MARK 4700 Final

Consortia are developed to pool financial and managerial resources and to lessen risks.

-Often, huge construction projects are built under a consortium arrangement in which major contractors with different specialties form a separate company specifically to negotiate for and produce one job. -One firm usually acts as the lead firm, or the newly formed corporation may exist independently of its originators

Common law seeks

"Interpretation through the past decisions of higher courts which interpret the same statutes or apply established and customary principles of law to a similar set of facts."

Jurisdiction is generally determined in one of three ways:

(1) on the basis of jurisdictional clauses included in contracts. (2) on the basis of where a contract was entered into. (3) on the basis of where the provisions of the contract were performed.

Several factors have been found to influence the structure and performance of direct investments:

(1) timing—first movers have advantages but are riskier. (2) the growing complexity and contingencies of contracts. (3) transaction cost structures. (4) technology and knowledge transfer. (5) degree of product differentiation. (6) the previous experiences and cultural diversity of acquired firms. (7) advertising and reputation barriers.

Common Law vs. Code Law

*Laws governing intellectual property offer the most striking differences between common-law and code-law systems. Under common law, ownership is established by use; under code law, ownership is determined by registration.

Asia Pacific Rim

-Around the __________, where U.S. companies face unfamiliar legal and cultural barriers, joint ventures are preferred to buying existing businesses. -Local partners often can lead the way through legal mazes and provide the outsider with help in understanding cultural nuances.

A JV can be attractive to an international marketer:

-when it enables a company to utilize the specialized skills of a local partner. -when it allows the marketer to gain access to a partner's local distribution system. -when a company seeks to enter a market where wholly owned activities are prohibited. -when it provides access to markets protected by tariffs or quotas. -when the firm lacks the capital or personnel capabilities to expand its international activities

The second, the European Patent Convention (EPC), established a regional patent system allowing any nationality to file a single international application for a European patent.

Companies have a choice between relying on national systems when they want to protect a trademark or patent in just a few member countries and applying for protection in all 28 member states. Trademark is valid for 10 years and is renewable; however, if the mark is not used within 5 years, protection is forfeited

Locus of Decision

Considerations of where decisions will be made, by whom, and by which method constitute a major element of organizational strategy. Management policy must be explicit about which decisions are to be made at corporate headquarters, which at international headquarters, which at regional levels, and which at national or even local levels. Most companies also limit the amount of money to be spent at each level. Decision levels for determination of policy, strategy, and tactical decisions must be established.

Use of Expatriates (Disadvantages):

High cost (Cultural & legal barriers & Limited number of high-caliber personnel willing to live abroad for extended periods). Employees are reluctant to go abroad for many reasons: Some find it difficult to uproot families for 2-3-year assignments. Increasing number of dual-career couples often require finding suitable jobs for spouses. Belief that such assignments impede their subsequent promotions at home

Use of Locals

Historical preference for expatriate managers and salespeople from the home country is giving way to a preference for local nationals, as they can transcend both cultural and legal barriers.

International Conventions

Many countries participate in international conventions designed for mutual recognition and protection of intellectual property rights.

The advantages of hiring local nationals are:

More knowledgeable about a country's business structure. Less cost to maintain.

Prohibition against the payment of interest affects banking and business practices severely

Mortgages for property are difficult because payment of interest is forbidden under Islamic law.

Many advanced operations research tools developed in the United States can be adapted to foreign markets

The use of such high-tech resource allocation tools requires intricate knowledge of geographical details and appropriate call routines

Tactical decisions normally should be made at the lowest possible level, without country-by-country duplication.

This guideline requires American headquarters' managers to trust the expertise of their local managers. Of course, the best decisions will be made through interactive consultation, something the geographic distances often preclude

The World Court can adjudicate

disputes between governments,

Most visible SIAs are now in the ________ industry.

airline.

