INBU 3301

Customs Union

-adds the requirement that all members set a common trade policy against nonmembers -members may also negotiate as a group with organizations like the WTO

4 basic Strategies

1. Growth strategy 2. Retrenchment strategy 3. Stability strategy 4. Combination strategy

Quotas

(second most common type of barrier) -a restriction on the amount of good that can enter or leave a country during a certain period of time import quota: protects domestic producers by limiting goods that can enter the country export quota: maintain adequate supplies in home market, or restrict supply on world markets in order to increase national price

Southern Common Market

-Argentina, Brazil, Paraguay, Uruguay, and Venezuela -functions as a customs union and is busy liberalizing trade and investment among its members -emerging as the most powerful economic group throughout Latin America

National Differences

-Cultural differences -Political processes -Legal matters -Economic systems -Labor issues -Consumer forces and much more...

International Capital Market

Information technology: -reduces the time and money needed to communicate globally and allows for 24-hour electronic trading -drastically reducing the costs of global communication Deregulation: -increases competition, lowers transaction costs, and opens up national financial markets -increases competition, lowers the cost of financial transactions, and opens national markets to global investing and borrowing Securitization (financial Instruments): -the repackaging of hard-to-trade financial assets into more liquid, negotiable, and marketable securities -increasing number of options available to lenders and borrowers

Licensing

Licensing agreement: is an arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specified time period, and in return, the licensor receives a royalty fee (percentage of revenue) from the licensee. Intangible property includes patents, inventions, formulas, processes, designs, copyrights, and trademarks. Advantages: in the typical international licensing deal, the licensee puts up most of the capital necessary to get the overseas operations going. Thus, a primary advantage of licensing is that the firm does not have to bear the development costs and risks associated with opening a foreign market. Licensing is often used when a firm wishes to participate in a foreign market, but is prohibited from doing so by barriers to investment. Licensing is frequently used when a firm possesses some intangible property that might have business applications, but it does not want to develop those applications itself. Licensing can allow a company to finance an international expansion, reduce international expansion risks, reduce the likelihood of counterfeit production, and help licensees upgrade their production technologies Disadvantages: -licensing does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies -competing in a global market may require a firm to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another. Licensing severely limits a firm's ability to do this. -potential loss of proprietary (or intangible) technology or property. One way of reducing the risk of losing proprietary trade secrets is through the use of cross-licensing agreements. Under a cross-licensing agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm -may restrict a licensor's future activities, reduce the global consistency of a product's quality and marketing, and amount to "lending" strategically important property to future competitors

Implications

Location: -disperse various productive activities to a country where they can be performed most effectively -huge investments and initial losses First-mover: -if there are economies of scale and the global industry will only support a few competitors -be prepared to undertake huge investments and suffer losses for several years in order to reap the eventual rewards Policy: -should encourage governmental policies that support free trade -can get goods from best sources worldwide

International Business Strategy

Management vision -> strategy -> value creation -> firm performance Influences: -industry structure and drivers -competitive dynamics -economic conditions -political, legal, and regulatory environment -technology standards and trends -cultural orientations -customer expectations

Selecting an Entry Mode

Technological Know-how: -licensing and joint venture should be avoided -by licensing its technology to competitors, a firm may also deter them from developing their own, possibly superior, technology Management Know-how: -franchisees or joint venture partners (low risk, greater use from their brand names) Cost Reduction: -the more likely it is that a firm will want to pursue some combination of exporting and wholly owned subsidiaries. This will allow it to achieve location and scale economies as well as retain some degree of control over its worldwide product manufacturing and distribution

Factor Conditions (National Competitive Advantage)

Basic factors: -natural endowments of resources, such as a large population, natural resources, climate, and land features Advanced factors: -result from a nation's innovation and education, including the skill levels of different segments of its workforce and the quality of its technological infrastructure -basic factors can spark initial production, but advanced factors account for a nation's sustained competitive advantage in a product

Integration

Benefits: -Trade creation -Greater consensus -Political cooperation -Creates jobs -reduce potential for military conflict between members Drawbacks: -Trade diversion -Shifting employment -Lost sovereignty

