INTERNATIONAL TRADE: foreign trade businesses and transactions of all kinds- takes place between economically and legally separate and independent entities (legal and capital)

INTERNATIONAL BUSINESS: implementation of not only marketing, but all business functions of the enterprise internationallly / globaly- is a broader concept and includes in addition to international trade and international marketing also performance of other functions of business organizationsINTERNATIONAL MARKETING - Part of the goods/services do not cross national borders.

INTERNATIONAL BUSINESS VS. DOMESTIC BUSINESS- differences in International Business arise from the simple fact that countries are different- these differences arise from the specific characteristics of individual cultures, political systems, economic systems, legal systems and levels of economic developmentInternational business differs according to domestic operations in at least four respects:

differences between countries managers in international business are faced with larger and more complex problems,

such as those operating in the domestic market international business has to find ways of working within the constraints set by the

economic policies of international trade and investment international transactions involve exchange rate risks, etc..

EU & INTERNATIONAL BUSINESS- with the accession of Croatia to the EU you started to distinguish the following types of goods traffic:

Imports from third countries and territories Exports to third countries and territories Intra-community transactions, divided into:Intra Community SUPPLIES of goods to States of the Community (EX)

Intra Community ACQUISITIONS of goods from the States of the Community (IM)

Extent of international activities

INTERNATIONALIZATIONSynonym for geographical expansion of economic activities across national borders, especially in terms of quality (many definitions, depending on the focus, process, resources, activities, networks)Stages: inward / outward / cooperative internationalization

GLOBALISATIONMainly used when the activities are carried out globally and not just in a few selected countries.- qualitative upgrade of internationalization- the global integration of markets and the business environment (REGIONALISATION)- international activities are limited mostly to one continent (or neighboring countries) - the term is rarely used- globalization usually refers to a stage in which the firm’s operations are managed on the global scale, not only in a few selected countries- Ruigrok (2000) proposed that the term “global” should be reserved for those companies and phenomena that really deserve this label.- traditionally, SMEs restricted their activities to the region of their location, or stayed within their national boundaries

What is globalization?- the world is moving away from self-contained national economies toward an interdependent, integrated global economic system- refers to the shift toward a more integrated and interdependent world economyGlobalization has two facets:- the globalization of markets & the globalization of productionThe globalization of markets:- the globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace- in many industries, it is no longer meaningful to talk about the “German market” or the “American market” - instead, there is only the global market

- falling trade barriers make it easier to sell internationally- the tastes and preferences of consumers are converging on some global norm- firms help create the global market by offering the same basic products worldwide

The globalization of production- refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production like land, labor, and capital- companies compete more effectively by lowering their overall cost structure or improving the quality or functionality of their product offeringDrivers of globalization- two macro factors underlie the trend toward greater globalization:

the decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II

technological change

Main trends that fasten globalization have even intensified: increasing homogeneity of markets facilitates international business

increased speed, quality and efficiency of international communications and transport → reduces transaction costs

increasing the number and mobility of internationally experienced entrepreneurs / managers

development of financial markets and international funding opportunities → financial crisis intensified the problem of lack of resources available to SMEs (especially financial)

increased international trade and competition in most industries and markets require an international presence

opening up of once controlled and closed economies/markets new business models as result of development of ICT bring new (international)

opportunities

The changing world order- many former Communist nations in Europe and Asia are now committed to democratic politics and free market economies and so, create new opportunities for international businessesThe global economy of the twenty-first century:- the world is moving toward a more global economic system, but globalization is not inevitableThe globalization debate- is the shift toward a more integrated and interdependent global economy a good thing?- supporters believe that increased trade and cross-border investment mean lower prices for goods and services, greater economic growth, higher consumer income, and more jobs- critics worry that globalization will cause job losses, environmental degradation, and the cultural imperialism of global media and MNEsGlobalization, jobs and income- globalization critics argue that falling barriers to trade are destroying manufacturing jobs in advanced countries- supporters of globalization contend that the benefits of this trend outweigh the costs—that countries will specialize in what they do most efficiently and trade for other goods—and all countries will benefitGlobalization, labor policies and the environment- globalization critics argue that firms avoid costly efforts to adhere to labor and environmental regulations by moving production to countries where such regulations do not exist, or are not enforced- globalization supporters claim that tougher environmental and labor standards are associated with economic progress, so as countries get richer from free trade, they get tougher environmental and labor regulationsGlobalization and national sovereignty- critics of globalization worry that today’s interdependent global economy is shifting economic power away from national governments toward supranational organizations like the WTO, the EU, and the UN- supporters of globalization contend that the power of these organizations is limited to what nation-states agree to grant, and that the power of the organizations lies in their ability to get countries to agree to follow certain actions

Factors contributing to international expansion- opening of the once-controlled economies to marketoriented enterprise- increasing number of countries becoming marketoriented and developed

- self-interest of organizations themselves as well as impact of a variety of external events and forces- majority population presence in developing countries

most of these are in need of major investment in infrastructure development

Barriers to start International Business- export barriers may be defined as ‘all those attitudinal, structural, operational and other constraints that hinder the firm’s ability to initiate, develop or sustain international operations’- while important, they were found not a sufficient reason to impede the firm’s engagement or progression along the internationalization path

Export barriers – main conclusions export barriers can be encountered by the firm at any stage of internationalization,

from pre-export to extensive levels of international involvement non-exporting firms tend to perceive obstacles to exporting differently, placing more

emphasis on factors inhibiting the initiation of export activities, whereas exporting firms stress operational, procedural and market-export-related problems

the external environmental factors prevailing in each country largely influence the way obstacles to exporting are perceived

industry-specific factors are often responsible for variations in the perceived severity of export barriers across industries

the nature and severity of export impediments varies not only between export stages but also among firms found at the same stage of the export development process

export impediments can be identified both in the country where the company is located and in the foreign markets where the firm operates or plans to operate

the size of the firm often determines the nature and influence of export barriers, with smaller firms feeling their inhibiting impact more strongly

Internationalization theories and models explaining firms international behaviour

The emergence of global institutionsInstitutions are needed to:

help manage, regulate, and police the global marketplace promote the establishment of multinational treaties to govern the global business

system

Institutions created over the past half century include: the International Monetary Fund (IMF) the World Bank the World Trade Organization (WTO) the United Nations (UN)