SIAs imply that there is a common objective:

that one partner's weakness is offset by the other's strength that reaching the objective alone would be too costly, take too much time, or be too risky together their respective strengths make possible what otherwise would be unattainable.

two multicountry patent arrangements have streamlined patent procedures in Europe.

the Patent Cooperation Treaty (PCT) and the European Patent Convention (EPC).

the other two situations must be handled in:

the courts of the country of one of the parties involved or through arbitration. Unless a commercial dispute involves a national issue between nation states, the International Court of Justice or any similar world court does not handle it.

If a product is culturally sensitive:

the decisions are more likely to be decentralized.

The Islamic system places emphasis on:

the ethical, moral, social, and religious dimensions to enhance equality and fairness for the good of society.

Variable-cost Pricing:

the firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas markets. Firms regard foreign sales as bonus sales and assume that any return over their variable costs makes a contribution to net profit. This is a practical approach to pricing when a company has high fixed costs and unused production capacity.

Because there is no "international commercial law,"

the foreign marketer must look to the legal system of each country involved—the laws of the home country, the laws of the countries within which business is conducted, or both.

Under code law, the legal system is generally divided into three separate codes:

commercial, civil, and criminal

Taxes, tariffs, and administrative costs:

costs that result in higher prices. Passed onto the buyer of the product

Exchange rate fluctuations and varying currency values:

currency values swing vis-à-vis other currencies in a daily basis. May make it necessary to increase prices.

the World Intellectual Property Organization (WIPO) of the United Nations is responsible for

the promotion of the protection of intellectual property and for the administration of the various multilateral treaties through cooperation among its member states.

Consortia are similar to joint ventures and could be classified as such except for two unique characteristics:

they typically involve a large number of participants. they frequently operate in a country or market in which none of the participants is currently active.

Skimming Pricing:

used to reach a segment of the market that is relatively price insensitive and thus willing to pay a premium price for a product. Used in markets with only 2 income levels: wealthy & poor

Penetration Pricing:

used to stimulate market growth and capture market share by deliberately offering products at low prices. Often used to acquire and hold share of market as a competitive maneuver.

Middleman and transportation costs:

longer channel length, performance of marketing functions, and higher margins may make it necessary to increase prices

Full-cost Pricing:

no unit of a similar product is different from any other unit in terms of cost. must bear its full share of the total fixed and variable cost. Suitable when a company has high variable costs relative to its fixed costs

Common law is recognized as:

not being all-inclusive.

Inflation:

causes consumer prices to escalate. the consumer is faced with rising prices Eventually exclude consumers from the market

_____ often contribute nicely to profits.

SIAs

Joint Venture

a partnership of two or more participating companies that have joined forces to create a separate legal entity. different from minority holdings by an MNC in a local firm IJVs can be hard to manage

Arbitration

- The usual arbitration procedure is for the parties involved to select a disinterested and informed party or parties as referees to determine the merits of the case and make a judgment that both parties agree to honor. - most arbitration is conducted under the auspices of one of the more formal domestic and international arbitration groups organized specifically to facilitate the resolution of commercial disputes.

Without a doubt, the most prominent international consortium has been Airbus, Boeing's European competitor in the global commercial aircraft market.

-Airbus Industrie was originally formed when four major European aerospace firms agreed to work together to build commercial airliners. -In 2000, the four agreed to transform the consortium into a global company to achieve operations efficiencies that would allow it to compete better against Boeing.

Strategic International Alliances

- A business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective. - Sought as a way to shore up weaknesses and increase competitive strengths—that is, complementarity is key. - Affiliations with prominent financial institutions makes potential partners more attractive and resource deployment stability enhances alliance performance. - Many companies are entering SIAs to be in a strategic position to be competitive and to benefit from the expected growth in international markets.

Marxist - Socialistic

- As socialist countries become more directly involved in trade with non-Marxist countries, it has been necessary to develop a commercial legal system that permits them to engage in active international commerce. - Under the premise that law is strictly subordinate to prevailing economic conditions, fundamental propositions such as private ownership, contracts, due process, and other legal mechanisms have had to be developed.

