MGT 302 Final Exam

International Trade Association:

- ITA regularly publishes A Guide to Exporting (most recently edited by Doug Barry, 2015). This is the "Official Government Resource to Small and Medium-Sized Companies" in their exporting quest.

Department of Commerce:

- organizes trade events that help potential exporters make foreign contacts and explore export opportunities. It also has a matchmaker program, in which department representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers. -has assembled a "comparison shopping service" for countries that are major markets for U.S. exports. For a small fee, a firm can receive a customized market research survey on a product of its choice. This survey provides information on marketability, the competition, comparative prices, distribution channels, and names of potential sales representatives. Each study is conducted on-site by an officer of the Department of Commerce.

Centers for International Business Education and Research (CIBERS) Network:

-17 in the U.S. -assist with exporting needs -links the human resource and technological needs of the U.S. business community with the international education, language training, and research capacities of universities across the country. -serves as regional and national resources to businesspeople, students, and teachers at all levels.

Transfer Fee

-A bank charge for moving cash from one location to another.

Internal Forward Rate:

-A company-generated forecast of future spot rates.

Tax Haven:

-A country with exceptionally low, or even no, income taxes.

Exclusive Distribution Channel:

-A distribution channel that outsiders find difficult to access.

Pull Strategy:

-A marketing strategy emphasizing mass media advertising as opposed to personal selling.

Push Strategy:

-A marketing strategy emphasizing personal selling rather than mass media advertising.

Price Elasticity of Demand:

-A measure of how responsive demand for a product is to changes in price.

Concentrated Retail System:

-A retail system in which a few retailers supply most of the market.

Fragmented Retail System:

-A retail system in which there are many retailers, no one of which has a major share of the market.

Intermarket Segment:

-A segment of customers that spans multiple countries, transcending national borders.

Elastic:

-A small change in price produces a large change in demand.

Country of Origin Effects:

-A subset of source effects, or the extent to which the place of manufacturing influences product evaluations.

Multilateral Netting:

-A technique used to reduce the number of transactions between subsidiaries of the firm, thereby reducing the total transaction costs arising from foreign exchange dealings and transfer fees.

Experience Curve Pricing:

-Aggressive pricing designed to increase volume and help the firm realize experience curve economies.

Tax Treaty:

-Agreement between two countries specifying what items of income will be taxed by the authorities of the country where the income is earned.

Tax Credit:

-Allows a firm to reduce the taxes paid to the home government by the amount of taxes paid to the foreign government.

Marketing Mix:

-Choices about product attributes, distribution strategy, communication strategy, and pricing strategy that a firm offers its targeted markets.

Private Organizations and Multinationals

-Commercial banks and major accounting firms are also beginning to provide more assistance to would-be exporters. -Large multinationals that have been successful in the global arena are typically willing to discuss opportunities overseas with the owners or managers of small firms.

The National Differences in Accounting Standards:

-Each country's accounting system evolved in response to the local demands for accounting information. -National differences in accounting and auditing standards resulted in a general lack of comparability in countries' financial reports.

Source Effects:

-Effects that occur when a potential consumer evaluates the message on the basis of status or image of the sender.

Why aren't more firms proactive in seeking export opportunities?

-Firms are unfamiliar with foreign market opportunities; simple ignorance of the potential opportunities is a huge barrier to exporting. -Firms are often intimidated by the complexities and mechanics of exporting to countries where business practices, language, culture, legal systems, and currency are very different from the home market.

The U.S. vs Germany and Japan:

-German and Japanese firms can draw on the large reservoirs of experience, skills, information, and other resources of their respective export-oriented institutions. -Unlike their German and Japanese competitors, many U.S. firms are relatively blind when they seek export opportunities; they are information-disadvantaged. -this is because Germany and Japan have longer histories as trading nations

Sogo Shoshas:

-Japan's great trading houses. -The sogo shosha have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies large and small.

Money Management:

-Managing a firm's global cash resources efficiently.

Multipoint Pricing:

-Occurs when a pricing strategy in one market may have an impact on a rival's pricing strategy in another market.

Deferral Principle:

-Parent companies are not taxed on the income of a foreign subsidiary until they actually receive a dividend from that subsidiary.