World Bank- the world bank comprises two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)- the world bank's official goal is the reduction of poverty- according to its Articles of Agreement, all its decisions must be guided by a commitment to the promotion of foreign investment and international trade and to the facilitation of capital investmentFunctions of World Bank- the bank has also been providing resources for education, sanitation, health care and small scale enterprises- it is rather significantly involved in areas like removal of rural poverty through raising productivity, increasing income of the rural poor, providing technical support, and initiating research and cooperative ventures

International Monetary Fund (IMF)- is the second international organization next to the World Bank- the major idea underlying the setting up of the IMF is to evolve an orderly international monetary systemMajor objectives of IMF- to promote international monetary cooperation through a permanent institution- to promote exchange stability with a view to maintain orderly exchange arrangements among member countries- to assist in the establishment of a multilateral system of payments in respect of current transactions between members- to facilitate expansion of balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income

World Trade Organization (WTO)- is primarily responsible for policing the world trading system and making sure that nation-states adhere to the rules laid down in trade treaties signed by WTO members- the WTO promotes lower barriers to trade and investment- it has a global status similar to that of the IMF and the World BankMajor objectives and functions of WTO- to ensure reduction of tariffs and other trade barriers imposed by different countries- to facilitate the optimal use of the world’s resources for sustainable development- to promote an integrated, more viable and durable trading system- holding consultations with IMF and IBRD and its affiliated agencies so as to bring better understanding and cooperation in global economic policy making- supervising on a regular basis the operations of the revised Agreements and Ministerial declarations relating to goods, services and Trade Related Intellectual Property Rights (TRIPS)Benefits of WTO- WTO helps promote international peace and facilitates international business- all disputes between member nations are settled with mutual consultations

- rules make international trade and relations very smooth and predictable- free trade improves the living standard of the people by increasing the income level- the system encourages good government

UNITED NATIONS- established to:

maintain international peace and security develop friendly relations among nations cooperate in solving international problems and in promoting respect for human rights be a center for harmonizing the actions of nations

Why trade?- comparative advantage is not static; a country has to adjust constantly to shifting conditions in the international environment- historical economic data show a correlation between trade and economic growth, as well as a correlation between decreasing exchanges and recessions (depression)- countries have an economic advantage to specialize in the goods and services that produce the most efficiently (of course, exchange rates complicate the picture)Trade terminology- most-favored-nation status: advantages offered to nation A must be extended to nation B and to all nations a country trades with

Tariff: a custom duty imposed on an imported good, which may make the imported good more expensive than the domestic one. Tariffs raise revenue for governments.Non-tariff barriers: these are non-financial ways of imposing limits on imported goods, including through technical requirements, product standards, testing, certification procedures, red tape, etc..Dumping: when a company sells a product on a foreign market at a price lower than it charges domestically.

Preferential trade agreements (PTAs)- the European Union, NAFTA, ASEAN—regional trade agreements have proliferated in recent decades- article 24 of GATT permits the creation of regional trade agreements if they do not hurt international trade- the regional blocks should help trade flow more freely among the countries in the group without barriers’ being raised on trade with the outside world. Non-members should not find trade with the group any more restrictive than before the group was set up

Declining trade and investment barriers- international trade occurs when a firm exports goods or services to consumers in another country- foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country- lower barriers to trade and investment mean:

that firms can view the world, rather than a single country, as their market that firms can base production in the optimal location for that activity

Company development phasesHome business - benefit primarily the characteristics of the domestic market in both sales as well as the cost side, the company is focused ethnocentricc, the main competitors are located in the domestic marketInternational company - the overwhelming focus is still on the domestic market, but has been taking advantage of opportunities in foreign markets, the company organizes the work in a specialized export department, and the company is still looking ethnocentricMultinational Enterprise - takes into account the differences between individual markets (countries), to which adapts products and marketing strategy, so that we can speak about the company’s polycentric orientationGlobal company - takes into account the global market segments and meets the needs of customers in global markets, the development of a global strategy and confrontation with global competitors

Stages of international business orientationEthnocentric level - basic orientation is the domestic market and foreign markets represent only opportunities to expand the sales potential of existing products that are adapted to the greatest extent to the domestic marketPolycentric level - focus on the recognition of differences between countries, to with the company then adapts their products and marketing programRegiocentric level - focus on a region or. relatively homogeneous group of countriesGeocentric rate - operates on the world market and has a global business orientation

A multinational corporation (MNC) is a business with extensive international operations in more than one foreign country.MNC in international business – main characteristics

activities are located wherever appropriate, to allow the sale of products in the markets that are most important to the company, or the manufacture of products, which is the cheapest, taking into account the quality standards

technology and products are being developed in countries that possess the necessary skills and research and development infrastructure (R & D centers)

finished products and raw materials, components, knowhow and management are more or less freely exchanged between the different units according to individual needs and development goals

Advantages of MNC- access to a broad base of professionals and managers and to knowledge all over the world- ability to respond to specific local markets is increasing, in particular due to the direct authentication and local knowledge managers from units abroad- direct presence in different parts of the world increases the flow of ideas for new products and services- combination of knowledge and skills from different parts of the world reinforces the key capabilities of multinational companies- all of these benefits enhance the response time of multinational companies to market demands and changes in the international environment

Multinational corporate structureHorizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products (example: McDonald's)

Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries (example: Adidas)Diversified multinational corporations manage production establishments located in different countries that are neither horizontally nor vertically nor straight, nor non-straight integrated (example: Microsoft or Siemens)

Benefits to host countries- MNC’s generate jobs & income- training of local workers in new & potentially transferable skills- technology transfer- cost reduction

International operations generate in addition to large companies also small and medium enterprises (SMEs). It is difficult to say how important is the growth of minimultinationals mainly because the statistics on this phenomenon is very limited. Mini multinationals are an important and often overlooked part of the international business.