Logistics - Storage & Transportation

- At some point in the growth and expansion of an international firm, costs other than transportation are such that an optimal cost solution to the physical movement of goods cannot be achieved without thinking of the physical distribution process as an integrated system. - a total systems approach to the management of the distribution process that includes all activities involved in physically moving raw material, in-process inventory, and finished goods inventory from the point of origin to the point of use or consumption. takes into account the interdependence of the costs of each activity. a decision involving one activity affects the cost and efficiency of one or all others.. the sum of each of the different activity costs entails an infinite number of "total costs."

Centralized Versus Decentralized

- Control levels may depend on the subsidiary's desire for autonomy, which can be lessened if headquarters demonstrates high competence in marketing decisions. whether a company's formal organizational structure is centralized or decentralized, the informal organization reflects some aspect of all organizational systems. This reflection is especially true relative to the locus of decision making.

The pattern for development varies among the countries because each has a different background, and each is at a different stage in its development of a market-driven economy.

- For example, central European countries such as the Czech Republic and Poland had comprehensive codified legal systems before communism took over, and their pre-World War II commercial legal codes have been revised and reinstituted. - Consequently, they have moved toward a legal model with greater ease than some others have. - Russia and most of the republics of the former Soviet Union and China have had to build from scratch an entire commercial legal system.

Prior Use vs Registration:

- In the United States, a common-law country, ownership of IP rights is established by prior use—whoever can establish first use is typically considered the rightful owner. - In many code-law countries, however, ownership is established by registration rather than by prior use—the first to register a trademark or other property right is considered the rightful owner.

Islamic Law

- Islamic law defines a complete system that prescribes specific patterns of social and economic behavior for all individuals. includes issues such as property rights, economic decision making, and types of economic freedom. - The Islamic law of contracts states that any given transaction should be devoid of riba, which is defined as unlawful advantage by way of excess of deferment, that is, interest or usury. - Prohibiting the receipt and payment of interest is the nucleus of the Islamic system. (However, other principles of Islamic doctrine advocate risk sharing, individuals' rights and duties, property rights, and the sanctity of contracts).

Four characteristics define joint ventures:

- JVs are established, separate, legal entities. - they acknowledge intent by the partners to share in the management of the JV. - they are partnerships between legally incorporated entities, such as companies, chartered organizations, or governments, and not between individuals. - equity positions are held by each of the partners.

litigation

- Lawsuits in public courts are avoided for many reasons. - Most observers of lawsuits between citizens of different countries believe that almost all victories are spurious because the cost, frustrating delays, and extended aggravation that these cases produce are more oppressive by far than any matter of comparable size.

Pricing

- Pricing in a subsistence market poses different problems from pricing in an affluent society. - In evaluating the potential in a developing country, the marketer must make an assessment of the existing level of market development and receptiveness within the country, as well as the firm's own capabilities and circumstances

China and Russia differ in that each has taken a different direction in its political economic growth.

- Russia is moving toward a democratic system. - China is attempting to activate a private sector within a multicomponent, or mixed, economy in a socialist legal framework; that is, it tries to "perform its functions according to law and contribute to the development of socialist democracy and political civilization in China."

The Trade-Related Aspects of Intellectual Property Rights (TRIPs) agreement, a major provision of the World Trade Organization, is the most comprehensive multilateral agreement on intellectual property to date.

- TRIPs sets standards of protection for a full range of intellectual property rights that are embodied in current international agreements.

Use of Expatriates

- The number of companies relying in expatriate personnel is increasing as the volume of world trade increases and as more companies use locals to fill marketing positions. - When products are highly technical, or when selling requires an extensive background of information and applications, an expatriate sales force is the best choice

Conciliation (also known as mediation)

- is a nonbinding agreement between parties to resolve disputes by asking a third party to mediate differences. - The function of the mediator is to carefully listen to each party and to explore, clarify, and discuss the various practical options and possibilities for a solution with the intent that the parties will agree on a solution. - conciliation sessions are private, and all conferences between parties and the mediator are confidential; the statements made by the parties may not be disclosed or used as evidence in any subsequent litigation or arbitration.

