inhis name and sing his letterhead. Dis remneration is normally by way of commission onsales.

Advantages of using a specialist export manager are the same as for exportmerchants plus:

1. 'he prodcer immediately gains his own export department withot incrring theoverheads.

!. 'he prodcer retains fll market control.$. De can expect a contining long#term relationship.

Disadvantages:

1. -eing independent, the specialist export manager can drop the prodcer at will.!. 'he prodcer does not bild his own export experience and this affects his ftre

strategy choices.$. 'he specialist export manager may not have sfficient knowledge of all the

prodcers target markets.

%$YING OFFICES OF FOREIGN STORES

&any of the leading departmental stores in the advanced nations maintain bying offices in2ondon. ?or example, the top ten apanese department stores are so represented in2ondon as are two of the top for :erman ones.

In addition, byers from similar stores arond the world reglarly visit -ritain to by.

COM"EMENTARY E!"ORTING

%ften called Cpiggy#back exporting, this occrs when one prodcer Athe carrierB ses his ownestablished I& channels to market the otpts of another prodcer Athe riderB alongside hisown. 'he carrier mayG

AaB &erely transport the riders goods sing his own spare capacity.AbB Sell the carriers goods for a commission.AcB -y and sell the riders goods.

The carriers advantages are:

1 Increased profits from frther spreading overheads.!. * more attractive prodct range.

'he riders advantage is that he obtains simple, established, &o'ost an* &o'risk marketentry+

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DIRECT E!"ORT

In direct exporting, the prodcer himself performs the export task rather than delegating it toothers. 'he manfactrer sells directly to cstomers overseas who may be final sers or

resellers. "irect exporting is facilitated by sellingH directly to the final serH throgh agenciesHto distribtors and stockistsH throgh branch offices.

SAES TO FINA $SER

Dere, the manfactrer cts ot any kind of intermediary and goes direct to cstomers.'hese might beG indstrial sersH government or reached by mail order, consmers. Inthese cases marketing is mch the same as in the home market, althogh there are ofcorse the added difficlties ensing from foreignness, distance, time, etc.

AGENCIES

*n overseas export agent is a person or firm hired to facilitate as sales contact between hisprincipal and a cstomer. ?ormally, agents do not take title and their remneration isnormally a commission on sales. Sometimes in practice, however, the term agent is sedloosely and then it incldes distribtors. Some agents do more than merely arrange sales.Some, for example, hold stocks for the principal or carry ot servicing on his behalf.

Advantages of overseas agents include the following:

1. 'hey provide extensive knowledge and experience of local needs, cstomers andenvironment.

!. 'heir existing prodct lines are sally complementary to the principals goods andthis helps with market penetration.

$. 'he exporter is involved in little or no investment otlay.4. *gents can be a highly effective means of market penetration.7. 'here is little or no political risk.

There are some disadvantages of hiring agents:

1. 'here are problems in obtaining the agents fll commitment since he carriers otherprodcts too.

!. *gents often want immediate reslts and will not actively promote slow#selling goodseven if they do not drop them.

$. &any agents are too small to flly exploit a major market many serve only limitedgeographical segments.

4. If the market grows to a large siFe it is more economic to se a branch office of asbsidiary de to the scale economies associated with these.

DISTRI%$TORS AND STOCKISTS

"IS'8I-6'%8S are cstomers with preferential rights to by and resell a range of a firmsgoods in a specific geographical area. "istribtors then, earn profits, they are not paidcommission. 'hey perform the sal distribtion fnctions and they differ from ordinary

wholesalers only in the matter of their geographical exclsivity.

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S'%(@IS'S are simply distribtors that receive more favorable financial rewards forcarrying a certain minimm level of stock level of stock.

"espite the differences in terms of the methods of their remneration the advantages anddisadvantages of distribtors are very like those associated with overseas agents.

COM"ANY %RANC# OFFICE

'his is merely and extension of the firm into the foreign market for the prpose of condctingmarketing and distribtion.

Advantages are:

1. Ehen volme has reached an efficient level they are less costly than sing a localintermediary. 'his is why, and often it is when, many branch offices are opened.

!. Sales performance shold increase since marketing effort will be focsed exclsivelyon the firms own prodcts.

$. 'he firm retains absolte marketing control4. 'he firm shold ac3ire more and better market information.7. (stomer Service shold improve since intermediaries are notoriosly bad at this.

Disadvantages of a branch office are:

1. Investment re3irements and on#going overheads.!. 8isk of AmodestB losses de to expropriation.$. %ften there are legal re3irements concerning the minimm nmber of local staff that

mst be employed, how these can be dismissed, trade nion membership etc.

O,ERSEAS "ROD$CTION

?irms that are strongly committed to I& are often drawn into overseas manfactre. 'hisgives rise to some major benefitsG

1. 2ocation abroad allows firms to better nderstand cstomer needs.!. Some markets, particlarly regional markets sch as +orth *merica, are large

enogh to spport manfactre a minimm efficient scale.$. )rodction costs are lower in some foreign contries.4. ?irms are sometimes forced to prodce locally since exporting heavy or blky goods

can be prohibitive in terms of transportation costs.7. 'ariff and non#tariff import barriers may preclde exploration into target contries.9. In cases where governments are cstomers their spplier selection decisions

sometimes discriminate against non#local prodcers.;. ?or laggards entering a foreign market, the only way in may be by takeover of, or co#

operation with a local company.

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MET#ODS FOR O,ERSEAS "ROD$CTION

)rodcing overseas does not necessarily re3ire fll#scale wholly owned prodction. 'his isonly one of several alternative strategies.

ICENSING

* licensing agreement is a commercial contract whereby the licensor Athe internationalmarketerB gives something of vale to the licensee Athe national target market firm.B inexchange for certain performances and payments. 'he licensor may provide any of thefollowingG

1. 8ights to prodce a patented prodct.!. 8ights to se a patented prodction process.$. 6npatented manfactring know#how.4. 'echnical advice and assistance inclding the spply of essential materials,

components or plant.

7. &arketing advice and assistance.9. 8ights to se a trademark, bank or similar.

2icensing is a rapid growing phenomenon among firms worldwide. It is a common entrymode among small and medim firms and it is sed by large companies. ?or example,Schweppes have granted licenses allowing 6S* firms to manfactre it soft drinks and tomarket them there nder Schweppes brand name.

Advantages of licensing:

1. It re3ires no investment and the only costs are those of signing and policing theagreement.

!. "e to 1, it avoids many I& risks, sch as that of expropriation.$. It allows entry into markets that wold otherwise be closed by say domestic

competitiveness, tariffs or other government policies. ?or example, )hillip &orris the6S* tobacco giant ses licensing agreements with the governments of 1= /ropeancontries with nationaliFed tobacco indstries.

4. It is a 3ick and easy mode of entry.7. 'he licensor gains access to knowledge of the local environment.9. %wning to the very low investment re3irements, licensing allows firms to introdce

new prodcts to many contries 3ickly.;. It provides all the Csal benefits of overseas prodction concerning transport costs,

import barriers, etc.

Despite the gains of licensing there are some important disadvantages that may even bemore powerful. The disadvantages include the following:

1. 'he revenes from licenses are very modest, sally amonting to only !J to ;J oftrnover.

!. * major danger is that the licensee may become the licensors competitor. "ring thelicense period, the former may gain enogh know#how from the latter as to be able tooperate independently.

$. *lthogh the contract may specify a minimm sales volme there is some dangerthat the licensee will not flly exploit the market.

4. 'here is some risk that prodct 3ality will deteriorate when the licensee is lessconscientios than the licensor.

7. :overnments often impose conditions on the payment of royalties or on the spply ofcomponents.

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9. * major problem with licensing is the difficlty of effectively controlling the licensee.Dis objectives often conflict with those of the licensor and disagreements arecommon.

*stte management of the license agreement is essential for the licensor. 'he licensorshold condct extensive search and apply good selection criteria when choosing licenseesHdesign contracts that protect both partiesH control the licensee, by say, having an e3ityinterest in his bsiness or by retaining exclsivity of key inptsH and take action to motivatethe licensee.

FRANC#INSING

'his is a type of licensing althogh franchising does more formally specify what is expectedof the franchisee Athe national target market firm.B. In a franchise arrangement thefranchiser spplies a standard package of goods, components or ingredients along withmanagement and marketing services or advice. 'he franchiser spplies capital, personalinvolvement and local market knowledge. (ommon franchisers in many contries inclde,

Doliday Inn, )epsi (ola, and @entcky ?ried (hicken.