Micro-multinationals- a new breed enabled by Internet based communication tools- employees, clients and resources located in various countries- use of internet, cheaper telephony and lower traveling costs- internet tools like Google, Yahoo, MSN, Ebay, Skype and Amazon make it easier for the micro-multinationals to reach potential customers in other countries- service sector micro-multinationals, like Indigo Design & Engineering Associates Pvt. Ltd

SMEs in international business- the European Commission has a new definition of micro, small and medium-sized enterprises in 2005- so far among the medium-sized companies are those that have less than 250 employees, revenues lower than EUR 50 million, and funds should not exceed 43 million- among small firms are those with fewer than 50 employees, revenues do not exceed 10 million and funds lower than 10 million EUR- micro-businesses with fewer than 10 employees, revenues do not exceed 2 million, and the value of assets is not greater than 2 million

Main differences between MNCs and SMEs- the most important difference between small and large companies is in the scope and availability of tangible and intangible assets (resources) to large enterprises, which significantly increases the possibility of specialization of individual business functions compared to small businesses- large companies are therefore also more robust, and resistant to changes in the international environment

BORN GLOBAL FIRMS

•International activities may be present at different functions and stages of product/service development, sourcing, marketing or selling

Global entrepreneurship area development (characteristics)- the central role of the main entrepreneur(s) and their human and social capital remain crucial for SME globalization

the behavioral and cognitive factors of the main entrepreneur(s) have the central role in SME globalization

the international orientation, previous international experience and global mindset are highly important

the lack of resources is compensated for by social capital and personal networks of main entrepreneurs they are becoming more and more virtual, as a results of social media use

Global entrepreneurship area development (characteristics & challenges)- capacity of personal and company adaptation to changing (international) environment, trends and user behavior is becoming crucial for company success- optimization of activities on global scale: sourcing, R&D, production, HRM, marketing, financing and not just sales

The role of the entrepreneurs- the role of the entrepreneur was identified as very important in the decision to initiate and establishment of international activities- widely accepted as a key determinant of the internationalization of small and medium-sized enterprises- a key factor in international business strategies and key explanatory factor in the behavior of companies in foreign markets- entrepreneur supplies the company with tangible and intangible resources (property of individuals; gained through life experience and through education)

Business evironmentCompany operating environment

Why do nations trade?- nations trade for economic, political and cultural reasons- mostly the basic reason is price, they can buy something cheaper than what they can make it for- the emergence of international markets has been accompanied by a reduction of tariffs and non tariff barriers.

Another method of classifying countries is according to their economic structure. The classification reflects the relative dominance in the economy of the country in the following: agriculture, industrial, services.

Stages of Market DevelopmentThis involves grouping countries according to GDP per capita.For example:

Low income countries Lower middle income countries Upper middle income countries High income countries

GDP per capita (PPP)- using a PPP basis is arguably more useful when comparing generalized differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of the countries, rather than using just exchange rates which may distort the real differences in income.- calculations are prepared by various organizations, including the International Monetary Fund and the World Bank

Balance of payments- a record of transactions between residents of one country and those of all other countries- the balance of payments is an indicator of the international economic health of a country- its data helps government policy makers plan monetary, fiscal, foreign exchange, and commercial policies

Foreign Economies- the international businessman needs to analyse each country they operate or hope to operate within, this could be over 100 countries- the two broad questions that need to be answered are:

1. How big is the market?Population • Population growth rates • Distribution of population (age, density)Income • Distribution of income • per capita income

2. What is the market like?Physical endowment • Natural resources • Topography • ClimateInfrastructure of the Nation • Energy • Transportation • Communication • Commercial infrastructureUrbanisation • Farm V CityOther characteristics of foreign economies • Inflation • Role of Government • Foreign investment in the economy

International Financial SystemExchange rate instability• Firms selling to or from a country where the exchange rate changes can wipe out profits, or increase profits

Infrastructure development and economic history - ‘techno economic paradigms’Outcomes of techno-economic paradigms:

Emergence of new industries based on the key technologies and resources Effective solutions to the limitations of previous techno-economic paradigms New infrastructure both on national and international levels Countries gaining technological and economic leadership positions from the

application of key technologies and resources

Power Shift in the Supply ChainProducer → Retailer → ConsumerInternational Business uses of the Internet

Research and planning Distribution and customer service Communication and promotion

Different Types of National Governments•Parliamentary governments Policies are intended to reflect the desires of the majority•Absolutist governments Dictate government policy without considering citizens’ needs or opinions•Other governments Most governments fall between the above extremes

Role of Government in the EconomyParticipator Commercial activities undertaken by government to some degreeFacilitator Overseas governments may attract new foreign investment and technologyRegulator Regulation may be thru taxes; embargoes; boycotts; import/export controls; and joint venture lawSources of Political InstabilityAssessing political stability

Degree of social unrest Frequency of changes in the regime Extent to which the country is divided culturally and/or ethnically Religious division Linguistic diversity

Political sovereignty - involves a nation’s desire to exert control over foreign-owned enterprises operating within its boundariesPolitical conflict - can be categorised as turmoil, internal war and conspiracyPolitical intervention - expropriation - occurs when a public agency e.g. government takes private property for a purpose deemed to be in the public interest, even though the owner of the property may not be willing to sell it

Legal Systems Common law - based on tradition, past practices, legal precedent, and interpretation

via court decision Code law - based on an all-inclusive system of written rules of law Islamic law - based on the Koran, and applied by Islamic countries Other legal codes - include tribal (or indigenous) law, and socialist laws

Legal Jurisdiction• Which country’s laws apply in the event of a dispute?

Decided according to the country/state nominated in the jurisdictional clause in the contract; or where the contract was entered into; or where the provisions of the contract are to be carried out

• Further complications occur when different sets of law allegedly apply (multiple sets of law may be in operation)• Federal, state and municipal laws and regulations may overlap

Product• Physical and chemical aspects are affected by laws

Standards may be prescribed for purity, safety and performance Packaging requirements may be imposed

• Controls may be set for quarantine reasons• Labeling regulations differ markedly between countries and even within countries

Price- government price controls often motivated by a desire to protect consumers’ interests or control inflation- a desire to ensure price competition in the market

Pricing is often affected by •Dumping •Transfer pricing •Size of the profit margin included in the price •Taxes

DistributionLaws in most countries cover:Shipping

Regulation of airline services Rights of carriage by air and sea Liabilities for loss and damage to cargo