Entry Decisions

Which Foreign Markets? -assessment of their long term profit potential -politically stable, free market systems, no inflation rates or private sector debts Timing of entry: -first-mover advantages Scale of Entry and Strategic Commitments: -Entering a market on a large scale involves the commitment of resources to that venture. The consequences of entering on a significant scale are associated with the value of the resulting strategic commitments. A strategic commitment is a decision that has a long term impact and is difficult to reverse. Deciding to enter a foreign market on a significant scale is a major strategic commitment. Significant strategic commitments are neither unambiguously good nor bad. Rather, they tend to change the competitive playing field and unleash a number of changes, some of which may be desirable and some of which will not be. Small-scale entry has the advantage of allowing a firm to learn about a foreign market while simultaneously limiting the firm's exposure to that market

Exchange rate risk

can jeopardize profits from current and future international transactions Stable rates- improve the accuracy of financial planning and make cash flow forecasts more precise weak currency: decline in price of exports and incline in price of imports

Pioneering Costs

costs that an early entrant has to bear that a later entrant can avoid -arise when a business system in a foreign country is so different from that in a firm's home market that the enterprise has to devote considerable time, effort and expense to learning the rules of the game -include the costs of business failure if the firm, due to its ignorance of the foreign environment, makes some major mistakes. Pioneering costs also include the costs of promoting and establishing a product offering, including then cost of educating the customers (drive thru in China) -> no one knows anything about it

Barriers to international communication

cultural: -language/translations -> could be offensive -may need entirely new ads source effects noise levels

Economic Union

forces members to harmonize their tax, monetary, and fiscal policies, create a common currency, and concede some sovereignty to the larger organization

Export Financing

governments helping companies finance their export activities

Absolute advantage

in the production of a product when it is more efficient than any other country in producing it -produce more efficiently than any other nation -each nation benefits from specialization in trade

National Competitive Advantage

nation's competitiveness in an industry depends on the capacity of the industry to innovate and upgrade (Canada -> winter boots)

Free- trade Area

removes all barriers to trade between members with each nation determining its own barriers against nonmembers. The group may also establish a process for resolving trade disputes among members

Political Union

requires members to coordinate their economic and political policies against nonmembers, with some exceptions given -All European states (27 countries in span of Manitoba to BC) -> border crossing, different currency and plug-ins -had to have finances in order to join

Entry Modes

-Exporting -Licensing -Franchising -Management Contracts -Turnkey projects -Wholly-owned subsidiaries -Joint venture -Alliance

European Free Trade Association

-Iceland, Liechtenstein, Norway, and Switzerland. -these nations and the European Union work together on the movement of goods, people, services, and capital, and cooperate on the environment, social policy, and education

Product Strategies (Elements to standardize or adapt)

-a company can adapt its product to suit local buyers' tastes and product preferences that are rooted in culture. Or, it can search for a different cultural need that its product satisfies. Likewise, a firm can adapt its product to satisfy a target market's laws and regulations, or seek out target markets where a standardized product will sell. -a company may emphasize or downplay its own national image if it is a prominent feature of the final product. This can alter buyers' perceptions of product quality and reliability, which is tied to the nation where a product is designed, assembled, or manufactured. -counterfeit goods damage brand image. Buyers expect a certain level of craftsmanship and satisfaction from a particular brand. When a product fails to deliver on those expectations because it is a counterfeit, the company's reputation is tarnished. Adapted to a lesser extent: -consumer preferences/taste due to culture -economic development levels affect consumer behaviour -national product/technical standards mandated by state

Common Market

-adds the free movement of labor and capital and sets a common trade policy against nonmembers

Global Strategy

-attract customers -stake out a market position -conduct operations -compete effectively -create value -achieve goals

Business in Mexico

-behave in a formal manner, -build personal relationships, -establish good references, and do favours for others -find a local partner -hire a Mexican accountant or someone familiar with Mexican laws -family is very important

Brand name

-central to a product's personality and to how buyers perceive it. -essential for a global company whether its industry is electronics, delivery services, mobile phones, financial services, or computer software -competitive advantage

Related and Supporting Industries (National Competitive Advantage)

-companies in internationally competitive industries do not exist in isolation -> supporting industries arise to provide inputs and form regional clusters of related activities that reinforce productivity and competitiveness -Exporting clusters: those that export products or invest outside a region -> can become a region's source of long-term prosperity

Embargoes

-complete ban on trade in one or more products with a particular country

Factor Proportions Theory

-concentrates on factors of production -countries produce and export goods that require resources (factors ->land, land and capital) that are abundant and import goods that require resources in short supply -predicts that a country will specialize in products that require labor if its cost is low relative to that of land and capital, and vice versa