'he advantages and disadvantages are largely the same as for licensing. *n extra benefit,however, is that since it involves the franchisers spply of ingredients or components it doesprovide some leverage for controlling the franchisees activities. *n additional disadvantageof franchising is that many franchisees are sed for each contry and the search forcompetent candidates is both costly and time consming.

CONTRACT MAN$FACT$RING

'his involves a long#term contract whereby a firm in a foreign contry ndertakes tomanfactre or assemble a prodct on behalf of another firm located otside the contry.

'he latter company retains fll control over marketing and distribtion while havingmanfactre done by proxy. 'his type of entry procedre is sed by sch firms as (olgate,and )rocter and :amble.

Advantages include the following:

1. +o need to invest in plant overseas.!. *voidance of risks associated with crrency, expropriation etc.$. 8etention of market control4. * locally made image which enhances marketing sccess, especially to government

cstomers.7. /ntry into market otherwise closed by import barriers.9. 2ower transport costs and sometimes lower prodction costs.

(ontract manfactre is perhaps best sited to contries where market smallness prohibitsplant investment or to firms whose main strengths are in marketing vis##vis prodction.

Disa*-antages of Contrat man.fat.re/

1. It is only feasible when reliable and capable manfactrers can be identified whichis not always the case.

!. Sometimes sbstantial technical training has to be provided for he manfactrerspersonnel.

$. 'he manfactrer may eventally become a rival4. 5ality control problems in manfactring may arise.

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0OINT ,ENT$RES

* 0 is an arrangement whereby two firms in different contries join forces for manfactringfinancial and marketing prposes and where each has a share in the e3ity and in themanagement of bsiness. 0s are very common and fast becoming more so. ?irmsinvolved inclde >erox, &assey ?ergson, I(I and )hilips.

2icensing, franchising and contract manfactre are loose forms of 0. Dowever, the tiesthese involve are less strong than formal 0.

JVs are usually evaluated as an alternative to a fully owned manufacturing set-up abroad.Accordingly and for other reasons a JV offers various advantages:

1. Some governments prohibit independent operation or encorage 0 since their owncontries get more profit and technological gains from the latter. /.:. apan,+igeria, India.

!. 0 re3ires smaller capital otlays and is ths especially attractive to smaller or risk#averse firms.$. Ehen fnds are limited 0 permits coverage of a larger spread of contries since

each one re3ires less investment.4. 0 redces the risk of expropriation since a local firm is involved. /.:. (lb

&editeranee pays mch attention to this factor.7. 0 facilitates profits on manfactring which licensing and franchising does not.9. It can provide for close control over marketing and other operations.;. ?acilitates good feedback.


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2#OY O2NED O,ERSEAS "ROD$CTION (2#OY O2NED S$%SIDIARIES) 3445 foreign o'ners6i7 or FDI

'his involves the fllest commitment to market or markets. It can be achieved throgh thecreation of capacityAsetting p shopB or by ac3isition of an existing firm.

*c3isition is a mode of rapid entry and offers the benefits of an existing management team,market knowledge and all the other trappings of a Cgoing concern. ?or example, :eneral&otors enjoyed these gains when entering the 6@ market throgh the ac3isition of 0axhall&otors.

/ntry by creating new capacity is beneficial if there are no likely candidates to take#over orif ac3isition is prohibited by the government.

&ore positively, this entry mode allows for the se of the newest prodction technology andit often generates among staff the feelings of optimism, high expectations and motivations.

'hese were major benefits for "atsn when they created new capacity in Snderland and'ennessee.

Advantages of wholly-owned overseas manufacture are several:

1. 'he firm does not have to share the profit with a partner of any kind!. 'he firm has complete control over all decisions and so none of the efficiency drains

arising in inter#firm conflict as with 0s.$. 'here are none of the problems of inter#firms mis#commnication that arise in 0s,

license agreements etc.4. 'he firm is able to operate a completely integrated and synergistic international

system.7. 'he firm gains close contact with the market.9. 'he firm gains a more complete Cfeel for I& and more varied experience.

Despite these strong benefits there are also major disadvantages:

1. (omplete ownership re3ires sbstantial investment fnding and this might precldesome firms.

!. 'here may be an insfficient spply of sitable managers either in the target contryor to be posted abroad from the home contry.

$. Some overseas governments discorage 1==J foreign ownership and sometimesthey prohibit it. 'heir reasoning is that host contry profits andKor development is not

helped sfficiently when it merely profits andKor development is not helped sfficientlywhen it merely provides materials andKor nskilled labor.

4. )artly de to $, bt also becase e3ity is not shared, 1==J ownership involvesbigger conse3ences in the face of expropriation.

7. 'his mode foregoes the benefits of a partners market knowledge, distribtion set#pand so on.

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T$RNKEY "RO0ECTS

In a trnkey project, the contractor agrees to handle all details of the project for a foreignclient, inclding the training of operating personnel.*t completion of the contract, the foreign client is handed the LkeyM to a plant that is ready forfll operation hence the term LtrnkeyM. 'his is actally a means of exporting processtechnology to other contries. In a sense it is jst a very specialiFed kind of exporting.'rnkey projects are common the chemical, pharmacetical, petrolem refining and metalrefining indstries, all of which se complex, expensive prodction#process technologies.

A*-antages of t.rnkey 7ro8ets/

AaB * way of earning great economic retrns from the firms know#how.

AbB 6sefl in cases where ?"I is limited by host government reglations. ?or example,

the governments of some oil#rich contries have set ot to bild their own petrolemrefining indstries, and as a step toward that goal, have restricted ?"I in their oil andrefining sector. Since many of these contries lacked petrolem# refining technology,they had to gain it by entering into trnkey projects with foreign firms that had thetechnology.

AcB Sch trnkey deals are attractive to the selling firm becase they wold probablyhave no other way to earn a retrn on their valable know#how in that contry.

AdB * trnkey strategy, as opposed to a more conventional type of ?"I, enables a firm tooperate in a contry where the political and economic risks are high Ae.g. risk ofnationaliFation or economic collapse.

Disa*-antages of T.rnkey/

AaB ?irm that enters into a trnkey project with a foreign enterprise may inadvertentlycreate a competitor.

AbB If the firms technology is a sorce of competitive advantage, then selling thistechnology throgh a trnkey project is also selling competitive advantage topotential and actal competitors.

AcB 'he firm that enters into a trnkey deal will have no long#tern interest in the foreign

contry. 'his can be a disadvantage if that contry sbse3ently proves to be amajor market for the otpt of the process that has been exported.%ne way arond this is to take a minority e3ity interest in the operation set p by thetrnkey project.

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STRATEGIC INTERNATIONA AIANCES (SIA)

*n SI* is a bsiness relationship established by two or more companiesAactal or potentialcompetitorsB to cooperate ot of mtal need to share risk in achieving a common objective./xampleG * co#operative arrangement between -oeing and a consortim of apanese firmsto prodce the ;9; wide#bodied aircraft.* strategic international alliance impliesG

iB (ommon objectiveiiB 'hat one partners weaknesses will be offset by the others strength.iiiB 'hat there are synergistic benefits to be had.ivB 'hat reaching the objective alone wold be too costly, take too mch time

and be too risky.

SIAscan be joint ventres, licensing, franchising.

A*-antages of SIAs for a firm/

*c3ires needed market share.

*c3ires technology

6tilises excess manfactring capacity

8edces new market risk and entry costs.

)rodces economies of scale.

%vercomes legal and trade barriers.Aeasy foreign entry methodB.

*ccelerates prodct introdctions demanded by shorter )2(s.

+ot all SI*s are sccessfl. Some fail. %thers are disbanded after reaching their goals.

&ajor reason for failre can be lack of perceived benefits to one or more of the partners.

Disa*-antagesG

(onflict

o can give away more than yo receive.

9 9 9 9

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Augmented

"ROD$CT DECISIONS IN INTERNATIONA MARKETS

Ehat is a prodctN

1.1 * prodct is anything that can be offered to a market for attention, ac3isition, se orconsmption that might satisfy a want or need. It incldes physical objects, services,places, organiFations, ideas, people.

1.! In marketing terms a prodct is the total tility or satisfaction that a byer receives asa reslt of a prchase. It exists at three levels.

Core 7ro*.t

1.$ 'he Ccore prodct is the need which is being satisfied or the problem which is beingsolved by the prodct. 'his is a vital concept in international marketing, e.g. theCcore prodct varies between 'hird Eorld contries and indstrial developedcontries. In the case of a bicycleG

AaB in the 'hird world sed as a means of transportHAbB in the developed world sed for recreation, sport.