Channel activities Foreign/local agency termination arrangements

PromotionFrequent areas of regulation are:•trade descriptions

•prohibitions on advertising certain products•prohibitions on using certain words and expressions•limitation on extent of promotional expenditure•content and style of advertisement•other promotional elements

ArbitrationAdvantages of arbitration:• Increases the ability of parties to enforce judgements• Sensitive matters remain confidential to the parties concerned• Likely to be quicker than litigation•‘ Judges’ may be chosen by both parties• An arbitration judgement is unlikely to be appealed and more likely to be treated as final

LitigationShould be used only as a last resortDisadvantages of litigation are:•Usually closes the door on future business•Can create a poor image and damage public relations•There is the risk of unfair treatment at the hands of a foreign court•There may be difficulty in collecting the judgments•There is considerable opportunity cost

Culture 1. Defining culture 2. Elements of culture 3. Measuring culture 4. Levels of cultureCulture is the total way of life in a society; is the collective programming of the mind; is the integrated sum total of learned behavioral traits that are shared by members of a society.- learned behaviour; it is not biologically transmitted; is behaviour that is shared by a group of people, a society

Elements of Culture Technology and material culture Language Aesthetics Education Religion Attitudes and Values Social organisation Political life

Technology and material culture The material or physical things in a society excluding those things found in nature For examples, developing nations and developed nations The way we consume and what we consume is influenced by technology and material

culture Cocacolanisation - Do foreign goods change a countries culture?

Language Language is the most obvious difference between cultures English is the international business language There can be problems with translations

Aesthetics Refer to the ideas in culture concerning beauty and good taste Design Colour Music Brand names

Education- if consumers are largely illiterate, advertising programs and packaging labels need to be adapted- conducting marketing research can be difficult when getting qualified researchers is an issue- cooperation from support services and channel members is partly linked to educationReligion- religious holidays vary- consumption patterns vary- the economic role of women might vary- religious divisions in a country can pose a problemAttitudes and Values- our attitudes and values help determine what we think is right or appropriate, what is important, and what is desirable- attitudes and values are important to marketers in the following areas

wealth, material gain and acquisition change risk taking consumer behaviour

Consumer valuesValue: a belief that some condition is preferable to its oppositeProducts/services = help in attaining value – related goalWe seek others that share our values/beliefs

we tend to be exposed to information that supports our beliefsAttitude- an attitude is a learned predisposition to respond in a consistently positive or negative way to a given object or event

Tri-component model for attitude

Social organisation- refers to the way people relate to other people- the family is a key unit, however the size and structure of families over the world can vary greatly

- special interest groups and common territories are important for markets to analyse

Political life- the type of government, and government structures can impact on culture

Elements of Culture Technology and material culture Language Aesthetics Education Religion Attitudes and Values Social organisation Political life

Hofstede’s Dimensions of CultureIndividualism relates to the degree of distance in social relationships between parties.Uncertainty avoidance relates to the level of discomfort with the unknown or the future.Power distance relates to the degree to which social inequities are tolerated in a society.Masculinity relates to the level of value that is placed on achievement, assertion, and performance.Confucian Dynamic relates to the values of thrift, persistence, loyalty and a future orientation as apposed to respect for face, traditions and social hierarchy, with a focus on the past or near term.

Individualism (IDV) on the one side versus its opposite, collectivism, that is the degree to which individuals are integrated into groups. On the individualist side we find societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family. On the collectivist side, we find societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families which continue protecting them in exchange for unquestioning loyalty. The word 'collectivism' in

this sense has no political meaning: it refers to the group, not to the state. Again, the issue addressed by this dimension is an extremely fundamental one, regarding all societies in the world.Psychic DistancePsychic distance refers to a measure of how far a country is perceived to be away from “home country” in terms of cultural elements like belief systems, language barriers, different attitudes to business, material standards and patterns of behaviour.“The success of a relationship marketing strategy is heavily dependent on levels of psychic distance”

Levels at which Culture operates National Industry Organisational

National- impacts on dealings with Governments and is reflected in the values on which laws and institutions are based- this explains why some cultures’ nepotism and cronyism can result in transgressors evading punishmentIndustry- culture impacts on negotiations with industry- industry culture is reflected in the values and norms governing the activities performed by the industry in the other countryOrganisational- organisational culture impacts on negotiations with firms, as opposed to individuals- for example, when entering into alliances or arranging takeovers.- Hofstede found that at the national level, cultural differences reside more in values and less in practices. At the organisational level, cultural differences reside more in practices and less in values.

Internationalization strategy and dimensionsWhen firms decide to engage in international activities (regardless of their nature), they follow some pattern of activity that should be consistent or logical over time - INTERNATIONALIZATION STRATEGY

Main internationalization dimensions- in order to reveal the distinctive internationalization (development) strategies, we proposed a framework for analysis and understanding of the main internationalizations dimensions

• Operation mode HOW• Target market WHERE• Sales objects WHAT• Time pattern WHEN+ Internationalization performance

WHERE – International market selection & International Market Research

Pre International Market Research Questions• Go international or concentrate on the domestic market?• Which markets to enter?• What information is needed, and what will happen to the information when obtained?• From where can the information be obtained?• Why is the information needed?• When is the information needed?• What is the likely cost of not getting the information?

Data Collection• Primary data

collecting, from the overseas market, data specifically related to the purpose of the study

• Secondary data information that has already been gathered for other purposes

Methods of gathering marketing information

Secondary DataSources

International agencies Government Consulting firms Government overseas representatives Databases Other commercial interests

Problems with secondary data Availability of data Age of data Accuracy of data Reliability of data Comparability of data

Primary DataSourcesIssues

Ability to communicate opinion Willingness to respond Sampling Language and comprehension Respondent bias

TechniquesQualitative research techniques

Interviews Observation Delphi studies

Quantitative research techniques Question format Question content Question wording

IssuesSelection of markets – How stable is the market? – Is psychic distance a real barrier? – Undertaking research

Legal restraints? Research cost?

Interpretation • Cultural issues • Research results issues • Statistical and data issues• The report should:

Identify sources of the data Identify by name and title those interviewed Simplify statistical computations Clearly spell out alternative courses of action resulting from the research

IntroductionTwo of the most critical questions we need to ask when a firm is considering going off shore:1. Which of the vast range of overseas markets should the firm enter?2. What mode should the involvement in the selected market take?

