certfied global business professional online/distance learning course section 21 basics of...

CERTFIED GLOBAL BUSINESS PROFESSIONALOnline/Distance Learning Course

SECTION 21

BASICS OF INTERNATIONAL TRADING AREAS AND AGREEMENTS

ALAN L. WHITEBREAD

IMPLICATIONS

• Benefits of trade– New markets open and small markets grow– Consumers have greater access to products and services

from around the world

• Trade Barriers are a Marketing Challenge– Ex.

• “Unique” Japanese snow requires Japanese skis

– Trade Barriers• Raise prices for imported products• Limit how much non-members [of a trade area] can sell• Increase relative profitability of members• Generally dampen demand

SELECTED MAJOR TRADING AREAS

Andean Common Market• CACMCentral American Common Market• CARICOM Caribbean Community and Common Market• EAEC East Asia Economic Caucus

• Formerly ASEAN Assoc. of Southeast Asian Nations• EFTA European Free Trade Area• EU European Union Mercosur• NAFTA North American Free Trade Area

MAJOR TRADING AREAS

• As of July, 2006, Mongolia is the only WTO member nation that is not involved in any preferential trade agreements.

• See WTO Regional Trade Agreements reading.

FORMS OF ECONOMIC INTEGRATION

• There are six different forms of regional economic integration:– Free Trade Area– Customs Union– Common Market– Economic Union– Monetary Union– Political Union

FREE TRADE AREA [FTA]

Encourages trade among its members by eliminating trade barriers (tariffs, quotas, and other non-trade barriers [NTBs]).

-EFTA [European Free Trade Area]

-NAFTA [North American Free Trade Area]

-LAIA [Latin American Integration Association]

-CIS [Commonwealth of Independent States]

-there are many FTAs around the world

PTA Basis for Calculation

MC%-RVC% Value Point [% if applicable]PANEURO 50-30 Yes Ex-worksNAFTA 60-50 60 FOB or 50 cost prod.MEX-CHILE 50-41.66 50 FOB or 41.66 cost prod.MEX-CHILE 50-40 50 FOB or 40 cost prod.CAN-CHILE 35-25 35 FOB or 25 cost prod.MERCOSUR 40-60 FOBCOMESA 60-35 60 CIF or 35 factory costNAMIBIA-ZIMB. 25 N/ASADC 70-35 Ex-works

US-JORDAN 35 FOBUS-ISRAEL 35 Ex-worksMEX-ISRAEL 45-35 45 FOB or 35 cost prod.

[RVC = regional value content]

FREE TRADE AREA: RULES OF ORIGIN

CUSTOMS UNION

Combines the elimination of internal trade barriers among its members and the adoption of common trade policies toward nonmembers.

-Mercosur Argentina, Bolivia, Brazil, Chile, Paraguay,

Uruguay

COMMON MARKET

This goes a step further than a customs union by eliminating barriers that inhibit the movement of factors of production—labor, capital, and technology—among its members.

-CACM [Central American Common Market]

ECONOMIC UNION

The full integration of the economies of two or more countries.

-Eliminates internal trade barriers

-Adopts common external trade policies

-Abolishes restrictions on the factors of production among members and requires members to coordinate economic policies

-monetary policy, fiscal policy, taxation, and social welfare programs

Afro-Malagasy Economic Union [Benin, Cameroon, Central African Republic, Chad, Gabon, Ivory Coast, Mali, Mauritania, Niger, Zaire]

MONETARY UNION

A Common Market with a common currency and a supranational central bank.

-EU [beginning January 1, 1999]

POLITICAL UNION

The complete political and economic integration of two or more countries thus making them one country.

-[Former USSR]

DEGREE OF INTEGRATION

Stage of Integration

Abolition

Of Tariffs

Common

Tariffs

Factor

Restrictions

Social, Economic,

Regulatory

Political

Free Trade Yes

Customs

UnionYes Yes

Common

MarketYes Yes Yes

Economic

UnionYes Yes Yes Yes

Political

UnionYes Yes Yes Yes Yes

EU – KEY ISSUES

• ENVIRONMENTAL– THE GREEN DOT “Grüne Punkt” SYSTEM

• Germany’s packaging recycling system

• http://www.gruener-punkt.de/?L=1 • A world leader, watch for developments in France and Japan

– Restriction on Hazardous Substances [RoHS]• Prohibits the use of lead in electronics• Requires material declarations• See Oracle’s program for RoHS and others

– http://www.oracle.com/industries/high_tech/rohs_overview.pdf

http://www.gruener-punkt.de/?L=1

http://www.oracle.com/industries/high_tech/rohs_overview.pdf

EU – KEY ISSUES

• PRODUCT AND CONFORMITY– ISO 9000 SERIES SYSTEMS

• For consistency/reliability, not a quality system

– THE CB SCHEME • For electrical products

– CE MARKING • For product approval

EU – KEY ISSUES

• CE MARK – French "Conformite Europeene"

– A new approach to product approval

– The CE mark certifies that a product has met EU health, safety, and environmental requirements, which ensure consumer and workplace safety.