&arketers mst always view a prodct in terms of its ability to satisfy needs or solveproblems, i.e. perceived benefits which may vary between contries.

Forma& 7ro*.t

1.4 'his is what the market recogniFes as the tangible offer. It comprises the featres,styling, 3ality, packaging and brand name. *gain this may have importantimplications for international marketing. 0ariations in 3ality, siFe, color etc. mayhave to be sed from contry to contry.

A.gmente* 7ro*.t

1.7 'hese are the additional services and benefits which Csrrond a prodct. 'hey mayofferG

AaB reptationHAbB deliveryH

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AcB before and after sales servicesHAdB installation and maintenanceHAeB garanteeHAfB financeHAgB credit

*ccording to many marketers Afor example 2evitt,B it is at this level of the prodct that theCnew competition is taking place. (stomers may vale reliable delivery, credit or aftersales service more than 3ality or price. So it is vital for the international marketer to beaware of needs and expectations and the extent to which they vary between differentcontries when making prodct decisions.

:+ IM "ROD$CT STRATEGIES/ STANDARDISATION ,S ADA"TATION

!.1 'his topic was introdced in (hapter 1. 'here are for areas whose decision mstbe made. 'he first two can be considered together.

AaB Sell prodcts nmodifiedKstandardiFe.AbB &odify or adapt prodcts where necessary.AcB develop new prodcts for a specific market or grop of markets.AdB /liminate oldKweak prodcts.

Standardisation vs adaptation

!.! 'he 3estion of whether or not to adapt the prodct is often considered inconjnction with the promotionKcommnication isse. 'his gives s for possibleprodct#commnication strategies Asee next chapter for a more detailed analysis ofcommnication decisionB.

!roduct standarised !roduct adapted

"ommunications#tandardised

Standardisation worldwideof both prodct andcommnication

*daptation of prodct only

"ommunications adapted *daptation ofcommnications only

-oth prodct andcommnications adapted.

#tandardised product and communications

!.$ 'his is the obvios strategy for the occasional exporter bt also some majorinternational companies seeking economies of scale.

!.4 (oca (ola and )epsi (o have been sccessfl with this strategy. )olaroid alsofailed in ?rance with their instant pictre camera becase of failre to modify theirprodct and commnications activities from the sccessfl 6S* version. 'his failrewas de to the fact that the prodct was at a different stage in its prodct life cycle in?rance and the 6nited States.

#tandardised product$adapted communication

!.7 'his strategy is sed where a prodct meets different needs in different contries.

'ake bicycles for exampleG

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AaB ?ranceK-elgim sport#recreationAbB 6@ # recreationAcB 'hird Eorld # means of transport

Adaptation product$standardi%ed communication

!.9 'his strategy is relevant where the prodct satisfies the same need Aor solves thesame problemB in many markets bt conditions of se vary.

AaB )etrol companies adapt their fel to climatic conditions bt standardiFe theiradvertising and other promotional activities.

AbB (ar manfactrers need different tires and temperatre control systems inSadi *rabia than they do in the 6@.

Adaptation of both product and communications

!.; 'his strategy is the most costly one bt may be necessary to exploit a market flly.

?or example, take these two stereotypes.

AaB 6S prodct can be made or packaged in plastic and be disposable.AbB :erman prodct mst be made or packaged in metal and mst be drable

and repairable becase of :erman concern for environmental isses.)romotional activities mst reflect these prodcts attribtes.

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;+ OT#ER AS"ECTS OF "ROD$CT DECISIONS

$.1 %ther aspects of the prodct decision principally concern packaging, labeling andafter sales service.

"akaging

$.! *gain, standardiFation vs. adaptation is the major 3estion. 'here are two aspects ofpackaging.

AaB )rotection. )ackaging may have to be adaptedKmodified if climates, handlingfacilities, time spent in distribtion chain or sage rate vary.

AbB )romotion. )ackaging will be adapted if package siFe, cost of packaging,color preference, legal constrains, literacy, reptationKrecognition varies frommarket to market.

$.$ * problem might be the different siFe re3ired in different contries.

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AeB (onsmer mobility for travelersKtorists, for example standardiFation isexpected in certain prodctsG

AiB camera filmHAiiB hotel chains

AfB Ehere Cmade in image is important to a prodcts perceived vale Ae.g.?rance for perfme, Sheffield for stainless steelB.

AgB ?or a firm selling a small proportion of its otpt overseas, the incrementalcosts of adaptation may exceed the incremental sales vale.

?actors encoraging adaptationKmodification

=+: Man*atory mo*ifiation

&andatory prodct modification normally involves either adaptation to comply withgovernment re3irements or navoidable technical changes. 6sing car manfactre as an

example it may concernG

&a' (egal reuirements such as:

AiB specified exhast emission levels Ahealth and safety lawBAiiB local components Aeconomic lawBH

&b' Technical reuirements such as:

AiB modification of heatingKcooling systems for different climatesHAiiB engine modification to se locally available fels.

=+; Disretionary mo*ifiation

AaB "iscretionary modification is called for only to make the prodct moreappealing in different markets. It reslts from differing cstomer needs,preferences and tastes. 'hese differences become apparent from marketresearch and analysis, intermediary and cstomer feedback etc.

AbB 2evels of cstomer prchasing power. 2ow incomes may make a cheapversion of the prodct more attractive in some less developed economies.

AcB 2evels of edcation and technical sophistication. /ase of se may be acrcial factor in decision#making.

AdB Standards of maintenanceKrepair facilities. Simpler, more robst versionsmay be needed.

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?+ NE2 "ROD$CT DE,EO"MENT FOR O,ERSEAS MARKETS

7.1 Sometimes international marketing managers may need to develop new prodcts fora specific overseas market or grop of markets. 'here is no need to analyse newprodct development in depth here since the new prodct development process isthe same for international marketing as for domestic marketingG

AaB idea generationHAbB idea screeningHAcB concept testingHAdB bsiness analysisHAeB prodct development and testingHAfB test marketingHAgB commercialiFation.

#uccess of new products

7.! 'he sccess of new prodcts in an international environment depends on a nmberof factors.

AaB It is important to have an appropriate organiFational strctre. *ninternational division, responsive to international rather than prely domesticmarketing concerns, is far more likely to introdce new prodcts overseassccessflly A"avidson and DarriganB

AbB 'here shold be a commitment to market research. *s we have seen,international market research is more complex than domestic marketresearch.

AcB Sorces of idea generation shold be as wide as possibleG cstomers,intermediaries, competitors, research and development, sales staff etc.

AdB 'he new prodct development process shold be implemented for eachcontry, i.e. Screening, bsiness analysis, test marketing, etc.

@+ "ROD$CT EIMINATION

9.1 ?or companies that have been involved in international marketing for some time, andwho prodce a range of prodcts, analysis of their prodct portfolio is vital. *gain theprinciples and concepts are the same as in domestic marketing and need not be

discssed here in depth. *nalytical models sch as the -oston (onslting :ropsgrowth#share matrix or the :eneral /lectric approach are sefl in this context.

9.! Strategic models allow managers to identify those prodcts Aor strategic bsinessnitsB which shold be strengthened, maintained, harvested or divested. 'hisanalysis will need to be ndertaken in all markets in which the company is operatingsince a Ccash cow in one contry may be a Cdog in another.

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)igure *.+

AaB -oston conslting grops growth#share matrix

&arket:rowthrate

Digh CStars

Strengthen

5estion marks

Strengthen or divest2ow C(ash cows

&aintain or harvest

C"ogs

"ivest,igh (ow

Re&ati-e market s6are

AbB :eneral /lectric approach

(ompetitive position

odelattractiveness

#trong edium ea/

,igh )rotectposition

Invest to bild -ild selectively

edium -ildselectively

SelectivelyKmanage forearnings

2imitedexpansion orharvest

(ow )rotect andrefocs

&anage forearnings

"ivest

9.$ &any organiFations, in both domestic and international markets, do not manageobsolete and marginal prodcts. 'hey are kept in the prodct range, with little or nocontribtion to profits, with a high opportnity cost in that the resorces sed toprodce them and particlarly to market them cold be mch more profitably sedelsewhere Ain managing prodcts regarded as stars or 3estion marksB.