Decentralized

-Some companies effect extreme decentralization by selecting competent local managers and giving them full responsibility for national or regional operations. -These executives are in direct day-to-day contact with the market but lack a broad company view, which can mean partial loss of control for the parent company

Decisions regarding the numbers, characteristics, and assignments of sales personnel are made based on:

Analyses of current and potential customers. The selling environments. Competition. The firms resources & capabilities

Companies may invest locally to capitalize on:

-low-cost labor, -to avoid high import taxes, -to reduce the high costs of transportation to market, -to gain access to raw materials and technology, -or to gain market entry

There are three major international conventions:

1. The Paris Convention for the Protection of Industrial Property, commonly referred to as the Paris Convention, includes the United States and 100 other countries. 2. The Inter-American Convention includes most of the Latin American nations and the United States. 3. The Madrid Arrangement, which established the Bureau for International Registration of Trademarks, includes more than 100 countries.

Legal disputes can arise in three situations

1. between governments 2. between a company and a government 3. between two companies

Direct Foreign Investment

A fourth means of foreign market development and entry is direct foreign investment, that is, investment within a foreign country. - Firms may either invest in or buy local companies or establish new operations facilities.

Jurisdiction

A frequent error is to assume that disputes between citizens of different nations are adjudicated under some supranational system of laws. Confusion probably stems from the existence of international courts such as the World Court at The Hague and the International Court of Justice, the principal judicial organ of the United Nations. These courts are operative in international disputes between sovereign nations of the world rather than between private citizens and/or companies.

Centralized

Advantages: the availability of experts at one location. the ability to exercise a high degree of control on both the planning and implementation phases. the centralization of all records and information.

Jurisdiction of Disputes & Validity of Contracts

As countries realize that existing laws relating to commerce do not always clearly address the uniqueness of the Internet and its related activities, a body of cyberlaw is gradually being created. Two of the most troubling areas are determining whose laws will prevail in legal disputes between parties located in different countries and establishing the contractual validity of electronic communications. The EU Commission has adopted an e-commerce directive that will permit online retailers to trade by the rules of their home country unless the seller had enticed or approached the consumer by way of advertising.

Inadequate Protection

Because patents, processes, trademarks, and copyrights are valuable in all countries, some companies have found their assets appropriated and profitably exploited in foreign countries without license or reimbursement. they often learn that not only are other firms producing and selling their products or using their trademarks, but also the foreign companies are the rightful owners in the countries where they operate.

An infinite number of organizational patterns for the headquarters' activities of multinational firms exist, but most fit into one of three categories:

Centralized, Regionalized, and Decentralized

Cross Elasticity

Ed = (% change in quantity demanded from Brand A )/ % change in price from Brand B) Brands in the same market Same price class High degree of substitution Consider brand consumption development index Full Cost - Variable Cost

Types

Elasticity=0 Elasticity = Infinity Elasticity= 1 change in price = change in quantity demanded Elasticity = Greater than 1 Inelastic = less than 1 Income Elasticity Ed= % change in Quantity demanded / % change in price

Deterrents to Litigation are the following:

Fear of creating a poor image and damaging public relations. Fear of unfair treatment in a foreign court. (Fear that a lawsuit can result in unfair treatment, perhaps intentionally, is justifiable because the decision could be made by either a jury or a judge not well versed in trade problems and the intricacies of international business transactions.) Difficulty in collecting a judgment that otherwise may have been collected in a mutually agreed settlement through arbitration. The relatively high cost and time required when bringing legal action. Loss of confidentiality. Unlike arbitration and conciliation proceedings, which are confidential, litigation is public

Foreign Free Trade Zones

Firms can manufacture products in free trade zones where the incentive offered is the elimination of local taxes, which keep prices down. More than 100 in the US. Use to postpone payment of tariffs on products in FTZ.

Designing the Sales Force

First step in managing a sales force. Pertinent conditions and circumstances in international markets make design decisions challenging. The size of accounts certainly makes difference as well.

Another principle of the Islamic legal system is the prohibition against investment in those activities that violate the Shari'ah.

For example, any investment in a business dealing with alcohol, gambling, and casinos would be prohibited.

Use of Expatriates (Advantages):

Greater tech training. Better knowledge of company and its product line. Proven dependability. Additional prestige of the product line in the eyes of foreign customers. Effective communication with headquarters' personnel.