EU – KEY ISSUES

• CE MARKING – OBTAIN CE CERTIFICATION

• 3 DIFFERENT WAYS• OBTAIN A DECLARATION OF CONFORMITY

– AFFIX THE CE LOGO

– THE CE MARK & A Declaration of Conformity are legally required for a product to be sold in the EU.

– See http://www.ita.doc.gov/td/tic/ce_mark/ceintro.htm

http://www.ita.doc.gov/td/tic/ce_mark/ceintro.htm

EU AND PRIVACY

• PERSONAL DATA CAN ONLY BE TRANSFERRED FROM EUROPE TO A COUNTRY THAT ENSURES AN ADEQUATE LEVEL OF PROTECTION

– Name, address, phone numbers …– US follows “self-regulation” – does not comply– “Safe Harbor” exception invoked for the U.S.

EU CUSTOMS AND TAXATIONhttp://europa.eu.int/comm/taxation_customs/customs/index_en.htm • Valuation

• Rules of origin

• Procedures and duty issues

• Container security

• Customs 2007 – paperless objective

http://europa.eu.int/comm/taxation_customs/customs/index_en.htm

TRADING AREAS - NAFTA

• U.S., CANADA AND MEXICO• AGREEMENT ON TRADE, INVESTMENT &

JOBS– ORIGINAL TARGET: NO TARIFFS BY ~2005

• THE ENVIRONMENT• CERTIFICATE OF ORIGIN

– You can have a blanket NAFTA Certificate of Origin that is good for 3 years.

– For a blank form see https://forms.customs.gov/customsrf/getformharness.asp?formName=cf-434-form.xft

• $13.8 TRILLION GDP IN 2004

https://forms.customs.gov/customsrf/getformharness.asp?formName=cf-434-form.xft

TRADING AREAS – MERCOSUR

• Argentina, Brazil, Paraguay and Uruguay– Bolivia and Chile by extension agreement

• Signed by 4 initial members 1/1/1991– Immediately eliminated tariffs on 90% of the goods

traded within the bloc– Exceptions phased out in 1999

• Established an average common external tariff of 14% on 85% of the goods imported from nonmembers

• GDP $2.25 TRILLION IN 2004

FREE TRADE AREA OF THE AMERICAS [FTAA] PARTICIPANTS

All the states that are active members of the OAS (34) participate in the FTAA negotiations. They are:

Antigua & Barbuda Ecuador Paraguay

Argentina El Salvador Peru

Bahamas Grenada Dominican Republic

Barbados Guatemala Saint Kitts & Nevis

Belize Guyana Saint Lucia

Bolivia HaitiSaint Vincent and the Grenadines

Brazil Honduras Surinam

Canada Jamaica Trinidad & Tobago

Chile Mexico United States

Colombia Nicaragua Uruguay

Costa Rica Panama Venezuela

Dominica NOT CUBA

FTAA GUIDING PRINCIPLES

• Preservation and strengthening of the Americas.

• Well-being through economic integration and free trade.

• Eradication of poverty and discrimination.

• Guarantee of sustainable development and preservation of the environment for future generations.

TRADING AREAS – EAECEast Asia Economic Caucus

• Effective November 6, 2001– ASEAN + China + Japan + South Korea

• Gross GDP >$2 trillion• See http://www.infoplease.com/ipa/A0874911.html

http://www.infoplease.com/ipa/A0874911.html

SECTION 21: REVIEW

• You should now have knowledge of– Protectionism– Selected major trading areas– Forms of economic integration– EU – key issues

• CB Scheme, CE Marking and how to obtain it, and privacy

– NAFTA, MERCOSUR, FTAA, ASEAN [EAEC]

CERTFIED GLOBAL BUSINESS PROFESSIONALOnline/Distance Learning Course

SECTION 22

LEADING INTERNATIONAL MARKETING AND RESOLVING CUSTOMER ISSUES

ALAN L. WHITEBREAD

LEADING INTERNATIONAL:MARKETING AND SALES

• Challenges– Coordination– Cooperation– Responsiveness– Diversity and diversification

• Responding to local markets and conditions• Sensitivity to cultures and business practices• Minimizing conflict between firm’s entities

LEADING INTERNATIONAL:MARKETING AND SALES

• Challenges– Control and local autonomy

• What organizational structure best fits your diversity and diversification goals?