0ther problems associated with marginal products are that:

AaB as sales fall, short prodction rns become increasingly expensiveHAbB an excessive amont of management and sales force time is sed in trying to

extend the life cycle of the prodctHAcB they may detrimentally affect the image and reptation of the companyHAdB they may mean that not enogh resorces can be allocated to the

development of new prodcts.

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"ro*.tion e&imination

9.4 /limination AdivestmentB shold be part of a procedre for prodct portfolio analysis,where for each contry a periodic review of prodct range is ndertaken. ?actors tobe taken into consideration dring this review wold incldeG

AaB crrent profitabilityHAbB effects of elimination on the sale of other AcomplementaryB prodctsHAcB after sales service implicationsHAdB alternative prodct opportnities in each contryHAeB the effect on salesKprofits of prodct life extension K rejvenation.

9.7 all these factors become mch more complex for the mltinational company withoverseas operations than with the mere exporter. 'he mltinational company maybe prodcing the prodct nder consideration in a nmber of contries, nder anmber of different market conditions.

9.9 Dowever, the mltinational companys range of alternatives to prodct elimination fora marginal prodct is greater than for an exporter. * mltinational company canexport or license or arrange for contract manfactring as an alternative to directmanfactring abroad.

+ "ROD$CT IFE CYCE AND INTERNATIONA MARKETING MI! DECISIONS

;.1 &any marketing mistakes have been made becase firms have failed to take intoaccont the fat that in different contries a prodct may be at different stages in itsprodct life cycle.

&arketing principles tell s that prodcts, prices, marketing commnications andchannels of distribtion need to be adapted as a prodct Cages dring its life cycle.'he marketing mix programmed for a new prodct shold be fndamentally differentfrom the mix programme for a matre prodct.

B+ T#E "ROD$CT IFE CYCE IN INTERNATIONA MARKETING

B+ Miro ana&ysis 7ro*.t &ife y&e an* t6e in*i-i*.a& firm

'he concept of the prodct life cycle is well known among marketing scholars andpractitioners. It postlates that prodcts are born, pass throgh some, or all, ofvarios stages and that typically they ltimately die. 'he important conse3ences of

the concept are that indstry, sales and competitive conditions differ in the variosstages of the life cycle and that these differences have major implications formarketing strategy. ?igre 7.! is a presentation of the generaliFed prodct life cyclemodel, showing the for Csal stages of sales growth. It is assmed that stdentsare familiar with the prodct life cycle, its implications and appropriate strategies inthe domestic context.


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the last overseas market entered. Dence, the total dration of the profit life cyclepattern is exactly the same for home sales as for someKmostKall overseas markets.


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'o brand or not to brandN

O.$ 'he advantages of branding inclde the followingG

AaB -randing facilitates memory recall, ths contribting to self#selection andimproving cstomer loyalty.

AbB In many cltres branding is preferred, particlarly in the distribtion channel.AcB -randing is a way of obtaining legal protection for prodct featres.AdB I' helps with market segmentation. A'ake toothpaste for exampleG (rest is

marketed to a health conscios segment, 6ltrabrite is marketed for itscosmetic 3alities.B

AeB It helps bild a strong and positive corporate image, especially if the brandname sed is the company name Ae.g. @elloggs, DeinFB. It is not so importantif the company name is not sed Ae.g. )rocter and :ambleB.

AfB -randing makes it easier to link advertising to other marketingcommnications programmes.

AgB "isplay space is more easily obtained and point#of#sale promotions are more

practicable.AhB If branding is sccessfl, other associated prodcts can be introdced.AiB 'he need for expensive personal sellingKpersasion may be redced.

O.4 -randing is not relevant to all prodcts, only thoseG

AaB that can achieve mass sales becase of the high cost of branding and thesbse3ent advertising. 'his is particlarly important if global branding issoghtH and

AbB whose attribtes can be evalated by consmers.

'hs chocolate bars can be branded, bt not concrete slabs, whisky can be branded

bt not coal.

O.7 'he most sccessfl examples of worldwide branding occr where the brand hasbecome synonymos with the generic prodct, Doover, (ellophane, Sellotape,*spirin, @leenex, ?ilofax, >erox. 'his can eventally, however, carry its own dangers.Ehen the brand name has been adopted as the description of the generic prodctAsch as 'hermos for a vacm flaskB the manfactrer of the brand can be find itdifficlt to convey the specific prodct advantages of the brand.

Ty7e of


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AbB )rotection of the brand name will often be needed, bt internationally is hardto achieve becaseG

AiB in some contries registration is difficltHAiiB brand imitation and piracy are rife in certain parts of the world.

'here are many examples of imitation in international branding, with prodcts schas cigarettes A6S*B, and denim jeans.

Eorse still is the problem of piracy where a well known brand name is conterfeited.It is illegal in most parts of the parts of the world bt in many contries there is little ifany enforcement of the law. A2evis is one of the most pirated brand names.B.

C.&t.ra& as7ets of


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1.$. &any companies do not handle pricing well. (ommon mistakes incldeG

AaB pricing is too cost orientated Asee belowBHAbB pricing is not revised often enogh to reflect changing market conditionsHAcB pricing is decided in isolation rather than as part of an integrated marketing

planH andAdB pricing is not flexible or varied enogh to meet the differing re3irements of

the different market segments Aor contriesB.

1.4 )rice setting is not a Conce and for all C decision. ?lexible pricing is necessary tocover the following sitations Asee -))s (I& stdy text for &arketing )lanning and(ontrolB.

AaB Ehen a new prodct is lanched.

AbB Ehen the company wants to initiate a price change, as a response toG

AiB costs increasesHAiiB a decision to sell as a loss leaderHAiiiB a sales promotionHAivB a change in the prodct life cycle stageHAvB a change in discont policyHAviB a decision to reposition the prodce.

AcB *s a response to price change by competitors.AdB Ehen the company wants to decide on a price policy for an entire prodct

line.1.7 'he key to sccessfl domestic pricing is flexibility. In International marketing this

means a retrn to the Cstandardisation vs adaptation isse. Sccessfl internationalmarketing involves an analysis of the extent to which prices shold be adapted tomeet the different environmental and competitive sitations in the companysmarkets.

:+ A""ROAC#ES TO "RICING

!.1 ?irms or strategic bsiness nits AS-6sB within firms can be classified with regard topricing policies according to the strongest inflence on the pricing decision. In theinternational context the need for flexibility in pricing arises becase differentconditions may exist in different markets and firms may adopt different marketingobjectives ASee Section $ belowB.

Cost


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Deman*


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!.; Some examples of the models application in the international context wold be asfollows.

AaB * firm might adopt Strategy $ Aat least in the short termB in one contry in orderto penetrate a difficlt competitive market while adopting Strategy 1 in anotherwhere it already has a good reptation and fewer real competitors. Aseemarginal cost pricing is discssed in section 7 o this chapterB

AbB * firm might adopt Strategy O Acheap goods strategyB in a less developedcontry becase of low disposable income levels while prodcing a better3ality prodct at a higher price in a market where disposable incomes arehigher AStrategies 7 or 1B

AcB *ny of strategies 4, ; or < Aover pricing, hit and rn pricing or shoddy goodspricingB might be adopted in markets where cstomers are relatively ignorant,i.e. naware that they cold obtain the same 3ality at a lower price or a higher

3ality at the same price, while in another, more knowledgeable market, acheap goods strategy AOB might be sed.

@otler states that strategies 4, ; and < shold be avoided by professionalmarketers. 'his self#denying ordnance can be jstified on ethical gronds, andalso on commercial ones. Selling shoddy goods devales the brand name, andwill discorage repeat prchases.

;+ T#E FACTS INF$ENCING INTERNATIONA MARKETING "RICING DECISIONS

$.1 )ricing is affected both by a companys own objectives and a variety of externalfactors. 'he principal ones are as follows.

AaB 'he companys marketing pricing objectives. 'hese are as followsG

AiB ?inancial # cash generation, profit, retrn on investmentAiiB &arketing # maintainKimprove market share

# skimKpenetrate depending on stage in prodctlife cycle

AiiiB (ompetitive # prevent new entry# follow competition# market stabiliFation Atacit agreementsB

AivB )rodct differentiation high price aids perception of prodctdifferences.

* company may have different objectives in different markets and ths need to adoptdifferent pricing policies. ?or example, in one market early cash recovery may be theobjective leading to premim pricing in a small niche market. In another, largermarket the objective might be longer term market share, sggesting a morepenetrative pricing strategy.