Common pitfalls that face first-time exporters:

-Poor market analysis -Poor understanding of competitive conditions in the foreign market -Failure to customize the product offering to the needs of foreign customers -Lack of an effective distribution program -Poorly executed promotional campaign -Problems securing financing -Underestimation of the time and expertise needed to cultivate business in foreign countries -Underestimation of the amount of management resources that have to be dedicated to an exporting activity -Many foreign customers require face-to-face negotiations on their home turf which means that an exporter may have to spend months learning about a country's trade regulations, business practices, and more before a deal can be closed.

Predatory Pricing:

-Reducing prices below fair market value as a competitive weapon to drive weaker competitors out of the market ("fair" being cost plus some reasonable profit margin).

Auditing Standards:

-Rules for performing an audit.

Accounting Standards:

-Rules for preparing financial statements.

Bilateral Netting:

-Settlement in which the amount one subsidiary owes another can be canceled by the debt the second subsidiary owes the first.

Letter of Credit:

-Stands at the center of international commercial transactions. - Issued by a bank at the request of an importer, the letter of credit -States that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. -The great advantage of this system is both the importer and the exporter are likely to trust reputable banks, even if they do not trust each other.

Transaction Costs:

-The costs of exchange.

Channel Quality:

-The expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses.

Why do firms export?

-The international market is normally so much larger than the firm's domestic market that exporting is nearly always a way to increase the revenue and profit base of a company. -By expanding the size of the market, exporting can enable a firm to achieve economies of scale, thereby lowering its unit costs. -Firms that do not export often lose out on significant opportunities for growth and cost reduction

Channel Length:

-The number of intermediaries that a product has to go through before it reaches the final consumer.

Noise:

-The number of other messages competing for a potential consumer's attention.

International Market Research:

-The systematic collection, recording, analysis, and interpretation of data to provide knowledge that is useful for decision making in a global company.

Countertrade:

-The trade of goods and services for other goods and services. It denotes a range of barter-like agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money.

Information sources in the US for exporting firms:

-U.S. Department of Commerce -Foreign Commercial Service (FCS) -International Trade Administration (ITA) -Small Business Administration (SBA) -Centers for International Business Education and Research (CIBERs) Networks -Trade Commissions -Private Organizations and Multinationals -service providers

Inelastic:

-When a large change in price produces only a small change in demand.

Small Business Administration:

-a governmental association that can help potential exporters. Among the SBA's no-fee services are SBDC, SCORE, and ELAN. The Small Business Development Centers (SBDCs) around the country provide a full range of export assistance to business, particularly small companies new to exporting. Through its Service Corps of Retired Executives (SCORE) program, the SBA oversees some 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses. The SBA also coordinates the Export Legal Assistance Network (ELAN), a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters.

Time Draft:

-allows for a delay in payment—normally 30, 60, 90, or 120 days.

Distribution Strategy Decision:

-an attempt to define the optimal channel for delivering a product to the consumer. -In the global supply chain, the marketing channel is a part of the downstream (also called outbound) portion of the supply chain -Significant country differences exist in distribution systems

Export agents, merchants and remarketers:

-buy products directly from the manufacturer and package and label the products in accordance with their own wishes and specifications. They then sell the products internationally through their own contacts under their own names and assume all risks. The effort it takes for you to market the product internationally is very small, but you also lose any control over the marketing, promotion, and positioning of your product.

Advantages of Countertrade:

-can give a firm a way to finance an export deal when other means are not available. -a countertrade agreement may be required by the government of a country to which a firm is exporting goods or services.

Customs Brokers:

-can help companies avoid the pitfalls involved in customs regulations. The customs requirements of many countries can be difficult for new or infrequent exporters to understand, and the knowledge and experience of the customs broker can be very important.

Transfer Prices:

-can introduce significant distortions into the control process and thus must be considered when setting budgets and evaluating a subsidiary's performance. -International businesses often manipulate transfer prices to minimize their worldwide tax liability, minimize import duties, and avoid government restrictions on capital flows.

Communication Strategy (Promotion):

-defines the process the firm will use in communicating the attributes of its product to prospective customers.

Techniques used by firms to transfer funds across borders:

-dividend remittances, royalty payments and fees, transfer prices, and fronting loans.