Experience suggests that market entry is the decision where there is the greatest potential for error.

Major International Marketing Decisions

WHERE – International Target market selection- target markets can be very different from domestic- usually companies choose markets:

That can most easily understand Where they see the greatest opportunities for growth Which are perceived as less risky

- formulated the concept of “PSICHICAL DISTANCES" (a number of factors that inhibit the flow of information between the company and the target market; geographic, cultural and institutional distance)- in general, the more distant markets, are also more different from the closer ones (but not always!)- more familiar approaches to the selection of target markets:

Psychic distance (suitable for small businesses) Formalized decision-making process on several levels for assessment of potential

target markets Assessment of the market based on the selection of target customers

Alternative Approaches to Market SelectionSelecting an overseas market can impact on the other activities of the firm. This is because the outcome may influence the profitability of the firm, in it’s domestic as well as it’s overseas markets.- there are various approaches to market selection and these have different implications for small and medium sized firms, as opposed to large firms. Approaches a firm might consider include:

Whether to enter overseas markets on an incremental basis, or to enter a number of overseas markets simultaneously.

Whether to adopt a concentrated, focused approach, or if a diversified approach should be adopted.

A Screening ApproachThe screening approach involves considering all markets in the world and then screening markets in relation to a succession of criteria. Unsuitable markets are progressively eliminated from consideration.

HOW – OPERATION MODE SELECTION- the most critical international marketing decision managers are likely to take is how they should enter foreign markets, as the commitments they make will affect every aspect o their business for many years ahead- there is no ideal market entry strategy- different market entry methods might be adopted by different firms entering the same market and/or by the same firm in different markets- operational modes have been considered a very important means of assessing the pattern of internationalizationOPERATION MODE SPECIFICS- as international operations are very dynamic in nature, the modes of entry and operations are very different end evolve with international operations- international market entry mode is “an institutional arrangement that makes possible the entry of a company’s products, technology, human skills, management, or other resources into a foreign country”- recently been possible to see many new combinations and modes of entry and operations as a result of the dynamic nature of internationalization- different classificatins, basically the can be classified into:

Export entry modes Contractual entry modes Investment entry modes

International market entry decision tree

A) Export entry modes- exporting is the most commonly used entry mode for SMEs.- have many sub-modes that can be classified within:

indirect exporting (the exporting company uses some intermediary agents in the home or foreign country)

direct exporting (the exporting company goes directly to the customer)

A1) Indirect exporting- for those firms with little inclination or few resources for international marketing- the simplest and cheapest method of market entry is to have their products sold by others

- the sole objective of firms that use this mode of entry is simply to sell off excess capacity to foreign markets, with the least possible inconvenience- firms such as these often withdraw from these activities as soon as sales in the foreign market decline- there are three main methods of indirect exporting:

Domestic purchasing Piggyback operations Export (import) houses

A2) Direct exporting- is essential to use at least this mode if a company wishes to secure a more permanent long term place in international markets- the firms must become more proactive by becoming directly involved in the process of exporting- requires a definite commitment from the company and takes the form of an investment in the international operation through allocating time and resources to a number of supporting activities- direct exporting includes:

Agents (the most common form of low-cost direct involvement in foreign markets and are independent individuals or firms who are contracted to act on behalf of exporters to obtain orders on a commission basis)

Distributors (take on the ownership of the goods and thus take on the market risk of unsold products as well as the profit. They usually seek exclusive rights for a specific sales territory and generally represent the manufacturer in all aspects of sales and servicing in the area)

Common mistakes made by new exporters- insufficient care in selecting overseas agents or distributors- short term profit mentality instead of long term strategic growth- failure to consider licence or joint venture agreements- failure to treat international distributors the same way they treat their domestic distributorsManaging Overseas Distribution

Selection Appointment Communication and control Motivation and termination Wholesaling and retailing

SelectionExperts estimate that more than half of all world trade is handled through agents and distributors. Given this estimate, the selection of the right agent and/or distributor is critical.AppointmentOnce it has been decided which agent is to be appointed, an agreement should be drawn up which clearly spells out the details of the agreement. The agreement should specify which products will be represented and the boundaries of the area in which the agent will represent the firm.

B) Contractual entry modes- long-term non-equity associations between an international company and an entity in a foreign target country that involve the transfer of technology or human skills from the former to the latter

- differ from export entry modes because they are primary vehicles for the transfer of knowledge and skills although they may also create export opportunities- differ from investment entry modes because there is no equity investment made by the international company- have many sub-modes that can be classified within:

Franchising Licensing Strategic Alliances Other contractual entry modes

B1) Franchising- for a fee a franchising firm (the franchiser) grants an independent foreign firm (the franchisee) the legal right to use branding, products and methods of operation that are essential to the operation of the franchised business.- this approach is appropriate for firms that have developed such an asset and can locate appropriate foreign franchises- the most popular examples of franchising are found in the fast-food business- companies considering franchising internationally should probably have experience in franchising at home, but success at home does not necessarily guarantee success in other environments

B2) Licensing- licensing occurs when a firm (the licensor) grants rights to some intangible property (e.g. patents, processes, copyrights, trademarks) to a foreign firm (the licensee) for an agreed compensation (a royalty)- this approach is appropriate when foreign production is preferable to production at home, but the licensor does not wish to engage in foreign production itself- licensing agreements vary from agreement to agreement, depending on the bargaining power of the two parties and the assistance provided by the licensor- often the licensee pays a sum when signing the agreement and then a periodic percentage of sales for the period of the contract- the licensing company benefits from these sales and access to the foreign location and increased revenues through royalties without having to provide any capital or management- experieces show the licensing was considered a feasible strategy when a given foreign market was considered too small or risky for the firm to develop exporting or a foreign investment

B3) Strategic alliances- corporate strategic alliances are “a formal and mutually agreed commercial collaboration between companies. The partners pool, exchange or integrate specific business resources for mutual gain. Yet the partners remain separate businesses’’- such commercial collaborations are on the rise in international business and are characterized by high risk- their proliferation in recent years marks a shift in the conception of the intrinsic nature of competition, which is increasingly characterized by constant technological innovations and speedy entry to new markets- some possible bases for alliances that help partners achieve their competitive advantage are: R&D exchanges, distribution, marketing and manufacturer-supplier relationships, and cross licensing