AbB 2evel of demand. 'his is inflenced by the markets state of economicdevelopment, stage in the prodct life cycle and cltral attitdes. 8elativelylow prices wold be sitable in the following circmstancesG

AiB in markets of low economic developmentHAiiB in the matrityKsatration stags of the prodce life cycleH and

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AiiiB where the prodct is perceived as a basic one Ain that it satisfiesphysiological needs in &aslows hierarchyB.

AcB 'he intensity of competition, both domestic and international.AdB (ostsAeB :overnment restrictions and controls. &any governments have both

maximm and minimm permitted prices for certain prodcts.AfB 'he nmber and type of intermediaries in the distribtion channel.AgB )ricing in foreign crrency. * sales vale in a companys home crrency is

ncertain de to exchange rate flctations.

=+ E!"ORT "RICING

4.1 /xport pricing involves all the complexities of the domestic pricing decision plssome major additional complications. (onse3ently, export pricing is both morechallenging and more risky. /xport pricing is made more complex byG

AaB greater difficlties of ac3iring reliable market informationHAbB problems in reacting to fre3ent changes in demand in mltiple marketsHAcB greater complexities in accrately allocating costsHAdB problems of responding to exchange rate flctationsHAeB additional difficlties in deciding on payment termsHAfB barter trading Aor contertradeB which may sometimes be an nfamiliar

practiceH andAgB other complications, sch as legal and cltral factors, which vary between

export markets.

E7ort 7riing 7roe*.re

4.! *s in any other pricing exercise, export pricing shold be based on an integrativeapproach. * thorogh pricing procedre developed by &onroe is shown in 'able 1on the next page.

Ehile the gidelines prescribed in 'able 1 constitte a sond basis for price decision#making, they are incomplete in the particlar context of export pricing. ?or salesoverseas price determination mst incorporate additional considerations in relation toindividal markets. * comprehensive set of export criteria are set ot below.

&a' !ricing discretion

AiB Ehat, if any,productfactors give s pricing discretionN A?or example,

prodct differentiation, parents, cross elasticity, specialiFationNBAiiB Ehat, if any, mar/et factors give s pricing discretionN A?or example,

market share, nmber and siFe of rivals, nmber and siFe of cstomers,market segmentationNB

AiiiB Ehat, if any, customerfactors give s pricing discretionN A?or example,loyalty, degree of knowledgeNB

AivB Ehat, if any, companyfactors give s pricing discretionN A?or example,dependence on exports, attitdes concerning exporting, objectivesNB

AvB %verall, in this particlar market, are we a Cprice taker or a CpricemakerN

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&b' costs and e1port pricing

AiB Ehich costs are most sitable for exporting pricingN *re these fllcosts or marginal costsN ?or example, does exporting form a majorpart of or bsiness or is it sbsidiary or even marginalN *re weadopting a long term or short term viewN

AiiB Ehat are the trueincremental costs of exportingN ?or example, whatextra packaging, transportation, insrance, tariffs etc are involved.

AiiiB Ehat contribte to overheads and profits do we re3ire from exportsalesN

TA%E Integrated pricing gidelines

+ Set onsistent o


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volme increases.?+ Maintain fee*


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AiiB Ehat crrencies do we 3ote and price in form export salesN (oldwe improve exporting performance by changing.

AiiiB Is or export crrency policy consistent with the role of price in ormarketingKcompetitive strategyN

AivB Dow do we monitor and respond to crrency flctationsN Dowshold we do thisN

?+ MARGINA COST "RICING

7.1 Ehen a company reaches a level of otpt which generates enogh revene tocover all the costs of prodcing that otpt Afixed and variableB then it is said to be atbreak even point. *ny otpt above break even point yields a profit, provided theprice charged exceeds the variable cost, since fixed costs have already beencovered.

7.! (learly any company has to sell well above marginal cost price Aprice at which onlyvariable costs are coveredB in most of its markets. If, however, an isolated marketcan be fond where conditions for marginal cost pricing apply Asee belowB withotjeopardiFing price levels in established markets, total profit Athogh not percentageprofitB will be increased by selling below market price bt above variable cost.

Con*itions for margina& ost 7riing

7.$ In order to penetrate a difficlt competitive market, it is worth marginal cost pricing inthe following for sitations.

AaB Ehere there is little possibility of speedy intervention by the foreign

government. If the government of the importing wishes to protect firms in adomestic indstry it may try to impose Cdmping dties. :*'' allows schimposition so long as a government can demonstrate that the prodct is beingsold in its contry at below Cnormal vale. 'he concept of normal vale iscentral to the definition of dmping by :*''. "mping takes place if theprice of the prodct exported from one contry to another is less than thecomparable price, in the ordinary corse of trade, for the like prodct whendestined for consmption I the exporting contry.

It is a lengthy complex procedre to investigate claim of dmpling. Dence,anti#dmping legislation is not a serios threat to the occasional or short termmarginal cost price.

AbB Ehere the otpt being sold at marginal cost price forms only a smallproportion of total otpt. "ecisions on sch marginal bsiness shold bemade witin an overall sales and marketing and profit plan.

AcB Ehere the resorces sed to prodce the marginal otpt cannot be sedmore profitably elsewhere in the company, i.e. if the opportnity cost is nottoo high.

AdB Ehere is will not jeopardiFe prices in domestic or principal export markets notprotected by tariffs.

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If a company has srpls stock Ai.e. stock that is otherwise nsaleableB it is jstified inselling it even below marginal cost. )rovided that the costs of distribtion and saleare covered it is worth selling the stock rather than scrapping it.

@+ TRANSFER "RICING

9.1 Ehen a mltinational firm adopts a decentraliFed organiFational strctre, each of itsmanfactring nits becomes a profit centre. (omponents, semi#finished or finishedprodcts may have to be transferred between these manfactring or assemblynits. It is in this context that the 3estion of transfer pricing arises. If thesecomponents or prodcts are sold on the open market they will be sold at arms lengthprice Amarket priceB. &ltinational firms mst decide whether the transfer pricebetween nits of the same organiFation shold be e3al to, higher than or lower thanthe open market arms length price. 'he overall objective of transfer pricing sholdbe to provide sfficient profit and motivation to the decentraliFed nits while at thesame time meeting corporate profit targets.

%nce again, problems associated with transfer pricing in a domestic marketing sitationbecome more complex in an international context.

Setting t6e transfer 7rie

9.! AaB 'ransfer price less than open market price* mltinational organiFation will find it beneficial to set its transfer price belowthe open market price in the following sitations.

AiB If the importing contry has a lower rate of profits than the exportingcontry. In this sitation, for the ethnocentric organiFation, dividendrepatriation is easy. 'he problem here is that operating revenes and

profits are distorted and problems of managerial motivation andappraisal arise.

AiiB I? the importing contry has high tariff barriers, the impact of thosebarriers maybe lessened by charging a price below open market priceand ths improve overall corporate profits.

AiiiB *s a competitive pricing strategy, it may be possible to penetrate anew, competitive market more 3ickly by adopting a low initial transferprice Aprovided the market has high price elasticityB.

AivB If inflation is high in the exporting contry it may be possible to transferfnds by high transfer pricing to an economically Csafe contry.

AbB 'ransfer price greater then open market priceIn the following circmstances it may be beneficial to the organiFation to setthe transfer price above open market price.

AiB If the importing contry taxes profits at a higher rate of tax than theexporting contry.

AiiB If dividend repatriation is restricted.

AiiiB If tariffs are at a relatively low level in the importing contry.

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AivB If there is a fear of expropriation of assets the organiFation will wish tohold its cash assets in the most politically Cstable contry.

"ro


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;.7'he 6S exporter wold receive T17,===, and wold not be affected by the exchangerate movement. Dowever, in the same example, if the invoice had been in sterlingAe.g. for UO,$;7 rather than 6S T17,===B the 6@ importer wold not have had anyforeign exchange risk. Instead the 6S exporter wold have incrred a loss from the

exchange rate movement from T1.9= to T1.7=, receiving AUO,$;7 x 1.7=B onlyT14,=9!,7= instead of the T17,=== originally expected.

'he firm paying in a foreign crrency or earning revene in a foreign crrencytherefore has a potential exchange risk form adverse movements in foreignexchange rates.

;.9'here is also a change of making a profit ot of favorable movements in exchangerates bt, althogh gains as well as losses can be made, movements in foreignexchange rates which occr continally in the foreign exchange markets introdce a serios element of risk ACgambling of a Clottery on the way exchangerates moveB which might deter firms from entering international sales or prchase

agreements.