Trade Barriers

-constraint upon a firms ability to disperse it's productive activities -raise firms cost above a level that they could produce without barriers

Trade Dependance and Independence

-countries range from total dependance and total independence (extremes) -when times are good for the nation depended upon, times are often good for the dependent nation -likewise, hard times often mean trouble for the dependant nation Effects: -infuses needed capital -creates jobs and raises wages -imports technology and skill -economic problems transferred political turmoil can spill over

Growth Strategy

-designed to increase the scale or scope of operations. Scale refers to the size of a corporation's activities and scope refers to the kinds of activities it performs -firms can grow organically (that is, through internal sources of expansion) and by forming mergers and acquisitions, joint ventures, and strategic alliances. Potential partners for cooperation include competitors, suppliers, and buyers

Differentiation Strategy (Business level)

-designs products that buyers perceive as unique throughout an industry. -tends to force a company into a lower-market-share position because it involves the perception of exclusivity or meeting the needs of a special group -can allow a company to develop a loyal customer base to offset a smaller market share and the higher costs of producing and marketing a unique product -special features are used to differentiate products on the basis of quality, brand image, product design, or a combination of these factors

Africa

-doesn't work -trades what they have with Europe -nothing to trade with each other

NAFTA

-eliminates trade barriers on most good originating from North America -three-nation trade flows -jobs and wages -"fast-track" authority -Canada Mexico trade tripled -Increased productivity -Mexico is finding it difficult to deal with the environmental impact of greater economic activity -Contentious clauses: two thirds of Canadian oil needs to be available for export to the United States, even if Canadians experience shortages. Canada must also make the majority of its natural gas supplies available for export to the United States, which accounts for 60 percent of Canada's current natural gas production

Mercantilism

-sell more than you can buy (doesn't work) -encouraging exports and discouraging imports Flaws: -zero-sum game (benefits only at the expense of other nations) -limits colonies market potential -constrains output and consumption

Joint venture

-entails establishment of a firm that is jointly owned by two or more otherwise independent firms - a separate company that is created and jointly owned by two or more independent entities to achieve a common objective -can reduce risk by sharing the investment with other parties, help penetrate international markets that are otherwise off-limits, and provide access to another party's distribution channels. -conflict can develop between partners if objectives change, if one party's goals are reached early, or if trust and cooperation break down. Also, parties may lose all control over the venture's operations if the local government participates in the venture a forward integration joint venture, parties invest together in downstream business activities backward integration: parties invest together in upstream business activities buyback: each partner provides inputs and absorbs outputs multistage: one partner integrates downstream while the other integrates upstream

Voluntary Export Restraint

-export quota that a nation imposes on it's own exports, usually at the request of the importing nation -may limit a firm's ability to serve a country from locations outside that country

Subsidy

-financial assistance to domestic producers in the form of cash payments, low-interest loans, tax breaks, product price supports, or other forms drawback: subsidies encourage inefficiency and complacency by covering costs that truly competitive industries should be able to absorb on their own

Eclectic Theory

-firms undertake foreign direct investment when the features of a location combine with ownership and internalization advantages to make a location appealing for investment Location advantage: -locating a particular economic activity in a specific location because of its natural or acquired characteristics Ownership advantage: -ownership of some special asset, such as a powerful brand, technical knowledge, or management ability Internalization advantage: -internalizing a business activity rather than leaving it to a relatively inefficient market

Local Content requirement

-force companies from other nations to use local resources in their production processes—particularly labour -may have to locate more production activities in a given market than it would otherwise

Tariffs

-government tax levied on a product as it enters or leaves the country -protect domestic producers -raises the cost of an imported good -increases the appeal of domestically produced goods -generate revenue -source of government revenue (developing nations)

Special Government agencies

-governments of most nations have special agencies responsible for promoting exports -helpful to small and medium-sized businesses that have limited financial resources

Eurocurrency Market

-governments, commercial banks, international companies, and extremely wealthy individuals -complete absence of regulation and low transaction costs -greater risk due to a lack of government regulation

Stability Strategy

-guards against change and is used to avoid either growth or retrenchment -seldom employed because it assumes that a corporation has met all objectives, is satisfied with all its accomplishments, and envisions no new opportunities or threats

Firm Strategy, Structure, and Rivalry (National Competitive Advantage)

