international business4

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INTERNATIONALBUSINESS



World financial markets

The Composition of Trade

Between the 1960s and the 1990s the

importance of manufactured goods increased

while the role of primary commodities (i.e.rubber or mining) had decreased.

More recently, there has been a shif t of manufacturing to countries with emerging

economies.

There has been an increase in the area of services trade in recent years.



Contd..

F oreign exchange ( F x): money denominated inthe currency of another nation or group of nations

Exchange rate: the price of one currency expressed in terms another currency

The Foreign Exchange Market

± Most are Ov er-the-counter ( OTC) market through

commercial and investment banks ± T he Exchange-trade market specializes in securities,

futures and options



3-4

Tariff Barriers

Tariff

± Taxes on imported goods f or the purpose of raising their

price to reduce competition f or local producers or

stimulate local production

Ad Valorem Duty

± An import duty levied as a percentage of the invoice value

of imported goods

Specific Duty

± A fixed sum levied on a physical unit of an imported good



3-5

Tariff Barriers

Compound Duty

± A combination of specific and ad valorem duties

Official Prices Variable Levy

± An import duty set at the diff erence between

world market prices and local government-

supported prices

Lower Duty f or more local Input



3-6

Nontariff Barriers

Nontariff barriers (NTBs)

± All f orms of discrimination against imports other

than import duties

Quantitative

± Quotas: numerical limits placed on specific classes

of imports

± Voluntary export restraints (VERs): Export quotas

imposed by exporting nation



3-7

Nontariff Barriers

Orderly Marketing Arrangements

± Formal agreements between exporting and importing countries that stipulate the import or

export quotas each nation will have f or a good Nonquantitative Nontariff Barriers

± Direct government participation in trade

± Customs and other administrative procedures

± Standards



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World Trade Organization (WTO)

General Agreement on T ariffs and T rade ( G ATT) f ormed in1947 was replaced by WTO in 1995.

The goal of WTO is ± To facilitate the development of a f ree and open trading system in the

world ± To adjudicate trade disputes between or amongst member nations

WTO rulings are binding. If an off ending country fails to comply with a judgment, the rights to compensation and countervailing sanctions will f ollow.

Most-favored nation clause (MFN): is the fundamental principle of trade without discrimination.

WTO Rounds-Doha Round (2001)



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Economic Integration

Economi c integration: is an agreement between or amongst nations within an economi c bloc to reduce and ultimately remove tariff and nontariff barriers. Factors favoringintegration are:

- Cultural similarity- Geographic proximity

- Political will

Approaches to economi c integration include:

± global integration via the World Trade Organization

± bilateral integration between two countries

± regional integration via an economi c bloc



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Eff ects of Economic Integration

Stati c effects: the shif ting of resources f rom inefficient to efficient firms as trade barriers fall

T rade creation: production shif ts f rom less efficient domesticproducers to more efficient regional producers

T rade diversion: trade shif ts f rom more efficient external sources to less efficient suppliers within the bloc f ollowing the imposition of common external barriers

Dynami c effects: the gains f rom overall market growth, the expansion of production, the realization of greater economies

of scale and scope, and the increasingly competitive nature of the market



Types of Regional Economic Integration

Regional Cooperation: initial moves, no serious tariff implication

Free Trade Area: no internal tariff

Customs Union: no internal tariff and commonexternal tariff

Common Market: no internal tariff , common external tariff and factor mobility

Economic Integration: no internal tariff , common

external tariff , factor mobility, common fiscal and monetary policy, common currency, and political integration



Regional Economic Integration

Preferential trading

Agreement (tariff

concessions on

import of select items)

FTA

Common market

Economic union

Political union

Free Trade Among members

Common external trade policy

Harmonization of economic policies

Complete political & economic integration

I n c r e a s i n g

i n t e g r a t i o n



Contd..

Pref erential trading agreement (PTA): e.g.

south Asian PTA, grants tariff concessions to

member countries on select products.

FTA: remove all tariff s & non-tariff barriers

among themselves while maintain with non-

member countries e.g. NAFTA

Customs union: f ree trade among member

countries & impose a common tariff on the

non-member country.



Contd..

Common market: f ree trade among member

countries & have a common external trade policy. It

demands significant degree of harmony & co-

operation on fiscal, monetary & employment policies. E.g. MERCOSUR, the south American

grouping of Argentina, brazil, Paraguay & Uruguay.

Economic union: the member countries in an

economic union maintain a fiscal discipline, stability

in exchange rates & stability in interest rates by way

of unified monetary & fiscal policy e.g. euro zone



Contd..

Political union: a common parliament is

created with representatives of member

countries which works in synchronization with

individual countrys legislature. At this stage,

the member countries are willing to dilute

their national identities to a considerable

extent & become a part of the union.

E.g. Trading blocs: EU, NAFTA, ASEAN, APEC,

GCC.