;.;'he foreign exchange risk does not arise from a bsiness that makes payments andearns receipts in the same foreign crrency, becase payments in the crrency canbe made ot of cash income in the same crrency. ?or example, if a 6@ companybys goods from spplier > costing 6S T1=,===, and at the same time the 6@company sells goods abroad to cstomer for 6S V1=,=== Ain dollarsB, thecompany can se the 6S T1=,=== it receives from cstomer to pay the 6ST1=,=== dollars to spplier > If Cmatching receipts and payments is carried ot inthis way, the exchange rate between the foreign crrency and the companysdomestic crrency wold be irrelevant and exchange risk wold be avoided.

;.


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3uotation in foreign currency

;.1$ Dere the exporter accepts any exchange risk of flctating vales. 'his risk can becovered in the forward exchange market. 'he exporter however can acceptexchange risks Aprofits or lossesB if he wishes, bt in this role exporters are acting ascrrency speclators. Is this part of their missionN 'hese risks become evengreater the Csofter a crrency is Ai.e. the less easy to convert into other crrenciesB.'he exporter might be made vlnerable to a severe risk of loss.

Advantages of foreign currency pricing

;.14 Eere a forward market exists for a crrency and where dealing is at a premim tosterling, receivables may be sold forward Ap to five years in some casesB from thedate of a contract to increase their sterling revene or lower the effective cost ofsterling export finance Awhile at the same time minimiFing exchange riskB.

;.17 *lso, thanks to any forward premim the exporter cold increase volme by offering alower crrency price than the spot rate of exchange wold indicate, i.e. foreigncrrency pricing can help to secre contracts in the first place.

;.19 *n exporter can gain a competitive edge by 3oting in a foreign crrency if theimporter wold prefer his own crrency, either to avoid exposre to crrencyflctation or becase of exchange control reglations. ?oreign crrency pricing alsomakes it easy to relate to retail prices overseas. In addition, constant adjstment to asterling price list is avoided.

;.1; ?oreign crrency invoicing can sometimes help exporters to borrow at lower rates of

interest than at homes.

4esolving differences between e1porter and importer

;.1< "espite the advantages of foreign crrency pricing note above. 6@ exportersfre3ently prefer to 3ote prices in sterling. It makes calclation of profits, cash flowsand possibly costs easier and avoids exposre to exchange rate risks. -t foreigncstomers normally prefer to receive price 3otations in their own crrency since itplaces the risk of exchange rate flctation on the exporter and facilitates comparisonof prices from a nmber of foreign sorces.

;.1O 8esoltion of this potential conflict depends to a large extend onG

AaB the relative strengths of the two partiesHAbB the importance of the contract to either partyH andAcB occasionally the economic sitation in both contries Asch as the balance of

payments positionB.

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;.!= Ehichever crrency is need there are a nmber of ways of minimiFing problemscased by foreign crrencies.

AaB 'he simplest way is to have an appropriate clase in the contract to adjst theprice if it flctates within agreed limits or to renegotiate if these are exceeded.

AbB 'o prchase Aor sellB forward as appropriate Asee aboveB whereby a fixed rate isagreed for the given sm at a specified date in the ftre by a bank. 'he netsm Aafter commissionB received or paid at the end of the period is at leastgaranteed.

AcB In a sitation where either or both crrencies are nstable a third crrency can be3oted, e.g. the 6S dollar. * strengthening or weakening in one partyscrrency wold be felt in relation to the dollar and the other party wold not beaffected. /ach party to the transaction ths takes on the risk associated withits own crrency. If the dollar changed vale, it wold be likely to be relative toboth crrencies and the risk Aor benefitsB wold be shared. 'he one

disadvantage is that there is a doble exchange transaction involved.Dowever, this may be more acceptable than other alternatives.

Terms of a 7rie 1.otation

;.!1 Ehatever the pricing objectives or the basis for pricing of an organiFation, costaspects are of vital importance as a gide.

In more ethnocentric export companies, overseas prices are based on domesticprices pls additional costs of freight etc. %ften however the domestic price willinclde costs not relevant to the export sitation, e.g. domestic advertising, selling,distribtion etc.

%ne of the key tasks of the international marketer involved in pricing decisions is totake into accont all the relevant costs in order that exports achieve the defined levelof profitability or market share.

Shipping terms

;.!! In addition to the obvios manfactring costs of he exporter they are be significantextra costs in getting the goods to a foreign byer. :enerally, the costs of )hysicalmovements are as followsG

aB transport from the manfactrers premises to the docksH

bB loading aboard shipHcB freight chargesHdB nloadingeB cstoms dtiesH andfB transport from the docks to the cstomers warehose

;.!$ *s well as these costs of physical movement there are also insrance charges andpossibly additional costs for any delays.

;.!4 'here are a nmber of internationally accepted standard forms of dividing these costsbetween byer and seller. Eho pays what, and who is responsible for arranging forthe transport, has to be confirmed when the sale contract is agreed.

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;.!7 'he standard forms are known as I+(%'/8&S and have been designated by theInternational (hamber of (ommerce. o will note that many of the descriptionscontain the term Cfree. 'his indicated the time at which legal title passes from sellerto byer Aand ths risk of loss in case of damage, theft and so forthB.

;.!9 *mong the more common forms of 3otation are the followingG

&a' 56: 51-wor/s

'he byer mst take delivery at the exporters factory and pay all the costs of freight,insrance and other expense items to get the goods transported from the spplierfactory to their destination. 'his represents the minimm obligations for the seller.

&bB )A#: )ree Alongside #hip

AiB 'he seller arranges toG

A1B deliver the goods alongside the named ship at the port of loadingnamed in the contractH and

A!B pay all the charges p to delivery of the goods alongside ship,inclding freight and insrance charges to that point.

AiiB 'he byer is responsible forG

A1B choosing the carrier to transport the goods abroad and paying thecost of freight from the port of shipment inclding the cost ofloading the goods on board ship Aif loading costs are separate fromfreight chargesBG

A!B arranging insrance and paying insrance from arrival at thedockside onwardsH and

A$B arranging and paying for any export license and export taxes.

'he point of delivery of the goods from the seller to the byer is alongside the ship.

;.!; ?or example C?*S ?elixstowe for the export of goods by a 6@ firm to an overseasbyer wold mean that the exporter mstG

AaB deliver the goods free alongside ship at ?elixstoweH and

AbB pay all the costs, inclding freight and insrance, to bring the goods alongsidethe ship at ?elixstowe.

;.!< 'he overseas byer mst nominate the carrierAsB to take the goods from ?elixstowe totheir destination and AaB pay freight from ?elixstowe, Ab= pay export charges Aif anyB,AcO pay for loading the goods on board ship Aif separate from freight chargesB, and AdBpay for insrance of the goods from their timeKpoint of delivery at ?elixstowe.

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FO%/ Free on %oar*

;.!O ?%- means that the byer does not have to pay for transporting or insring the goodsfrom the place where they are originally dispatched p to the point when they aretaken on board ship. 'he costs p to this point are borne by the sellerKexporter. 'heplace of delivery is the ships rail.

;.$= 'he sellerKexporter mstG

AaB pay for transportation, freight and insrance charges to the named port ofshipment Ae.g. C?%- 2%S *ngles wold mean that an *merican spplierwold be responsible for sending goods for shipment on board at 2os *ngeles,and to pay cost sp to that pointBH

AbB provide and pay for the export licenseH

AcB pay export taxes

AdB deliver the goods on board the ship Aor airline flight etcB that the byer hasspecifiedH

AeB pay for the cost of loading the goods on board ship Aif loading costs areseparate from freight chargesBH

;.$1 'he byer mstG

AaB nominate the carrier to transport the goods Ae.g. if the shipping terms for anexport consignment from the 6@ are ?%- Stranraer, it is the byer whospecifies the shipping company, sailing date and timeBH

AbB give the seller the details of the ship and sailing timeH

W pay for the carriage from this point Aie freight from that point, inclding costs ofnloading at the place of destinationBH

AdB arrange and pay for insrance of the goods from this point.

CFR/ Cost an* Freig6t

;.$! Eith (ost and ?reight, the exporterKseller mst nominate the carrier to ship the goodsabroad, arrange the contract of carriage and pay freight charges. In these respects,

(?8 differs from ?%-.

