International Marketing

Chapter 8

The Export Process

Motivations to Internationalize

Proactive Motives Profit advantage Unique products Technological advantage

Exclusive information Managerial urge Tax benefit Economies of scale

Reactive Motives

Competitive pressures Overproduction Declining domestic sales Excess capacity Saturated domestic markets Proximity to customers and ports

The Foreign Sales Corporation (FSC)

Change Agents

Internal change agents Enlightened management New management Significant internal event

External change agents Demand Other firms Distributors Banks Chambers of commerce Export agents Governmental activities

Key Managerial Characteristics Affecting Export Involvement

Education International Exposure Expertise International orientation Commitment

Internationalization Stages

Innate, or start-up, exporters Partially interested exporter Experimental exporter Export adaptation

Internationalization concerns

Stage 1: The completely uninterested firm Stage 2: The partially interested firm Stage 3: The exploring firm Stage 4: The experimental exporter Stage 5: The experienced small exporter Stage 6: The experienced larger exporter

Main Corporate Concerns for the Firm

Financing Information on business practices Communication Providing technical advice Sales effort Obtaining financial information Handling documentation Physical product Marketing information gathering

Corporate Strategy and Exporting

The impact on the perception of risks The impact on profits

Profit and Risk During Export

Initiation

Licensing: The licensor permits another firm to use its intellectual property for compensation designated as a royalty

Assessment of Licensing: Requires neither a capital investment nor knowledge and marketing in the target market

Issues in Licensing• Licensor

• Transfer costs to licensor• R&D cost• Opportunity cost (loss of direct exporting, foreign investment , etc.)

• Licensee and compliance to number of dimensions stipulated• Export Control Regulations• Confidentiality of the intellectual property• Record keeping and provisions for licensor audits

Trademark in Licensing

Franchising: A form of licensing in which a parent company grants another independent entity the right to do business in a prescribed manner.

Export Management Companies: Domestic firms that specialize in performing international marketing services as commission representatives or a distributors for several firms.• As distributors: purchases the goods form domestic firms and

assumes trade risks. Greater risk , greater profit• As agents: Developing the foreign market , sales strategies, and

establishing contacts abroad. It charges High commission on potential high sales volume.

Power conflict between EMC and clients Export trading companies (ETC)

Stages in Setting of Prices

S tag e 5S e lec tin g th e S p ec ific P rice

S tag e 4P ric in g P o licy D e te rm in a tion

S tag e 3P ric in g P o licy S e lec tion

S tag e 2M arke t M ix C om p os it ion

S tag e 1Targ e t M arke t A n a lys is

Price Dynamics

Skimming: Highest possible contribution in a short period of time

Market Pricing: When similar products exist

Penetration Pricing: Product is offered at a low price to generate volume sales and achieve market share

Export Pricing Strategy

Standard Worldwide Price Dual Price: Domestic and Export prices are

differentiated

Cost-Plus Method: True cost, fully allocating domestic and foreign costs….too expensive?

Marginal Cost Method: Considering the cost of making the product without fixed costs, overhead, marketing, administrative, etc.)….allows lower price

Market-Differentiated Pricing: Market dependent

Export-related Costs The cost of modifying a product for a foreign

market Operational costs of exporting (market

research, communications, promotions, etc. Cost incurred in entering the foreign market:

tariffs, buyer related risks, exchange risks, etc.)

Price Escalation Clear cut costs Hidden costs

Terms of Sale Incoterms are the internationally accepted

standard definitions for terms of sale set by the International Chamber of Commerce since 1936.

Incoterms: exworks (EXW) free carrier (FCA) free alongside ship

(FAS)

free on board (FOB) cost and freight (CFR) delivered duty paid (DDP) delivered duty unpaid

(DDU)

Considerations for Negotiating Terms of Payment

The amount of payment and the need for protection

Terms offered by competitors Practices in the industry Capacity for financing international

transactions Relative strength of the parties involved

The Risk Triangle

Most Advantageous Consignment

Open Account Documents against Acceptance

Letter of Credit

Confirmed Letter of Credit

Cash in Advance

Least Advantageous

High Risk/High Trust

Low Risk/Low Trust

The Letter of Credit

Irrevocable versus revocable

Confirmed versus unconfirmed

Revolving versus nonrevolving

Draft: Most drafts are documentary which means that the buyer must have shipping documents first before cashing

the check

Documentary Collection: Bank is acting a the seller’s agent

Banker’s Acceptance Discounting

Open Account Consignment Selling

Adjusting to Foreign Currency Fluctuations

Forward Exchange Market

Price ManipulationPrice Negotiations

Leasing

Leasing

Dumping

Remedies for Dumping Antidumping duty

Countervailing duties

Ranges of DumpingPredatory dumping

Unintentional dumping