• Maximizing the marketing mix elements

– Common goals– Implementation

• Programs• New products

SALES RESPONSIBILITIES

• VOICE OF THE CUSTOMER– Feedback about client developments– Feedback about your company– Feedback about competitors

• VOICE OF THE COMPANY– Implement the marketing plan– Communicate your company policies and/or positions– Not an agent

• IMPECCABLE ETHICS AND INTEGRITY

SALES PERSONNEL & INCOME

I

N

C

O

M

E TELESALES NOT TELEMARKETING

RETAIL / ORDER TAKERS

DIRECT FIELD SALES

INSIDE SALES

TECHNICAL SALES

SERVICE SALES

OEM SALES

NATIONAL ACCOUNT SALES

$10 K

$200+ K

PROFESSIONALISM

TRANSACTION MARKETING

RELATIONSHIP MARKETING

INTERNATIONAL SALES

SALES FUNCTIONS

• MANAGING THE PROSPECT FUNNEL

• MINIMIZING THE SALES CYCLE

• CUSTOMER / PROSPECT CARE

• INFORMATION DISSEMINATION

• TERRITORY MANAGEMENT

• PERSONAL IMPROVEMENT

THE PROSPECT FUNNEL

PROSPECT

APPROACH & QUALIFY

PRESENT

DEMONSTRATE

HANDLE OBJECTIONS

CLOSE

FOLLOW-UP &

REINFORCE

CUSTOMER !TRIAL & ACTUAL CLOSES

MAXIMIZE SALES EFFECTIVENESS

NEEDS &

VALUE

QUALIFIED !FAB

COGNITIVE DISSONANCE

MARKETING DEPARTMENT LEADS VS. COLD CALLS

Copyright A. Whitebread, 2001-7.

REAL, FALSE, STALLS

HOT PROSPECT

SALES PERSONNEL TRAITS

• GOAL ORIENTED

• STRONG EGO BUT EMPATHETIC

• VERY KNOWLEDGEABLE– Products and company at a minimum

• CONTROL ANY SITUATION

• IMPECCABLE INTEGRITY AND ETHICS

SALES PERSONNEL TRAITS

• IMPECCABLE INTEGRITY AND ETHICS

– ETHICAL AND LEGAL ISSUES • DISPARAGEMENT • MISREPRESENTATION • BRIBERY • HIGH-PRESSURE SALES TACTICS • FAVORITISM / DISCRIMINATION • DEALING WITH COMPETITORS • CULTURE AND BUSINESS PRACTICES: THEIR

HOME COUNTRY VS. THAT OF THE FIRM

SALES MANAGEMENT ISSUES

1. Organization, strategy, and structure

2. Implementation and orchestration

3. Recruiting and selecting

4. Training and developing

5. Compensation

6. Direct, supervise, and motivate individuals

7. Evaluation

8. Retention

• Field sales– These are defined as various sales organizations that are

primarily composed of your employees and there is face-to-face contact.

• Direct marketing– This is all activity to solicit business without any face-to-

face contact.• Direct mail, telesales, …

• Alternative– These are all other types of sales entities where you do

not have 100% control over their activities.

TYPES OF SALES FORCES

TYPES OF SALES FORCES

FIELDDIRECT SALES

NATIONAL ACCOUNTS

OEM

GOVERNMENT

HOUSE

DIRECT MARKETINGTELESALES

DIRECT MAIL

CATALOG

INTERNET

ALTERNATIVERESELLER PARTNERSHIPS

MANUF. REP’S

FRANCHISES

LICENSEES

JOINT VENTURES


INTERNATIONAL SALES CAN BE ANY MIX OF OR ALL OF THESE.

PRODUCT SALES STRUCTURE

SALESMANAGERGROUP 1

PRODUCTMANAGERGROUP 1

PRODUCTMANAGERGROUP n

SALESMANAGERGROUP n

MARKETINGCOMMUN.MANAGER

VPMarketing

ADVANTAGES

-DRIVEN BY PRODUCT PURCHASES

-SPECIALIZED KNOWLEDGE FOR SPECIALIZED PRODUCTS

-HELPS PRODUCTION SCHEDULING

DISADVANTAGES

-DUPLICATION OF EFFORT

-HIGHER ADMIN. COSTS

-COORDINATION NEEDS

-MAJOR ACCOUNT PROBLEM WITH MULTIPLE PRODUCT LINE PURCHASES


A product sales structure is used when you need a lot of specialized product knowledge in a product family to sell the product.

GEOGRAPHIC SALES STRUCTURE(OR TERRITORIAL SALES STRUCTURE)

ADVANTAGES

-SIMPLE STRUCTURE

-LOW COST OF SALES AND ADMINISTRATION

-DIRECT INTERACTION

DISADVANTAGES

-NO SPECIALIZATION

-CONTROLLING HOW THE SALES FORCE SPENDS ITS TIME

-FRACTURED FEEDBACK

-COMPLETE PRODUCTS KNOWLEDGE REQUIREMENT

PRODUCTMANAGERGROUP 1

PRODUCTMANAGERGROUP n

EASTERN SALES MANAGER

WESTERN SALES MANAGER


VPMarketing


A geographic sales structure is used when you need market coverage and general knowledge about all product families to sell the products.