;.$$ 'he seller mstG

AaB nominate the carrier and so make the contract of carriageH

AbB pay for transportation of the goods to the place of shipment and insre thegoods p to this pointH

AcB provide and pay for the export licenseH

AdB pay export taxesH

AeB deliver the goods on boardH

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AfB pay for the cost of loading the goods if the loading charge is separate from thefreight chargeH

AgB provide the byer with a clean on board bill of ladingHAhB pay the cost freight charges to the named port of destination Aeg, C(?8

8otterdam wold mean that the 6@ exporter mst pay freight charges fordelivery to the port of 8otterdamBH

AiB send to the byer advice of the carrier and the shipment date.

;.$4 'hogh the spplier pays the freight charges to the ort of destination, the place ofdelivery of the goods is the ships rail when the goods are taken on board,. Ehenthey are on board, they are the responsibility of the byer. In a (?8 contract, thespplier is paying freight charges for goods that have already been delivered to thebyer.

;.$7 'he byer mstG

AaB pay for the insrance of the goods from the time they are taken on board, andso the byer henceforward bears the risk of loss or damage to the goodsH

AbB pay for nloading costs at the port of destination if these costs are separatefrom the freight charges.

AcB )ay for any import license re3iredH

AdB *ccept delivery of the goods, when the appropriate docments Aeg bill oflading, invoiceB have been presented, an obligation of great practicalimportance becase the spplier does not want the byer to refse the goods

after they have been shipped to the byers contry, the seller already havingpaid freight charges to get them theeH

AeB *rrange and pay for transportation and insrance from the port of destinationto their final destination in the byers contry.

(I?G (ost, Insrance and ?reight.

;.$9 (ost, insrance and freight is similar to (?8, with the exception that it is the seller,not the byer, who mst arrange and pay for the insrance of the goods to the port ofdestination.

;.$; 'he obligations of the seller are therefore the same as for (?8, except thatadditionally the seller mstG

AaB arrange for insrance of he goods from the port of shipment to the port ofdestination Athe amont of insrance cover is often the (I? vale of the goodspls 1=JBH

AbB pay the insrance premimH

AcB provide the byer with the insrance policy or certificate.

;.$< Eith (I?, the place of delivery by the seller is still the ships rail when the goods aretaken on board so that the insrance taken ot by the seller will be in favor of thebyer in the event of loss or damage etc to the goods dring shipment.

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;.$O 'he byers obligations are the same as for (?8, with the exception that he does nothave to pay for the insrance of the goods between the port of shipment and the portof destination.

;.4= 'he terms of shipment might therefore by L(I? Dong @ong meaning that the exporterndertakes to pay for the freight charges and insrance of the goods to the port ofdestination, which is Dong @ong.

;.41 If terms for an import of goods from 'aiwan are C(I? 6@ port this means that theexporter in 'aiwan can deliver the goods to any 6@ port. 'he 6@ importer woldobviosly be well advised to have the port of delivery specified to avoid nnecessarytransport costs in the 6@.

DD"/ De&i-ere* *.ty 7ai*

;.4! 'he seller mst pay the costs of delivering the goods to the named destination, having

paid import dties on the goods. 'he seller mst therefore pay the import dties ortaxes, arrange and pay insrance and provide docments that will enable the byer totake delivery. 'he byers responsibility is to take delivery of the goods at the nameddestination. 'his represents the maximm obligation for the seller.

B+ MET#ODS OF "AYMENT


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#tage * *fter shipping the goods the exporter has to present thedocments specified by the letter of credit. 'hese normallyinclde a commercial invoice, bill of lading and insrancecertificate.

#tage )rovided the docments are in order the exporter arranges forpayment to be made Aeither immediately or on deferred termsBby the byers bank.


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"ayment .7on s6i7ment of t6e goo*s


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O.4 * restrictive practice is an agreement or practice which prevents, restricts or distortscompetition. 'he government control of sch practices will have effects on foreignmarket pricing. &any contries have a government agency whose main task is toprotect the national or pblic interest by controlling sch practices Ain the 6@, the%ffice of ?air 'radingB.

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COMM$NICATIONS DECISIONS IN INTERNATIONA MARKETS

+ "RO%EMS IN INTERNATIONA "ROMOTION

1.1 /ffective commnications are particlarly important in international marketing, de tothe geographical and psychological separation of the prodcer and its market.(onse3ently, the international marketer has to rely more on intermediaries andimpersonal commnication for a major part of the commnication process.

1.! 'he methods of promotion in any one market will be affected byG

AaB the promotional objectives for that marketHAbB cltral and other social constraintsHAcB facilities available for promotional effort in the marketHAdB economic developmentHAeB distribtion infrastrctreH

AfB media availabilityH andAgB competition

1.$ *lthogh in some circmstances it is possible broadly to standardiFe promotionalmessages, as for (oca (ola, generally the langage, media and other elementsneed to be altered. Standardised promotion refers essentially to the themes andmessages portrayed in the promotion rather than identical media and adiences.Standardisation is rare and can only occr when the prodct and its cltral meaningare more or less identical across a nmber of contries and cltres. 'he morenormal state of affairs is that of adaptation of promotional effort to match the differentcommnication re3irements of the market in 3estion.

"romotiona& o


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1.9 'hs in the relatively liberated gender climate of the 6@, an advertisement showing aman cooking for the family does not case comment A+ew ealand lamb '0advertisementB, bt in contries with more rigid gender codes, this may well be fondto be absrd or offensive.

Similarly the se of grond coffee in the 6@ is still largely on special occasions wherevisitors or celebratory meals are involved. In ?rance it is an everyday prodct. 'hepromotion shold reflect these differences.

ega& onstraints in 7romotion

1.; 'he international marketer faces a legal minefield when considering promotionalmethods. In the 6@, althogh considerable tightening p is in progress, the attitdetowards promotional claims is relatively liberal, as is the attitde to what is promoted,when and where. C8eaching the parts that other beers cannot reach cold only beclaimed in the 6@, where the diversity of the /nglish langage allows irony,

overstatement and pns. 2egal constraints may exist coveringG

AaB what can be claimedHAbB what prodcts may be promotedHAcB what media may be sedHAdB when they may be promotedH andAeB how mch may be spent on promotion.

1.< 'he 6@ has fallen in line with the rest of the /6 in banning tobacco advertisementson '0 Ainclding the loss of the irony#laden Damlet advertisementsB. ?rance isamongst a host of contries that reglate what can be said in an advertisement, andmost Scandinavian contries prohibit '0 advertising of tobacco in any form. 'his

legal minefield sally means that some local professional advice is necessarybefore a promotion is considered in a foreign contry. 'his may be the distribtorAwho may have promotional responsibility anywayB or a local advertising agency.

Fai&ities a-ai&a


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Distri


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Cons.mer me*ia

!.$ Dere the directed natre and coverage of the media are open to 3estion. &ajormedia grops with international connections provide reports on readership andreader profiles. In many contries however, the data on consmer media are sparseand the international marketer has to rely heavily on local knowledge. Isses toconsider incldeG

AaB extent of target market coverageHAbB image carried by the medimHAcB literacy levelsHAdB ownershipKrelationshipHAeB ability to convey the messageHAfB the cost of contact Asally expressed as cost per 1,=== adienceB.

!.4 In nderdeveloped contries where literacy and low incomes combine to provide low

market coverage for newspapers, magaFines, '0 and radio, the se of posters andhandbills Asally handed ot in key trading centersB shold be considered as analternative.

Diret mai&

!.7 In most developed contries sitable listings based on company or consmersegmentation profiles are widely available. ?or trade contacts, the se ofinternational byers gides A@ellys or "nn and -radstreet, for exampleB provideade3ate contacts. In developing or lesser developed contries the internationalmarketer may find that sch information is harder to come by.

!.9 'he major problem with sing direct mail in an international context is the inability toCfollow p en3iries generated. 'hs it is important that the local sales office, agentor distribtor in that contry is provided with leads as 3ickly as possible. Indeveloped markets direct mail can be sed in several waysG

AaB direct response promotion, that is bying Coff the pegHAbB to generate en3iries for more personal contactH andAcB to provide an introdction for personal contact

:enerally direct mail tends to be more expensive than advertising in terms of contactcosts, and has only slightly more response. Dowever, it can have the advantage ofproviding more targeted adience, which can save money significantly.

Tra*e fairs an* missions

!.; 'rade fairs are probably one of the most effective methods of initial bsiness #to#bsiness contact, providing an opportnity for prodcers, distribtors and cstomersto meet. 'hey allow not only commnication with a targeted adience bt also theability to demonstrate and provide trial of the prodct or service. *lthogh Cfairs existin the consmer markets, they are less attractive and effective to the internationalmarketer.