- it is common to all strategic alliances that they represent the mechanism by which enterprises decide how far to go along the inter-corporate integration spectrum

B3) Other contractual entry modes- contract entry modes broadly defined as “when a firm provides general and specialized services (including management, technical expertise, operational know-how) in a foreign location for a specified period for a fee”- examples of contractual entry modes are:

Turnkey operations (part of a deal to sell a processing plant in which not only the capital plant is supplied, but also a management team is provided by the firm to set up and run the plant for a certain initial operating period and then trains the local team to take over)

Sub-contracting Management contracts (such contract gives a company the right to manage the day-to

day operations of an enterprise in a foreign country, but ordinarily not the authority to make new capital investments, decide on dividend policies, assume long-term debt and other strategic decisions)

Contract manufacturing (describes when a firm arranges for a local manufacturer to produce the product for them under contract and wants to concentrate mostly upon its sales and marketing activities)

C) Investment entry modes- investment entry modes involve ownership by an international company of manufacturing plants or other production units in the target country- smaller outward investors are largely engaged in the production of intermediate and component products just to follow a larger firm in its international expansion, for fear of losing their biggest and most important customer- in terms of ownership and control, foreign production affiliates may be classified as:

sole ventures with full ownership and control by the parent company joint venture with ownership and control being shared between a parent company and

one or more local partners which usually represent a local company- an international company may start a sole venture:

from scratch (new establishment or Greenfield investment) by acquiring a local company

C1) Subsidiary- a subsidiary can be totally owned by the parent company. This approach is appropriate when control of decisions and policies is important to the parent firm, which is able to provide the needed resources to operate the subsidiary effectively- the company choosing this mode of entry has access to all of the subsidiary’s profits, but at the same time the company assumes all the risk associated with its operations.- in terms of the production stage, subsidiaries may range from:

simple assembly plants that depend entirely on imports of intermediate products from the parent company (and may be regarded as extension of the export entry mode)

to plants that undertake the full manufacture of a product; production units they can also take the form of warehouses units, service units or sales and marketing

unitsC2) Acquisition- a company can also enter a foreign market by acquiring an established foreign firm- acquisition is an alternative to organic growth

- acquisition brings immediate access to a trained labor force, existing customer and supplier contacts, recognized brands, an established distribution network and an immediate source of revenue that could be crucial for an SME- given the many problems that can occur within the acquisition process (searching and evaluating possible targets, negotiating with and integrating the acquired company with the existing processes and structure), the belief that an acquisition is a time-saving alternative to waiting for organic growth to take effect may not always be true in practice- an acquisition is assumed to be costlier than organic growth, but a firm is sometimes prepared to pay a higher price to reduce risk by acquiring a firm with an operating local management and better knowledge of the local market

C3) Joint venture- operating joint ventures are “partnerships by which two or more firms create an entity, a ‘child’ to carry out a productive economic activity”- the arrangement is usually based on the premise that two or more companies can provide complementary competitive advantages for the new entity to exploit- joint ventures can include: manufacturing, marketing or R&D arrangements- the combination of strategic needs and parent firm’s resources define the configuration of the child depending on what is shared, the degree of sharing that occurs, the number of partners involved, the type of project and the time frame- each party may contribute to a joint venture in the form of capital, technology, marketing experience, personnel, physical goods or access to distribution networks- when sharing ownership with local firms this allows an important entry vehicle into markets that are difficult for foreign firms to penetrate due to legal, regulatory and cultural barriers

Risk and control in market entry- once a company starts in international business it will gradually change its entry mode decisions in a fairly predictable fashion- as companies increase their level of international involvement, there is a tendency for them to change in the direction of increased commitment, a typical pattern being from exporting via an agent to a sales subsidiary and finally to a production subsidiary- increasingly, companies will choose entry modes that provide greater control over foreign marketing operations- but to gain greater control, the company will have to commit more resources to foreign markets and thereby assume greater (market, political and other) risks- growing confidence in its ability to compete abroad generates progressive lifts in the company’s trade-off between control and risk in favor of control. Consequently, the evolving international company becomes more willing to enter foreign target countries as an equity investor

What is a Product- a collection of attributes - physical, service or symbolic - which yield satisfaction to the buyer or end-userCategorising elements of a product

The Core benefit The Tangible product The Augmented product

Individual Product DecisionsProduct attributes → Branding →Packaging→ Labeling → Product support servicesBranding and Packaging for Overseas MarketsBranding and packaging are two important issues related to the international marketing of products that need to be taken into account when modifying products for overseas markets.Branding- brand names are a critical element in making and impact on the customerImportant issues are:

Building the global brand Modification of brand names Brand name strategies

How marketer can give a brand ‘meaning’ Convey Benefits Add /Identify Value Convey Attributes Impart Personality

Packaging and LabelingThe main function of packaging:

Protection Promotion Convenience

Modifying Products for Overseas Markets• Product standards and regulations• Measurement and calibration• Trademarks• Climate and usage• Language and symbolism• Style, design and taste• Technology issues and performance standards

Creating a Global ProductAn alternative to the usual approach of taking a countries product and offering it overseas in a standard or an adoptive form, is to design a product which can be offered in overseas as well as domestic markets virtually simultaneously.

Standardisation vs. AdaptationFactors that encourage standardisation of a product are:

economies of scale in manufacture economies in research and development economies in marketing economic integration between countries the increase in firms competing on a global basis

AdaptationFactors that encourage adaptation are:

Differing conditions under which a product is used The influence of government wanting to protect local industry Different tastes and behaviours on the part of consumers Conformity to the marketing concept Competitive reasons (someone else may have already registered a brand name) Legal reasons (weights and volumes need to be expressed in imperial, not metric

measures) Linguistic reasons (in Canada, instructions need to be in French and English) Fiscal reasons (to qualify for a lower rate of duty, a change gets the product into a

different tariff classification)Adaptation or modification may be required for:

Cultural reasons Economic reasons Political reasons Climatic reasons

Factors Favouring Standardisation vs Adaptation

Marketing Tip- while some products have universal appeal, others have narrow appeal and must be modified for overseas markets- modifying products adds to costs, but it also adds to customer appeal, thus widening the target market