Structure of European Union

European Parliament (elected by the peoples of the Member States)

Council of the European Union (representing the governments of the Member States)

European Commission (driving f orce and executive body)

Court of Justice (ensuring compliance with the law)

Court of Auditors (controlling sound and lawful

management of the EU budget)



North American Free Trade Agreement (NAFTA)

Established in 1994 by United States, Canada and Mexico, phases in over a period of 15 years

Claims a total GNI that is greater than that of the 25-member EU

NAFTA covers:

± Market access (tariff and nontariff barriers)

± Trade rules (subsidies and antidumping)

± Services

± Investment

± Intellectual property

± Dispute resolution

Good example of trade diversion



Regional Integration Groups

Americas North American Free Trade Agreement (NAFTA)

Central American Free Trade Agreement (CAFTA)

Latin America MERCOSUR

Latin American Integration Association (ALADI)

Central American Common Market (CACM)

Caribbean Community and Common Market (CARICOM)

ANDEAN Group



Regional Integration Groups

Europe European Union (EU)

European Free Trade Association (EFTA)

Asia Association of Southeast Asian Nations (ASEAN) Asia Pacific Economic Cooperation (APEC)

South Asian Association f or Regional Cooperation (SAARC)

Economic Cooperation Organization (ECO)

Gulf Cooperation Council (GCC)

Af rica Southern Af rican Development Community (SADC)

Common Market f or Eastern and Southern Af rica (COMESA)

Economic Community of West Af rican States (ECOWAS)



MERCOSUR

Established in 1991

± Brazil

± Argentina

±

Paraguay ± Uruguay

Generates 80% of South Americas GNP

Signed f ree trade agreements with Bolivia and Chile

Negotiating with EU f or f ree trade agreements



Association of South East Asian Nations

(ASEAN)

Organized in 1967

Member countries are protected in terms of

tariff and nontariff barriers Holds tremendous potential market

opportunities with 500 million consumers



Intl. marketing mix

Product: the uniqueness of product in the

marketing mix is that all the other elements of

the marketing mix i.e. price, place, promotion

are designed to achieve successful exchange of the product f or consumer satisfaction &

income.

Product decisions: important product decisions in intl. marketing are:

Market segmentation decision: or market

selection decision



Contd..

Firm related

factors

Market selection

decision

Market related

factors

Company resources

i.e. financial, human,

Technological & managerial

factors

Economic policy

Business regulation

Currency stability

Political

EthnicInfrastructure

Cultural

Trade practices

Determinants of market selection



Contd..

Product mix decisions: it pertains to the type of

products & product variants to be off ered to the

target market (list of all the products off ered f or sale)

Products specifications: it includes factors like styling, shape, size & other attributes & factors like

packaging & labeling

Positioning & communication decisions: positioning

is the image projected f or the product e.g. beef eater is a low priced gin in (UK) home market but in US

beef eater was positioned as a high priced gin & was

successful.



Price

Pricing f or export market, however is more

complex & difficult than f or the new domestic

market. Export pricing will have to

accommodate into itself the trade practices &regulations of the overseas market. It takes

into account additional costs involved in

respect of packaging, labeling, marking etc.

export pricing thus, involves the careful

consideration & incorporation of a variety of

factors



Contd..

Types of costs in export marketing: Production costs fixed, variable

Selling & delivery costs holding stocks, packing,

transport, documentation, pre-shipment inspection,

insurance.

Pricing ob jectives: a firms pricing policy may be

guarded by any one or more of the f ollowing

ob jectives: market penetration, market share, market skimming, fighting competition, preventing new

entry, shorten pay-back period, disposal of surplus

(dumping), profit maximization, ROI, meeting export

obligation



Factors aff ecting pricing

Intl. marketing ob jectives: the ob jective of marketing

is a very imp. Factor determining the price e.g. if

ob jective is market penetration, the price charged

may be low.

When a firm exports to make use of excess capacity,

marginal cost basis may be adopted f or price.

Costs: the pricing decision is inf luenced by the fixed

& variable costs of production & the transportation& marketing costs.

Competition: a monopolist normally has high degree

of f reedom in pricing



Contd..

Product diff erentiation: if the companys product is

highly diff erentiated than those of the competitors,

the company will have more f reedom to manipulate

price. Exchange rate: e.g. if rupee is steadily appreciating,

the Indian exporter would be constrained to quote

high dollar prices.

Market characteristics: demand trends, consumer

income levels, importance of the product to the

consumers, trade characteristics like trade margins



Contd..

Image: it may be easier f or a well reputed firm

to change a higher price than others.

Govt. factor: export pricing is inf luenced by govt. policies & regulations. E.g. tax

concessions, intl. agreements & other

incentives & assistance like cheap credit,

supply of remittances etc., at regulated prices.



Pricing methods/approaches

Cost based pricing: under this method the

price includes a certain %age of profit margin

on the sum total of the full cost of production,

marketing costs & an allocation of overheads.