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!.< ?or smaller companies, the high cost of a presence at some of the major fairs, andthe possibility of being ignored in the presence of major international competitors hasled to the development of Cfringe venes, sch as a local hotel, where the companymay display its offers withot competitor presence. 'he client is often encoraged toattend by direct mail invitations and the provision of refreshments. *dvantages oftrade fairs inclde the following.

AaB 'he ability to let potential cstomers see demonstrations and trial.AbB 'he ability to make personal contact with existing and potential cstomers to

maintain and develop relationships.AcB *llowing direct contact with major decision makers and inflencers at a time

when they are interested in the prodct.AdB )roviding an opportnity for market research, sch as competitor activity and

byer response.AeB (ontacting a large nmber of potential cstomers in one place.

!.O. 'he principal disadvantage of trade fairs is cost, especially for smaller companiesforced to compete with large mltinational exhibitors.

&ost trade fairs are, by their natre, specific to a particlar trade, sch asCengineering or Ctoys. Ehere internationally renowned trade fairs are held in yorown contry, attendance shold be considered both from the domestic andinternational perspective.

"ersona& se&&ing

!.1= In international marketing personal selling will be re3ired one or more times in thetrading channel. )ersonal selling is expensive bt effective. :iven the right spport

a good salesman can convert abot one in three prospects. 'his compares to abotone in 7= with direct mail and advertising as a maximm. 'hs advertising and directmail can be sed to generate en3iries, and the expensive resorce, the salesman,can be sed to convert the lead to an order.

!.11 'he international salesman cannot work in isolation. If the salesperson is to beefficient and effective, spport mst incldeG

AaB generation of en3iriesHAbB prodct literatre and samples where relevantH andAcB information on price, delivery and terms.

!.1! 'he international salesperson will re3ire several attribtesG

AaB knowledge of the prodct and marketHAbB langage and cltral knowledge specific to the contryHAcB technical knowledge where necessaryHAdB contacts, preferably from experience in the marketHAeB sitable personalityHAfB selling skillsH andAgB motivation to scceed.

!.1$ )ersonal selling can only be jstified where the contribtion, that is that combinedeffect of margin and order siFe, is sfficient to jstify the costs involved. 'hs, it isideal in bsiness# to# bsiness marketing and might be essential in dealing withgovernment prchasing agencies.

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'elemarketing

!.14 'elemarketing, that is the se of telephone to sell, is often sed domesticallyG

AaB to prospect potential cstomers for personal sellingHAbB to handle repeat prchases not re3iring personal visitsHAcB to deal with cstomer en3iries or complaints.

!.17 Ehilst widely accepted in bsiness#to#bsiness trading, the acceptance oftelemarketing in consmer markets, especially in prospecting cstomers, is not sowidely accepted. 'hs, in the 6@ there is more resistance to telemarketing than inthe 6S*. In ?rance the existence of &I+I'/2 has allowed the growth of telephoneordering to a considerable degree, one sorce claims that $=J of retail sales arenow via telephone.

!.19 In the international context, the lack of a telecommnications infrastrctre and

cltral inhibitions to telephone selling may limit the attraction of this medim.'elephone ownership varies considerably. In most developed contries there is atleast one telephone for every two people, showing widespread telephone access. Inthe former /astern block it is one telephone per ten people, in -rma one per ;7=people and in "emocratic 8epblic of (ongo, one per !,1== people.

!.1; * frther consideration is the ability to Cfollow p calls. 'elemarketing re3ires theability to react accordingly and ths probably works best from within a market ratherthan on a contry#to#contry basis.

International directories are widely available and both -' and ellow )ages offer listbroking services to the international telemarketer.

!.1< :enerally, the impersonal methods of commnication are less expensive in terms ofcost per contact, bt less effective than personal commnication in Cgetting the order.'he order siFe and potential contribtion may well dictate the appropriate medim.'hs high vale, high volme sales on a bsiness to bsiness warrant trade fairvisits, and foreign sales representations, whereas consmer commnications arebetter sited to indirect methods sch as advertisement

;+ "ANNING T#E INTERNATIONA "ROMOTIONA CAM"AIGN

$.1 In planning an international promotional campaign the international marketer needsto make decisions concerningG

AaB professional assistanceHAbB the messageHAcB the mediaHAdB the promotional bdgetHAeB monitoring and controlHAfB organiFationH andAgB independent or cooperative promotion

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"rofessiona& assistane

$.! 'he normal form of assistance is to hire an advertising agency eitherG

AaB international agency with local officesHAbB local agencies in each market

$.$ In making the decision the international marketing manager shold considerG

AaB knowledge and coverage of the relevant marketHAbB 3ality and reptation within each marketHAcB additional services provided Afor example, market research, pblic relations,

etc.BAdB ability of international marketeers own organiFationHAeB ability to liaise with agency easilyHAfB whether the campaign is to be standardiFed or notH

AgB vale of promotional bdgetHAhB attitde in market to international vs local imageHAiB organiFation of international marketeers companyH andAjB degree to which marketer is responsible for promotion.

'he criteria to se in selecting an advertising agency were explored in (hapter $.

$.4 'hs a small firm exporting to one market and wishing to perhaps ,organiFe a standat a trade fair, wold probably be best to se a 6@ based agency with localconnections becase it may well have langage and commnication problems andlacks experience in the foreign market.

%n the other hand, a large international company sch as >erox wold prefer to sean international agency with local offices becase of he standardiFed natre of theirpromotional campaign.

Se&eting t6e message

$.7 Ehilst commonality of needs is largely recogniFed worldwide, the way in which theseneeds are satisfied varies, as does the fre3ency with which these needs occr inany society. Social and cltral vales will almost inevitably mean that selecting themessage will re3ire a local office or a local distribtor. ?rther considerationsconcernG

AaB localiFed or standardiFed campaignsHAbB market conditionsH andAcB market segments soght

$.9 'he degree to which promotion shold be standardiFed is a difficlt decision. Eherethe prodct or service is perceived or sed in a significantly different way, themessage has to be adapted. 'hs, &c"onalds in &oscow is a relatively expensiveprchase, not able to be consmed 3ickly Aa two hor 3eeB, and is regarded moreas a special Ctreat rather than an everyday 3ick, convenient snack. Ehere themedia availability and market coverage is significantly different from the homemarket, a new and different media campaign will be re3ired. ?inally, legalrestrictions may force both message and media adaptation.

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Se&etion me*ia

$.; *s sggested in the discssion above, the availability, cost and effectiveness ofmedia may not be the same as in domestic markets. In considering the se of anymedia one needs to take into accontG

AaB the target market yo wish to contactHAbB degree of market coverageHAcB legal restraints on sing the medimHAdB physical constraints of medim Ae.g. ability to show color etc.BHAeB degree of cstomer response to the medimH andAfB cost per en3iry generated.

$.< :enerally, nless yo are a mltinational company operating in a particlar contry,sch information will be difficlt to obtain. 'he advice of either yor local distribtoror advertising agency shold be soght.

Dei*ing on t6e 7romotiona&


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Monitoring an* ontro&

$.1! Investment of any kind shold be related to the Cretrn that the investmentgenerates, and this applies e3ally to promotional campaigns. (osts are sallyeasy to obtain from the international records. 'he response generated is oftenignored. 'ypical monitoring measres cold incldeG

AaB coding advertisements so that en3iries can be related to a particlar medimor advertisementH

AbB comparing response rates between mediaH andAcB comparing against other salesforce, calls and orders per call to establish the

costs of contact and order generation.

Organising internationa& 7romotion

$.1$ 6nless the company is large and experienced internationally, centraliFed promotion

is not advisable. 'hs in most cases the company will rely on the advice and help ofboth the local distribtors and agency in a particlar market for operational andadministrative decisions.

Strategic decisions will always be the domain of the company. )romotionalcampaigns and spport are often discssed as part of the annal review with agentsand distribtors and form part of the total Cincentive to sch.

In*e7en*ent or oo7erati-e 7romotion

$.14 )art of the task of a channel of distribtion is that of promoting the prodct. 'heproblem is deciding who does the promotion. 'rade promotion is sally ndertaken

by the prodcer in most markets with en3iries being direct to the distribtor oragent. Ehere consmer markets are involved the main distribtor in any contry issally re3ired to provide the promotion. Smaller distribtors sch as retailers maywell be tempted to promote the prodct locally to the end sers, if an incentive isoffered in the form of shared cost of promotion. 'hs a foreign department store maybe tempted to pt a special promotion on for a prodct if the costs can be sharedbetween it, the distribtor and the prodcer.

foreign entry strategies (2)

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