The Role of Price- price is the only marketing variable that produces revenue- it is an integral part of the product when marketed overseas, as it is difficult to think of a product without considering its price- price is important because it affects demand- price must be set at equivalent or lower than the perceived valuePrice-Quality Relationship- when customers are uncertain about brand quality prior to purchase? When the risk of a bad decision is high

General Pricing Approaches Cost - based pricing Buyer based pricing Competition - based pricing

Cost - based pricing- adding a standard mark - up to the cost of the product- ignores current demand and competition- costs are coveredBuyer - based pricing- setting price based on buyers perceptions of value rather than on the seller’s costCompetition - based pricing- prices based on what the competitions price is- useful when prices are very elastic

Location of Production Facilities• Companies with production or assembly facilities in other countries find it easier to respond to fluctuations in exchange rates and cost of inputs– Primarily because

they are able to supply from a variety of sources rather than one are able to source from the plant in that country which offers the greatest competitive

advantage at a particular point in time

International Pricing Issues• When setting prices it is necessary to take competitors’ prices into account• Culture influences the bargaining over price– In some cultures everything is negotiable– In other cultures prices are not negotiable

Price-quality Strategies

Pricing StrategiesSkimming - a new desirable product introduced at a very high pricePenetration Pricing - product introduced at very low priceTrial Pricing - pricing new product low for short timePrice Bundling - selling multiple items for single package priceCaptive Product Pricing - for selling items that must go together, pricing one at a low price and making profit on the other

Volatility in foreign exchange rates has important implications for pricing.

Responding to Price Changes in International Markets

• Pricing policy alternatives– Maintain price as a holding action until it can be established how deep the price change will be and how long it is likely to last– Reduce the price if there is an immediate likelihood of losing customers because most competitors have already reduced their prices– Raise the price and justify the rise by offering a demonstrable product improvement– Reduce the price and enhance the perceived value as a way of creating barriers to other firms contemplating entering the market

• Reducing the cost of goods supplied– Reduce the number of intermediaries in the distribution channel– Eliminate costly features, reduce product quality, or offer an ‘economy’ version of the product– Ship and assemble from components in the overseas market– Modify the product– Reduce the basis of valuation for duty– Manufacture the product in the overseas country or in another country where costs are lower

TIME - When to start with internationalization?- "Step by Step" - gradually (after several years of operation in the domestic market)- immediately (very early) to set up businesses in many emerging markets, (born global firms)

Trend of a faster start of international operations as a result of the globalization process increasing homogeneity of markets facilitates international business increased speed, quality and efficiency of international communications and transport

→ reduces transaction costs increasing the number and mobility of internationally experienced entrepreneurs /

managers development of financial markets and international funding opportunities increased international competition in most industries and markets require an

international presence

Time (DIMENSION) of internationalization- fast internationalization is by default not good or bad- the strategic decision about the time of internationalization includes also deinternationalizationMEASURING INTERNATIONALIZATION- multidimensional construct / phenomenon, that is difficult to measure with a single rate or index- QUANTITATIVE WAY- different dimensions suitable for various sizes of business / diversity and scope of international activitiesIn practice, the proposed number of indices / rates:

Share of sales from abroad (from exports) in total revenues growth in exports Transnational index (for larger companies, using WIR) Number of modes The scope of internationalization (DOI) number of composite rate

WORKSHOPS

What is import? Purchase of goods and services abroad and payment of imported goods or services to foreign manufacturers and service providers.What economic goals are achieved through import?• procurement of raw materials and propagating material which allows production and normal functioning of the economic system• supply of consumer goods to the domestic market that does not exist or is not present in sufficient quantity• balance of commodity - money relations in the domestic market• procurement of modern equipment and technology - construction, modernization and expansion of the capacity to produce goods and services• use of favorable conditions in the world market

Division of imports – equipment; consumable material; spare parts for current and investment maintenance; raw materials; spare parts for investment maintenance; spare parts for current maintenance; personal consumption; reproduction and raw materials.Technique for completion of import job – preparatory phase; operational execution of import job; finishing actions.Preparatory phase of import job – market research; finding foreign suppliers, testing suppliers' creditworthiness, precalculation, incoterms clauses.Operational execution of import job – the conclusion of the sales; customs of the goods; documentation; operational realization of the job; collateral.Finishing actions of the import job – final calculation; the accounting and liquidation of import work.Preparation of import job - the preparation for the execution of the import business is based on the following questions: • What to import and for who? • From who to import? • Under what terms to import? • How to insure the financial means to pay the foreign supplier? • How much, based on the precalculation or a rough estimate, would the good cost? • How to solve the problem of lack of funds? • What is the amount of customs duties and other import taxes for the subject of import? • Whether to apply certain benefits to the importation of goods? • Certain restrictions? • Restrictive import regimes?

EXPORTER: more detailed research on the companies environmentENVIRONMENT – economical, political, legislative, cultural (examples of failed business ventures)CHOSING YOUR BUSINESS LINK – IMPORTER• sending queries to renowned foreign suppliers from different countries• through organizations specialized in trade of certain product groups• direct business ties• discussions at international trade fairs and exhibitions• InternetPREPARATORY PHASE – Establishing contact & other preliminary actions of a import job• choose a product/service; there are not such kind of products within the market• the characteristics are simplifying the procedure while increasing work productivity and quality of the final product• big market potential ( lots of similar markets, the consumer preferences)

How to find a supplier? Internet (key word search); business search engines; Croatian chamber of commerce; international fairs (general or specific)

Testing the creditworthiness - before our company is to engage in co-operation it should examine the suppliers creditworthiness.

IMPORT REGIME AFTER ENTERING THE EU• Import obstacles don’t exist at all• There are no more forms and requests from the importer• No tariffs• Importing without problems

What is TARIC? The TARIC code is designed to show the various rules applying to specific products when imported into the EU. This includes the provisions of the harmonised system and the combined nomenclature but also additional provisions specified in Community legislation such as tariff suspensions, tariff quotas and tariff preferences, which exist for the majority of the Community's trading partners.

How to calculate customs duties (10+8.3 EUR/100kg max 36) if the cost of the goods (flour) to the Croatian border DAF 4369.01 EUR?