Price Discrimination:

-exists when consumers in different countries are charged different prices for the same product. -can help a firm maximize its profits. - to be effective, the national markets must be separate and their price elasticities of demand must differ.

Export Trading Companies:

-export products for companies that contract with them. They identify and work with companies in foreign countries that will market and sell the products. They provide comprehensive exporting services, including export documentation, logistics, and transportation.

Barriers to International Communication:

-include cultural differences, source effects, and noise levels.

Counterpurchase:

-is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.

Piggyback Marketers:

-is an arrangement whereby one firm distributes another firm's products.

Sight Draft:

-is payable on presentation to the drawee.

Bill of Lading:

-issued to the exporter by the common carrier transporting the merchandise. -serves three purposes: it is a receipt, a contract, and a document of title.

Proactive firms:

-large firms tend to be proactive about seeking opportunities for profitable exporting—systematically scanning foreign markets to see where the opportunities lie for leveraging their technology, products, and marketing skills in foreign countries

Cost of Capital:

-lower in the global capital market than in domestic markets so firms prefer to finance their investments by borrowing from the global capital market.

Reactive firms:

-many medium-sized and small firms are very reactive. Typically, such reactive firms do not even consider exporting until their domestic market is saturated and the emergence of excess productive capacity at home forces them to look for growth opportunities in foreign markets

International Accounting Standards Board (IASB):

-most significant push for harmonization of accounting standards -to issue a new standard, 75 percent of the 16 members of the board must agree but because members come from different cultures and legal systems, agreement can be difficult -compliance is voluntary; the IASB has no power to enforce its standards.

Buyback:

-occurs when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a certain percentage of the plant's output as partial payment for the contract.

Export management companies (EMC):

-offer services to companies that have not previously exported products. EMCs offer a full menu of services to handle all aspects of exporting, similar to having an internal exporting department within your own firm.

Product Attributes:

-often need to be varied from country to country to satisfy different consumer tastes and preferences. -a product can be viewed as a bundle of attributes

Offset:

-one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale. The difference is that this party can fulfill the obligation with any firm in the country to which the sale is being made.

Freight Forwarders:

-orchestrate transportation for companies that are shipping internationally. Their primary task is to combine smaller shipments into a single large shipment to minimize the shipping cost.

Disadvantages of Countertrade:

-other things being equal, firms would normally prefer to be paid in hard currency. Countertrade contracts may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably. -Even if the goods it receives are of high quality, the firm still needs to dispose of them profitably. This can be expensive and time-consuming.

When using capital budgeting techniques to evaluate a potential foreign project, the firm needs to recognize the specific risks arising from its foreign location which includes:

-political and economical risks -can be incorporated into the capital budgeting process by using a higher discount rate to evaluate risky projects or by forecasting lower cash flows for such projects.

Export packaging companies:

-provide services to companies that are unfamiliar with exporting. For example, some countries require packages to meet certain specifications, and the export packaging firm's knowledge of these requirements is invaluable to new exporters in particular.

U.S. Department of Commerce:

-provides businesses with intelligence and assistance for attacking foreign markets -two departments: Foreign Commercial Service and International Trade Administration (ITA). ITA regularly publishes A Guide to Exporting (most recently edited by Doug Barry, 2015). This is the "Official Government Resource to Small and Medium-Sized Companies" in their exporting quest. -both firms provide that provide the potential exporter with a "best prospects" list, which gives the names and addresses of potential distributors in foreign markets along with businesses they are in, the products they handle, and their contact person.

Trade Commissions:

-purpose is to promote exports -provide business counseling, information gathering, technical assistance, and financing.

Confirming Houses (and buying agents):

-represent foreign companies that want to buy your products. Typically, they try to get the products they want at the lowest prices and are paid a commission by their foreign clients. A good place to find these potential exporting linkages is via government embassies.

Lessard-Lorange Model:

-the best way to deal with this problem is to use a projected spot exchange rate to translate both budget figures and performance figures into the corporate currency. -point out three exchange rates: initial rate, projected rate, and ending rate

Barter:

-the direct exchange of goods and/or services between two parties without a cash transaction.

Draft (Bill of Exchange):

-the instrument normally used in international commerce to effect payment. - simply an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time.