A physical distribution system involves more than the physical movement of goods.

It includes the location of plants and warehousing (storage), transportation mode, inventory quantities, and packing.

Relationship-oriented countries such as ______will require the most complete local knowledge of natives

Japan

Many things can differ across cultures:

Length of sales style. Kinds of customer relationships. Types of interactions with customers.

Some of the more prominent SIAs have been:

Nokia (Finland)/ATT, Alibaba (China)/Microsoft, Tata (India)/ Starbucks, Renault (France)/Nissan (Japan).

American Airlines, Cathay Pacific, British Airways, Japan Airlines, Mexicana, Iberia, Quantas, and eight others are partners in the ___________, which integrates schedules and mileage

Oneworld Alliance

Firms enter into SIAs for several reasons:

Opportunities for rapid expansion into new markets. Access to new technology. More efficient production and innovation. Reduced marketing costs Strategic competitive moves Access to additional sources of products and capital

Distribution strategies will often vary from country to country:

Some markets may require a direct sales force, whereas others may not. The hard sell that may work in some countries can be inappropriate in others.

The disadvantages of hiring local nationals are:

Tendency of headquarters personnel to ignore their advice. Limited English communication skills & lack of understanding of home-office politics. Less influence. Their lack of availability.

Common Law

The basis for common law is tradition, past practices, and legal precedents set by the courts through interpretations of statutes, legal legislation, and past rulings.

The most clear-cut decision can be made when the contracts or legal documents supporting a business transaction include

a jurisdictional clause International Dispute Resolution.

Counterfeiting & Pricing

leads to $300 bn loss annually / 2 million jobs.

Selling high-technology products may allow for

greater use of american expatriates.

Selling in information-oriented cultures such as Germany may allow for

greater use of expatriates

Code Law

in contrast, is based on an all-inclusive system of written rules (codes) of law. code law is considered complete as a result of catchall provisions found in most code-law systems. For example, under the commercial code in a code-law country, the law governing contracts is made inclusive with the statement that "a person performing a contract shall do so in conformity with good faith as determined by custom and good morals".

The basis for the Shari'ah (Islamic law)

is interpretation of the Koran. encompasses religious duties and obligations, as well as the secular aspect of law regulating human acts

The three main provisions of the TRIPs agreement required that:

participating members be in compliance with minimum standards of protection by 2006, set procedures and remedies for the enforcement of IP rights, and make disputes between WTO members with respect to TRIPs obligations subject to the WTO's dispute settlement procedures.

Several other factors contribute to their (JVs) success or failure:

positions of partners in industrial networks. how control is shared in deciding which products are developed by the venture. relations with parents. institutional (legal) environments. marketing capabilities. experience. the extent to which knowledge is shared across partners.

The first, the Patent Cooperation Treaty (PCT), facilitates the process for application for patents among its member countries.

provides comprehensive coverage - a single application filed in the United States supplies the interested party with an international search report on other patents to help evaluate whether or not to seek protection in each of the countries cooperating under the PCT.

Deflation:

results in ever decreasing prices Positive result for consumers. Pressure to lower costs in everyone in supply chain.

Factors affecting exit from international markets include:

results, culture, fit with existing businesses, and the level of the company's experience abroad.

Costs of exporting relates to situations in which ultimate prices are raised by:

shipping costs, insurance, financing costs, packing, tariffs, longer channels of distribution, larger middleman margins, special taxes, administrative costs, exchange rate fluctuations

The overriding objective of the Islamic system is _________.

social justice.

Studies show that even though product decisions may be highly centralized:

subsidiaries may have a substantial amount of local influence in pricing, advertising, and distribution decisions.

The local firms enjoy important benefits aside from the investments themselves, such as:

substantial technology transfers and the capability to export to a more diversified customer base.

Some of the more active are the following (arbitration groups):

• The Inter-American Commercial Arbitration Commission. • The Canadian American Commercial Arbitration Commission (for disputes between Canadian and U.S. businesses). • The London Court of Arbitration (decisions are enforceable under English law and English courts).