THE PREPARATORY PHASE - Sending an inquiry to a foreign supplierWhat is an inquiry? Inquiry is an informal document whose purpose is to obtain additional information about :• availability and accessibility of products• delivery of brochures, catalogs, etc.• samples of required product• commercial conditions for the foreign exchange• insurance of products• deadlines for product delivery• product price, etc.

THE MAIN GOAL OF AN INQUIRY• reduce the correspondence between the parties to the relevant details

An inquiry can contain:• how was the contact made• brief introduction of the importer• defining an inquiry (inquiry must be clear so the exporters cannot be lead to confusion)• an indication of possible long-term cooperation (if there is such an intention of the importer)

SENDING AN INQUIRY - sender (importer); recipient (supplier); date of sending; content (subject/object and quantity; packaging; price; delivery date; other conditions); signatureVARIATIONS OF AN INQUIRYIn correspondence, access can vary such as :• please send us urgently your firm and best offer...• we are retailers / importers / wholesales ... and we would like to contact you regarding...

• please send us samples...• we read your ad...• we are interested in distributing...• please provide us with additional information about your product...• we are interested in importing your product...

SENDING AN INQUIRY – TASKAccording to the example make an inquiry for your chosen product :• item and quantity• packing and Packaging• price• payment• date of delivery• other conditions

PREPARATORY PHASE – Receiving an offer from the foreign supplier- obtain as many offers from foreign suppliers, from different countries if possible- choose the best offer

Sender of the offer (exporter); recipient (buyer); date of sending; elements of the offer (item/subject; quality and properties; quantity; packing and packaging; price; parity (incoterms); methods of payment; delivery date; other conditions; signature

OFFERS FROM FOREIGN SUPPLIERAn offer :• contains commercial, financial and technical requirements• formal document• response to the request of the importer (buyer)• it can be sent without a query from the importer (buyer)• it should stimulate interest in a person who reads it

VARIATIONS OF THE OFFERS• based on your letter, we offer you a firm and irrevocable as follows...• thank you for your interest in our product....• it is our pleasure that we can provide our best price for this product...• please send us your order as soon as possible given the limited amount of...• despite strong demand for our products, we can offer...• we have put together a special low bid, for this reason we can not approve the regular rebates

ELEMENTS OF AN OFFER• the object of the import business• the quality and properties• quantity (t / kilos)• packaging and packaging (cardboard sacks on feedbackable pallets)• price• parity• method of payment (documentary credit)• delivery date (the date)• other conditions

METHODS OF PAYMENT • pro forma invoice• pay per offer• foreign remittances• letter of credit• valutacion (When the relationship is already established)

PARITY• INCOTERMS...• shipping not included...• shipping can be provided within one month from the date of order...• buyer shall bear the cost of freight and insurance in full...

Preparations for import- TASK• ROLE: Supplier• TASK: Make an offer for buyers• ELEMENTS OF THE OFFER: Optional

Precalculation and chosing an offerINCOTERMS - INternational COmmercial TERMS• INCOTERMS, official rules of the ICC (International Chamber of Commerce) for the interpretation of trade terms in the world are used for more than 60 years• INCOTERMS are a set of terms that are recommended to regulate only certain relations between (the vendor and (i.e., exporters) and buyers (ie importers)• In the version from 2000. there were a total of 13 terms which were grouped into 4 main categories: Grupa “E”, “F”, “C”, “D”

FCA – (franco carrier - franko carrier with a designated place)• Seller shall be relieved of its obligations when the goods are delivered at the place designated by the customer• Seller does export clearance• The customer determines the carrier• If the delivery takes place on the premises of the seller he is responsible for the risk of damage during loading (upgraded EXW clause)• If the delivery takes place elsewhere, the seller does not bear the risk of loading• There is no liability for the insurance of the goods by the vendorA letter to the importer and the supplier with purchase agreement attached: sender – importer; recipient – supplier; date; memo content (quantity, price, incoterms, method of payment; signature/seal)

THE PURCHASE CONTRACT - buyer contacts the best supplier that his offer is accepted and sends a signed contract; Supplier has to sign it and return it to the buyer- contract of sale of goods is the most important contract in the internatiol commerce• With this agreement, the seller undertakes to deliver the goods and transfer ownership to the buyer and the buyer undertakes to pay the agreed price and receive the goods

The purchase contract is made up of relevant and irelevant elements:• Relevant elements of the contracts are so important that the contract is not complete without them

• Irelevant elements of the contracts are all those elements without which the contract may be concluded

Common elements of the contract include:• Name of the contracting parties: the name and address of the buyer and seller• Document title: "Purchase Agreement" with the addition of the sales contract number• Subject of purchase: a precise and clearly defined element of the contract (the trade name buying and selling items, the technical name, appearance, type, or types of product, name and number of standards)• The quantity of items of trade, which is expressed by the appropriate unit of measure, can be a fixed or specified tolerances• The quality of the sale of items is determined by individual quality characteristics of goods• Packing and packaging of goods: in this clause we must accurately indicate whether it is returnable or nonreturnable containers (boxes, crates, reels, pallets)• Price of the itemsinvolved in the sale, indicating the currency of payment (ex. USD, EUR, CHF, GBP itd.)• Parity of delivery: a sales contract clauses that precisely defines which costs the basic cost of buying and selling items shall be borne by the seller and the buyer• Payment: can be contracted in cash or on credit• Payment instrument: it is precisely determined by which payment instrument buyer / importer will fulfill his financial obligations to the foreign supplier / exporter• Time of delivery (eg "now" or "prompt", the exact date).• Qualitatively and quantitatively taking over of goods (the acquisition of right of objection to the quality or quantity of goods).• Warranties (guarantees) documents which guarantee the payment obligations or other liabilities (bank guarantee, preapproval..)• Contractual clauses or penalties: refer to the delay in delivery.• Dispute settlement: agreement or jurisdiction of the court or arbitration• Entry into force of the contract: the signature or execution of actions• Other clauses: A procedure in case of complaints, etc. ..

PURCHASE CONTRACT- the name of the document - names of participating parties - object and quantity of the deal - quality of the products - packing and packaging methods - price and parity of delivery - methods of payment - date of delivery - Q. i Q. Merchendise takeover - solving the desputes - contracts entry into force