CUSTOMER SALES STRUCTURE


ADVANTAGES

-DRIVEN BY CUSTOMER TYPE

-SALES MANAGEMENT CONTROLS FIELD TIME

-IMPROVED FEEDBACK

DISADVANTAGES

-HIGHER SELLING AND ADMINISTRATIVE COSTS

PRODUCT MANAGER GROUP 1

PRODUCT MANAGER GROUP n

NATIONAL SALES MANAGER

NATIONAL ACCOUNTS

OEM Government

MAJOR ACCOUNTS MANAGER


VP MARKETING

A customer sales structure is used when you need specialized sales people based on the type of customer and general product knowledge. In this example, National Accounts, OEM, and Government all reports to the Major Accounts Manager.

COMPLEX SALES STRUCTURE - 1


ADVANTAGES

-DRIVEN BY CUSTOMER TYPE

-SPECIALIZED SALES SKILLS

-VERY DIFFICULT FOR COMPETITVE ANALYSIS

DISADVANTAGES

-REQUIRES A LOT OF COORDINATION

-INFORMATION IS WIDELY DISSEMINATED

-HEAVY LOAD ON MARKETING COMMUNICATION

ISSUES

-RECLASSIFICATION OF ACCOUNTS

-WHO GETS THE ACCOUNT FIRST?

-PRICE STRATEGY AND IMPLEMENTATION

INSIDE SALES OUTSIDE SALESOUTSIDE SALES

DIRECT SALES MANAGERS

RESELLER SALES MANAGERS

NATIONAL SALES MANAGER

TELESALES MANAGER

INTERNET SALES MANAGER

DIRECTMARKETINGMANAGER

GROUP PRODUCT MANAGER

NATIONAL ACCOUNTS

OEM GOVERN-MENT

MAJORACCOUNTSMANAGER

MARKETING COMMUN. MANGER

VPMARKETING

A complex sales structure is used when you need specialized sales people based on the type of customer and general product knowledge plus direct marketing efforts [in yellow ].

COMPLEX SALES STRUCTURE - 2

WHERE SHOULD CUSTOMER SERVICES REPORT? WHY?


THIS BECOMES EVEN MORE COMPLEX WITH

-MANUFACTURER’S REPRESENTATIVES

-CUSTOMER SERVICES

-TECHNICAL SALES SUPPORT

-INTERNATIONAL SALES AND SUPPORT

DIRECTSALES

MANAGERS

RESELLERSALES

MANAGER

NATIONALSALES

MANAGER

TELESALESMANAGER

INTERNETSALES

MANAGER

DIRECTMARKETINGMANAGER

GROUPPRODUCT

MANAGEMENT

NATIONALACCOUNTS

OEM GOVERN-MENT

MAJORACCOUNTSMANAGER


VPMARKETING

• WHAT IS IT?– COMPRHENSIVE ACCOUNT MANAGEMENT– CONTACT PROFILES [N-TIERS]– AUTOMATED QUOTES &

CORRESPONDENCE– FORECAST, ORDER & CONTRACT

GENERATION– INSTANT ACCESS TO HISTORICAL DATA– DRIVEN BY TECHNOLOGY

SALES FORCE AUTOMATION [SFA]

MARKETING “TO”,

NOT

INTERACTING WITH CUSTOMERS

CUSTOMER RELATIONSHIP MANAGEMENT [CRM]

VISITING CUSTOMERS AND PROSPECTS

• Vast distances

• Long travel times

• Jumping multiple time zones

• Dealing with jet lag

• Being fresh when you arrive

• Department of State and per diem information– http://www.state.gov/m/a/als/prdm/

http://www.state.gov/m/a/als/prdm/

THE APPOINTMENT CHECKLIST

• How early or late should I be?

• Have I dressed appropriately?

• Do I need gifts? – Are they appropriate?– Do I know how to present the gifts?

• Am I prepared?– Have I review all recent notes?

RESPONDING TO CUSTOMERS

• QUALITY PROBLEMS– Send we send a person [quality or sales] to assess?– Authorize a return?– Scrap in the field?

• INFORMATION– Collateral– Extensive product

• TRAINING– Reseller or customer personnel?