Economic Risks:

-the likelihood that economic mismanagement will cause drastic changes in a country's business environment that hurt the profit and other goals of a business enterprise, including foreign exchange risk

Political Risks:

-the likelihood that political forces will cause drastic changes in a country's business environment that hurt the profit and other goals of a business enterprise

Dividend Remittances vs Royalty Payments and Fees

-the most common method used for transferring funds across borders, but royalty payments and fees have certain tax advantages over dividend remittances.

Marketing Segmentation:

-the process of identifying distinct groups of consumers whose needs, wants, and purchasing behavior differs from each other in important ways.

Ending Rate:

-the spot exchange rate forecast for the end of the budget period (i.e., the forward rate).

Projected Rate:

-the spot exchange rate forecast for the end of the budget period (i.e., the forward rate).

Initial Rate:

-the spot exchange rate when the budget is adopted.

Capital Budgeting:

-the technique financial managers use to try to quantify the benefits, costs, and risks of an investment. -This enables top managers to compare, in a reasonably objective fashion, different investment alternatives within and across countries so they can make informed choices about where the firm should invest its scarce financial resources.

Switch Trading:

-the use of a specialized third-party trading house in a countertrade arrangement. -occurs when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them.

Export Processing Zone (EPZ):

-to receive shipments of products that are then reshipped in smaller lots to customers throughout the surrounding areas.

How does Germany overcome the lack of information available to domestic exporters?

-trade associations, government agencies, and commercial banks gather information, helping small firms identify export opportunities. -one of the world's most successful exporting nations

Handling the additional risk that stems from its location can:

-treat all risk as a single problem by increasing the discount rate applicable to foreign projects in countries where political and economic risks are perceived as high. - The higher the discount rate, the higher the projected net cash flows must be for an investment to have a positive net present value.

How does Japan overcome the lack of information available to domestic exporters?

-•The Japanese Ministry of International Trade and Industry (MITI) - many Japanese firms are affiliated in some way with sogo shoshas

Countertrade is most attractive to...

...large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading.

Among the factors complicating the process for an international business are these:

1. A distinction must be made between cash flows to the project and cash flows to the parent company. 2. Political and economic risks, including foreign exchange risk, can significantly change the value of a foreign investment. 3. The connection between cash flows to the parent and the source of financing must be recognized.

International Market Research Steps:

1. Defining the Research Objectives 2. Determining the Data Sources 3. Assessing the Costs and Benefits of the Research 4. Collecting the Data 5. Analyzing and Interpreting the Data 6. Reporting the Research Findings

To build a competency in new-product development, an international business must do two things:

1. Disperse R&D activities to those countries where new products are being pioneered 2. Integrate R&D with marketing and manufacturing.

Steps in a successful Exporting Strategy:

1. Hire an EMC or at least an experienced export consultant to identify opportunities, navigate the paperwork and regulations 2. Focus on one market or a handful of markets before moving to other markets 3. Enter a foreign market on a small scale to reduce the costs of any subsequent failure. Most important, entering on a small scale provides the time and opportunity to learn about the foreign country before making significant capital commitments to that market. 4. The exporter needs to recognize the time and managerial commitment involved in building export sales and should hire additional personnel to oversee this activity. 5. In many countries, it is important to devote a lot of attention to building strong and enduring relationships with local distributors and/or customers. 6. It is important to hire local personnel to help the firm establish itself in a foreign market. Local people are likely to have a much greater sense of how to do business in a given country than a manager from an exporting firm who has previously never set foot in that country. 7. firm needs to be proactive about seeking export opportunities. 8. The exporter needs to retain the option of local production. Once exports reach a sufficient volume to justify cost-efficient local production, the exporting firm should consider establishing production facilities in the foreign market.

Types of Communication Strategies:

1. Push Strategy 2. Pull Strategy *the strategy used depends on the type of product, consumer sophistication, channel length, and media availability.

The four main differences between distribution systems worldwide are:

1. Retail concentration 2. Channel Length 3. Channel exclusivity 4. Channel quality

Managers in an international business need to be aware of two main issues relating to segmentation:

1. The extent to which there are differences between countries in the structure of market segments 2. The existence of segments that transcend national borders (i.e., intermarket segments)

Strategic Pricing:

choosing from: -predatory pricing -multipoint pricing -experience curve pricing