Market oriented pricing: allows the prices to

be charged in accordance with the changes in

market conditions.

Market sluggish lower price

Demand high high price



Contd.. Following competitors: Setting the price at the same level as that of

competitor

Setting price below that of competitor

Pricing higher than that of competitor, depending

upon the quality of the product, the image &

reputation of the firm, uniqueness or similarity of the

product. Customer determined price: in a no of cases, the

f oreign buyer specifies the price at which he is

prepared to buy the product.



Contd..

Break-even price: it is the price f or a given

level of o/p there is neither any loss nor profit.

Marginal cost pricing: means taking advantage

of the f lexibility b/w the lower limit of break even price & the upper limit of the

competitors price f or similar product.

Transf er pricing: or intracompany pricingref ers to the pricing of goods transf erred f rom

operations or sales units in one country to the

companys unit elsewhere.



Methods of intl. payments

The terms of payment describe how & when the money should be transf erred to the seller. Various

factors aff ecting the terms of payment include the

risk associated, speed, security, cost & the market

competition. The ma jor term of payment used in intl.markets are:

Advance payment: the payment is remitted by the

buyer in advance either by a draf t mail or TT

(telegraphic transf er). Generally, such payments are made on the basis of sample receipt & its approval

by the buyer. The clean remittance is made af ter

accepting the order but bef ore the shipment through

banking channels.



Contd..

Open account: the exporter & the importer

agree upon the sales terms without

documents calling f or payments. However, the

exporter prepares the invoice, & the importer

can take delivery of goods without making the

payment first. Subsequently, the exporting &

importing firms settle their accounts through periodic remittances. It lacks saf eguard

measures against non payment.



Contd..Consignment: the shipment of goods is made to the overseas consignee & the title of goods is retained

with the exporter until it is finally sold. Consignment

sales involve certain additional costs such as

warehouse charges, interest, insurance &commission of agents.

Documentary credit: the exporter is unwilling to part

with his goods unless he/she is assured of receipt of

the payment f rom the exporter & vice-versa. In such situations, the bank plays a crucial role of an

intermediary providing assurance to both the

importer & the exporter in an international

transaction.



Intl. distribution channels

Channels of intl. marketing distribution may

be defined as a series of independent

organizations n/wed together to make the

products or services available to the end

consumer in intl. markets. Selection of the

channels depends on the f ollowing criteria:

Intl. marketing ob jectives, financial resources, firms marketing image, speed of market entry,

specific product need



Contd..Intl. marketing channel

Indirect Direct

Agents Merchant intermediaries

Broker

/commissionagent

Importer¶s buying

agent

Country controlled

buying agent

Buying office

Export/ trading

house

Intl. trading co¶sMerchant exporter

E-channel

Intl. border

Merchant

intermediaries

Agents

Broker

/commission

agent Manufacturer Agent/Sales rep.

Buying

agent Export/ tradinghouseIntl. tradingco¶sMerchantexporter



Dumping

It means selling in the f oreign market at a price

below the cost of production or selling in the f oreign

market at a price below the home market price. If

the f oreign price is above the home market price it is ref erred to as reserve dumping.

Dumping is of 3 types:

Sporadic (sell excess stock that arise occasionally)

Intermittent (periodic sale of goods at prices below

the home market price)

Long period (resorted to facilitate the utilization of

full capacity of the plant continuously).



contd..

Steps in pricing:

Defining pricing ob jectives Analyzing market characteristics

Calculating costs

Calculating value of incentives Determining export price



Promotion mix

Diff erence in the marketing environment necessitate valuations in the communication mix because a

channel or medium that is very eff ective in one

market may not be eff ective in another market.

Some channels which are eff ective in certain markets may not be available or underdeveloped in some

other markets.

Identifyingtarget audience

Determining

Communication

objectives

Determining

the msg. Budget decisions

Communication

mix decisions

Steps in developing marketing communication



Communication mix

It is also called as promotion mix, has 4 ma jor

elements or tools or channels. Which communication

tool or tools should be used or the nature of mix is

determined by the marketing environment & the companys ob jectives & resources.

Advertising: is any paid f orm of non-personal

presentation & promotion of ideas, goods or services

by an identified sponsor.

Mass media advertising (TV, newspaper, magazines)

Direct advertising (sales literature, samples & gif ts).



Contd..

Sales promotion: are short term incentives to

encourage purchase or sale of a product or

service. E.g. trade fairs, exhibitions, sample

gif ts, lotteries etc. Personal selling: is defined as oral

presentation, pref erable when the product is

technical in nature. Public relations: variety of programmes

designed to improve, maintain or project a

company or product image



Contd..

Product

invention

Develop new product

Intl. product-promotion strategies

PRODUCT

P R O M O T I O N

Don¶t change

promotion

Adapt

promotion

Change product Adapt product

Straight extension Product adaptation

Promotion adaptation Dual adaptation

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