SECTION 22: REVIEW

• You should now have knowledge of– The challenges of leading international

marketing and sales– Sales responsibilities and functions– The prospect funnel– Sales personnel traits– Eight key sales management issues– Types of sales forces and structures– SFA and CRM

CERTIFIED GLOBAL BUSINESS PROFESSIONALOnline/Distance Learning Course

SECTION 23

ADVANCED INTERNATIONAL TOPICS

ALAN L. WHITEBREAD

MARKET ENTRY FACTORS-CHALLENGES-

• MARKET AND COMPETITIVE INFORMATION

• GOVERNMENT AND BORDER STABILITY

• FOREIGN EXCHANGE

• INTELLECTUAL PROPERTY

• PIRACY

• QUOTAS

• EMBARGOS

• MANAGEMENT COMMITMENT [time, $]

SELECTING FOREIGN MARKETS - REVIEW

• DETERMINE MARKET ATTRACTIVENESS– ECONOMIC GEOGRAPHY– DRIVING FACTORS– MARKET RESEARCH

• EVALUATE AND MANAGE RISKS

• EVALUATE THE COMPETITIVE POSITION– LEONTIF INPUT-OUTPUT COUNTRY DATA– COMPETITOR INFORMATION– HOW IS INFORMATION TREATED?

FOREIGN MARKET ENTRY ALTERNATIVES

DIRECT

EXPORTING[To a reseller in another country]

FRANCHISING

INDIRECT

EXPORTING[To a reseller in your country]

DIRECT INVESTMENT [Acquisition, greenfield, brownfield]

CONTRACTUAL RELATIONSHIP

[Contract manufacturing, strategic alliance, joint venture,

…]

LICENSING

These all have different amounts of

COMMITMENT, RISK, CONTROL, PROFIT POTENTIAL

COPYRIGHT A. WHITEBREAD, 2001-2011

TAXES AND MARKET ENTRY

• There are numerous issues that affect the business and the employees.– For the EU, go to

http://europa.eu.int/comm/taxation_customs/common/about/welcome/index_en.htm

• Administrative and regulatory demands vary widely by country

http://europa.eu.int/comm/taxation_customs/common/about/welcome/index_en.htm

ENTERING FOREIGN MARKETS

INDIRECT EXPORTING• RISKS

– LIABILITY, CONTROL

– VERY ERRATIC DEMAND

– FIT WITH OPERATIONS

• REWARDS– VERY LITTLE SALES EFFORT

– INCREMENTAL VOLUME AND PROFIT

ManufacturerAgents / Distributors[Not in destination country- In your home country]



DIRECT EXPORTING• RISKS

– CONTROL OF INDEPENDENT RESELLERS

– RESELLERS ACTIONS

• REWARDS• DIRECT CONTACT WITH LOCAL MARKET

• PIGGYBACK MARKETING

ManufacturerSalesSubsidiary

Resellers

IndividualAccounts

OEM’s


Selling to Resellers and OEMs may grow to a size where you want to set up a Sales Subsidiary.


LICENSING• RISKS

– CONTROL OF LICENSEES AND RESELLERS

• REWARDS– LOCAL MARKET KNOWLEDGE

– MINIMIZE ENTRY RISK

– PROFIT STREAM

Manufacturer Licensees

Resellers

IndividualAccounts


INTERNATIONAL LICENSING

• IS ADVANTAGEOUS WHEN ONE OR MORE OF THE FOLLOWING EXIST.

1. the marketing potential is too large to self-fund;2. there is likely to be insufficient capital and/or cash flow to

support the growth required investment[s];3. you have IP protected product, process, or brand and

choose to expand utilizing other sources of capital;4. you choose to use this protected item to increase the

cash flow for a long time to fund other projects or investment streams; or,

5. other more promising cash, investment, and growth situations consume your available capital.

INTERNATIONAL LICENSINGKEY ISSUES

• Who?• Degree of exclusivity• Territory• Duties of the licensee• Duration, terms, and restrictions• Payments• Conditions of the license• Termination


FRANCHISING• RISKS

– CONTROL OF RESELLERS

• REWARDS– LOCAL MARKET KNOWLEDGE

– MINIMIZE ENTRY RISK

– PROFIT STREAM

Manufacturer Franchisees

Resellers

IndividualAccounts /Consumers

Owned Facilities ?


ENTERING FOREIGN MARKETSDIRECT INVESTMENT [ACQUISITION, GREENFIELD, BROWNFIELD]

• RISKS– START-UP OPPORTUNITY COST; INVESTMENT; WC

– COUNTRY STABILITY; CURRENCY EXCHANGE

• REWARDS– DIRECT MARKET CONTACT

– PROFIT STREAM

ManufacturerSubsidiary

(Manufacturing)

Resellers

IndividualAccounts


MARKET ENTRY BY ACQUISITION

• KEY ISSUES– Finding the right acquisition– Corporate philosophy– Management chemistry– Accept their culture – Be sensitive to their management style

MARKET ENTRY BY ACQUISITION-Problems-

• WAL-MART GERMANY– 1997 acquires Wertkauf then Interspar– Appoint a Managing Director [MD] that did not

speak German– The next MD tried to manage from England– Executives did not understand the customers:

Germans like to shop on their own without smiling assistants

– Lacked sufficient scale of operation– 2006 Wal-Mart sells to Metro and will take a

one-time charge of €1,000,000,000

INTERNATIONAL MERGER & ACQUISITION ISSUES

HARD ISSUES SOFT ISSUES

Anti-trust, business operations

Cultural differences between the firms

Employee benefits, rights, and protections

Cultural differences in negotiating styles

Export and data protection Verbal vs. written contracts and the role of attorneys

Tax structuring and currency exchange

Due diligence – high or low level reviewers

SUBSIDIARIES

• The most extensive foreign involvement• Subsidiary choices

– Creation of a new unit • Ownership options; type of entity; charter

– Acquisition

• Decision-making, control, approvals • Reporting obligations• Special considerations for

– Transshipments– Payments to/from foreign bank accounts

SUBSIDIARIES

• In many countries majority or total ownership by foreign companies is forbidden.

• Legal requirements of Boards of Directors vary.

• May also be done with an acquisition.

CORPORATE TAX RATES – 2005MAJOR CORPORATIONS

• USA 35%

• UK, China 30%

• Germany 25%

• Egypt 20%

• ? ?

CAUTION: There is often a significant difference between the maximum rate [above] and the effective rate or the effective rate on capital which can be much lower!


CONTRACTUAL RELATIONSHIP[CONTRACT MANUFACTURING, STRATEGIC ALLIANCES, JOINT VENTURES]

• RISKS– AUDIT & CONTROL

– START-UP INVESTMENT; WC

• REWARDS– MINIMIZE ENTRY RISK

– PROFIT STREAM

ManufacturerContractual

Agreement

Resellers

IndividualAccounts


STRATEGIC ALLIANCE

Two [sometimes more] partners develop a joint long-term strategy with– similar mission and vision– mutual needs– shared objectives– a reciprocal relationship– synergistic strengths– share transferred resources– defend or improve their market position[s]– retain identities in new markets

STRATEGIC ALLIANCES

• Strategic Alliances

• Core Competencies and Key Success Factors

• Types

• Competitive Alliances

• Co-operative Alliances

• Joint Ventures

• Operational

• R & D

STRATEGIC ALLIANCEKEY SUCCESS FACTORS

Mission

Strategy

Governance

Cultural fit

Organisation

Management chemistry

Implementation

STRATEGIC ALLIANCEDEMANDS

• PARTNERS– Remain independent

– Share the benefits of the alliance

– Share control

– Make ongoing contributions• Technology• Products• Capital [funding, equipment] • Strategic areas of participation

STRATEGIC ALLIANCESCOMPETITIVE TYPE

• Partners are competitors

• Some conflict between partners is expected, but minimized

• Partners must protect their interests

• Learning from the other partner[s] is critical

CO-OPERATIVE ALLIANCESTHE JAPANESE KEIRETSU

• An alliance or enterprise of interrelated companies or company groups.

• It operates in a wide array of markets.• Keiretsu executives sit on each other’s boards

and share information.• Foreign competitors often view keiretsu as

cartels to dominate the market and restrict competition.

• The most famous keiretsu are Mitsui and Mitsubishi.

JOINT VENTURES

• The JV company is run by two [rarely more] partner firms.

• Risk and rewards are shared based on an initial formula.

• It combines the strengths of the partners.• Influence depends upon ownership.• JV may have better acceptance by

authorities if one partner is local.

JOINT VENTURES KEY ISSUES

• How do you value contributions?

• What is the distribution of earnings?

• How are losses supported?

• How do you appoint Directors and Senior Management?

• What are its policies?

• How do you assure compliance with the wishes of both partners?

• What is the distribution at dissolution?

MARKET REENTRY

• Occasionally, a firm will exit a market [country] and want to get back in at a later date.

• There are numerous challenges with this approach. They include credibility and commitment [staying power], how to reenter [alone or with what kind of partner], and the brand name to be used just to name a few.

SECTION 23: REVIEW

• You should now have knowledge of– Market entry challenges– The six common foreign market entry

alternatives• Indirect exporting, direct exporting• Licensing, franchising• Direct investment

– Acquisition, greenfield, brownfield • Contractual relationship

– Contract manufacturing, strategic alliances, joint ventures, …


SECTION 24

CHOOSING FROM GROWTH ALTERNATIVES

ALAN L. WHITEBREAD

AD VALOREM DUTY[means “in proportion to the value”]

• Ad valorem is the most common duty applied by any importing country.

• It is always a fixed percentage.• The percentage may change over time.• May be on either the value when exported

[FOB] or the value at the arrival port [CIF].– The U.S. charges duty based on export value

[FOB].

• Variations exist! – South Africa Ad Valorem Excise Duty is paid in

addition to normal duties

AD VALOREM DUTY OFFICIAL NOTICE

VALUE ADDED TAX [VAT]

• VAT is a consumption tax put on the added value of goods and services.

• It is a percentage of the price to consumers.

• It currently ranges from 6% to 25% depending on the country.

• It is collected fractionally through a system of deductions where VAT-registered businesses can deduct the VAT tax they have paid for their purchases from their total VAT liability.

VAT

• There is huge variation in the rules from country to country for VAT.

• VAT may be recovered if you complete the proper forms and have VAT receipts upon country exit.

• For current EU and its country details go to http://europa.eu.int/comm/taxation_customs/index_en.htm

http://europa.eu.int/comm/taxation_customs/index_en.htm

INTERNATIONAL ORGANIZATION & CONTROL

• Be very sensitive to cultural differences.

• Find an acceptable balance between management control and unit autonomy.

• Be able to respond to industry issues at various stages of development around the world.

• Do what is best for the total corporation.

• Protect IP and the firm’s knowledge base.

URUGUAY ROUND: TRIMS & TRIPS

• TRIMS– TRADE-RELATED INVESTMENT MEASURES

• prohibits members from imposing or maintaining certain measures relating to investment that adversely affect trade in goods

• TRIPS– TRADE-RELATED ASPECTS OF INTELLECTUAL

PROPERTY RIGHTS• attempts to increase the commonality of IP items among

member nations

WTO - DUMPING

• Article VI of GATT [Tokyo Round] allow contracting parties to apply anti-dumping measures to an export priced below its “normal value”.– Usually the price of the product in the exporting country– If such dumped imports cause injury to a domestic industry in

the importing country.

• More detailed rules governing the application of such measures are currently provided in an Anti-dumping Agreement concluded at the end of the Tokyo Round.

• The Uruguay Round negotiations have resulted in improvements to many weak or unclear areas of the current Agreement.

WTO - DUMPING – URUGUAY ROUND

• How to determine if a product is being dumped

• How to determine the extent of injury – The burden of proof is on the importing

nation!

• Investigation procedures• Implementation and duration of anti-

dumping measures• Anti-dumping measures [counterveiling

duties] generally expire within five years

WTO – SUBSIDIES & COUNTERVEILING MEASURES

• “Prohibited” subsidies are1. Contingent upon export performance, OR

2. Based upon the use of domestic versus imported goods


• “Actionable” subsidies show– “Serious prejudice” when the subsidy

exceeds 5% of the ad valorem value– the burden of proof is on the granting

country to show no serious prejudice


• “Non-actionable subsidies can be either – non-specific subsidies, or – specific subsidies involving

• assistance to industrial research and pre-competitive development activity, or

• assistance to disadvantaged regions, or • certain type of assistance for adapting existing

facilities to new environmental requirements imposed by law and/or regulations

FOREIGN DOMESTIC INVESTMENT [FDI]

• Foreign domestic investment [FDI] is the investment in real assets such as factories, offices, or distribution facilities.

• Foreign portfolio investment [FPI] is the investment in bonds, debt instruments, or stocks.

FDI COUNTRY COMPARISON

ITEM CZECH REPUBLIC RUSSIA

Exchange / capital controls

None Many

Total FDI Very high Medium

Domestic market size

Small Large

Distance to major markets

Close Close

The exchange / capital controls may be so significant to Firm A that the major facility is in the smaller Czech Republic and the minor one in Russia.

WHAT ATTRACTS FDI?

• A combination of– Market access and / or a distribution hub– Stable economic and legal systems– IP protection– Acceptable and improving infrastructure– Good corporate governance– Unrestricted flows of funds– Low labor costs– Ample raw materials

FIRMS INVEST IN FDI TO

• Have production to satisfy local demand or export to other markets

• Gain access for less expensive or a greater quantity of raw materials.

• Shift production to countries where one or more of the factors of production are significantly less expensive.

• Gain access to new technologies or managerial expertise

• Establish operations in countries unlikely to interfere with private enterprise

TYPICAL FDI INCENTIVES

• Tax credits, exemptions, deferrals, or deductions• Land and/or building[s]• Grants • Equipment• R&D• Training• Relocation• Easy regulatory approvals• Subsidies • Many more

FINANCIAL CONSOLIDATION ISSUES

• Chart of Accounts

• Taxation

• Currency translation

• Rolling into consolidated corporate level financial statements

• Special issues with goodwill, subsidies, privatizations, and other items

KNOWLEDGE OF U.S. TAX LAWS

• Corporate

• Income

• Employee labor in U.S.– Immigrant and local; illegal

• Working abroad

• Property

STRATEGIES FOR MINIMIZING GLOBAL TAX EXPOSURE

• Legally leverage transfer pricing

• Obtain an Advance Pricing Agreement [APA] from the IRS and foreign tax entities

• Prevent double taxation

• Maximize credits for restructuring

• Minimize adjustments or penalties

• Negotiate with tax authorities

TRANSFER PRICES

• The price a parent company charges a subsidiary for products or services from the parent company that are sold by the subsidiary in its market.– If the price is too high, it may encourage a

gray market [parallel imports]. – If the price is too low, it may be dumping.

TRANSFER PRICE OBJECTIVE

• Maximize profitability for the firm, not a part of the firm.– What profit levels are desired and where?– What is the price and demand elasticity by defined

market segment?– Where do you pay taxes on profits?

• The price paid by another part of the organization when the product crosses a national border

– Arms-length price (unrelated parties)• Cost-based or negotiated

– Most favored customer (best)

– Tax implications

TRANSFER PRICING

SECTION 24: REVIEW

• You should now have knowledge of– Ad Valorem duty, penalties, and notice– VAT– Uruguay Round: TRIMS and TRIPS– WTO position on subsidies and

countervailing measures– FDI and FPI– International consolidation and tax issues– Transfer pricing


SECTION 25

THE FUTURE OF INTERNATIONAL TRADE

ALAN L. WHITEBREAD

TODAY’S SITUATION

• OUR RAPIDLY CHANGING WORLD– The “have” versus the “have not” nations.

• There will likely be a continuing migration of selected production to lower labor cost nations.

• The rich countries get richer, but what is the opportunity for industrializing nations?

• What happens to today’s poor, underdeveloped nations?

RESOURCES FOR THINKING ABOUT THE FUTURE

• National Intelligence Council– http://www.cia.gov/nic/NIC_globaltrend2020_es.html

• Futurist Organizations

• “Think Tank” publications

• Many others exist

http://www.cia.gov/nic/NIC_globaltrend2020_es.html

TODAY’S SITUATION

• OUR RAPIDLY CHANGING WORLD– Rapidly increasing productivity– Increasing global population– Continuing urbanization

• In 2007 more than 50% of the population lived in urban areas for the first time in world history.

– Rapid change in the channels of distribution– Tremendous increase in information

accessibility

TODAY’S SITUATION

• Corporations need more growth and improved profitability which drives– mergers and acquisitions,– product and service licensing,– expansion to more and more market

[segments], and– firms seek growth oftentimes in large chunks.

TODAY’S SITUATION

• OUR RAPIDLY CHANGING WORLD– All of the industrialized nations are aging and

this demographic trend will continue for a few decades. Some of the associated issues include

• longer life expectancy;• social systems for retired people burden young

workers; and• there will likely be a rapid decrease in labor force in

OECD nations sometime after 2010.– See the www.census.gov International population

pyramids.

http://www.census.gov/

TODAY’S SITUATION

• THE EMERGENCE OF TRADING BLOCKS– EU– FTAA – When?– NAFTA to FTAA– EAEC [ASEAN] + ?– Which group does India join?– Which group does Russia join?– What about the Middle East, Africa, and other

nations that do not belong to any trading block today?

TODAY’S SITUATION

• THE EMERGENCE OF TRADING BLOCKS– Standards are moving from national to

regional to international.

– Trade barriers and trade liberalization lessen within trading areas, but protectionism is alive and well between trading areas.

TODAY’S SITUATION

• IP– What is the role of the WTO?– Protection is highly variable by country– Definition, coordination, and enforcement are

all problems

TODAY’S SITUATION

• THE ELECTRONIC WORLD– An IP nightmare– The Internet & E-commerce

• Cyber theft• Cyber terrorism [worms, …] • Find more information on the web plus see

– http://www.aic.gov.au/topics/cybercrime/

• ?

http://www.aic.gov.au/topics/cybercrime/

TODAY’S SITUATION

• KEY EMERGING ISSUES– Security is a major concern on several fronts

• Around the world• Merchandise and shipments• Identity

– Privacy • The EU-USA dispute: a major hurdle

TODAY’S SITUATION

• CORRUPTION– Piracy is increasing– Bribery is common– Counterfeiting is tolerated in some places

• THE CHALLENGE OF SERVICES

SECTION 25: REVIEW

• You should now have knowledge of– The challenges of today, potential

scenarios for the future, and have an action plan for what you are going to do if …

PREPARING FOR THE CGBP EXAM

• Vocabulary• Readings

– Enforcement Lists [Section 3]– International Copyright …[Section 8]– International Distribution Agreement Issues [Section 10]– Understanding the Four Categories of Incoterms 2000

[Section 14]– Trade Finance Guide [Summary] [Section 17]

• Exercise 5.2 U.S. Government Programs & Services• Exercise 17.3 Letter of Credit• Exercise 18.1 Loans …, OPIC, and EXIMBANK

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