-highly skilled managers are essential because strategy has lasting effects on firm competitiveness -domestic industry whose structure and rivalry create an intense struggle to survive strengthen competitiveness (more intense domestic rival, the greater the global competitiveness -> helps businesses compete against companies trying to develop a presence in the domestic market)

First- mover Advantage

-if you can get there first you can dominate the market

Andean Community

-includes Bolivia, Colombia, Ecuador, and Peru -internal tariff reduction, a common external tariff, and common policies in transportation and other key industries

Combination Strategy

-mixes growth, retrenchment, and stability strategies across a corporation's business units -quite commonly used because rarely do international corporations follow identical strategies in all of its business units

Turnkey projects

-occur when a contractor handles all details of a project for a foreign client, including the training of operating personnel. At completion of the contract, the foreign client is handed the "key" to a plant that is ready for full operation. This is actually a means of exporting process technology to another country. -when a company designs, constructs, and tests a production facility for a client. These projects are often large-scale utility projects in host countries. They usually transfer special process technologies or facility designs to a client Advantages: -they are a way of earning great economic returns from the know-how required to assemble and run a technologically complex process -may also make sense in a country where the political and economic environment is such that a longer-term investment might expose the firm to unacceptable political and/or economic risk. Disadvantages: -the firm that enters into a turnkey deal will have no long-term interest in the foreign country -the firm that enters into a turnkey project may create a competitor. If the firm's process technology is a source of competitive advantage, then selling this technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors.

Exporting

-occurs when manufacturing is centralized and products are distributed into foreign markets -most begin with exporting and later switch to another mode Advantages: -exporting avoids the often substantial cost of establishing manufacturing operations in the host country -may help a firm achieve experience curve location economies -trade barriers are decreasing with regional economic agreements -larger revenues can be obtained from selling overseas in addition to selling to your domestic customers -can achieve lower prices from suppliers by buying in larger volumes Disadvantages: -may not be appropriate if there are lower-cost locations for manufacturing the product abroad ----high transport costs can make exporting uneconomical -tariff barriers can make exporting uneconomical -agents in a foreign country may not act in exporter's best interest -familiarize itself with the mechanics of export and import financing -learn where it can get financing and export credit insurance -learn how it should deal with foreign exchange risk -Many firms do not do good analysis of overseas opportunities -Underestimation of time and expertise needed to develop a foreign export market -Poor understanding of the competition overseas -Poor understanding of involved logistics -Failure to customize consumer products appropriately to local markets -Poor execution of overseas promotion -Problems securing financing -Lack of excellent documentation system Step 1: identify a potential market -research a target market to discover whether sufficient demand exists. A novice exporter may focus on one or a few markets that are best understood in cultural terms Step 2: match needs to abilities. -this involves a frank assessment of a company's ability to satisfy the needs of a prospective market. Step 3: initiate meetings. -schedule meetings with potential distributors, buyers, and others to build trust and cooperation -negotiations between the parties will hammer out details of the working relationship. Step 4: commit resources. -after agreements are finalized, employ the company's resources to clearly define the export program's objectives for at least the next 3 to 5 years

Distribution Strategy

-planning, implementing, and controlling the physical flow of a product from origin to consumption -distribution channel is the physical path that a product follows on its way to customers -Physical goods -Consulting services -News providers Degree of exposure: -how widely available a product is in the marketplace -exclusive channel: one/few sellers, greater control over sales to wholesalers and retailers and can create a barrier that makes it difficult or impossible for competitors to penetrate (automobiles) -intensive channel: a firm grants the right to sell its product to many resellers,this makes buying a product convenient for buyers because it is sold through many outlets. But it does not provide control over reseller decisions such as what competing brands to sell and it does not create strong barriers to channel entry (general office supplies) Channel length: -refers to the number of intermediaries in place between the producer and the buyer. This decision is governed by the fact that as the number of intermediaries grows, the more costly distribution becomes because each adds a fee for its services

Foreign Direct Investment

-purchase of physical assets or a significant amount of the ownership of a company in another country to gain some measure of management control -increasing globalization (low cost production) -prompts multinationals to buy up alike businesses in emerging economies -developed countries account for 57% of FDI -often necessary to tap foreign markets -> the price of some products increases too much if they are transported or sold internationally (duties, quotas etc) -generates growth: in less developed countries, when technology/skills are transferred, when investor has access to resources that firms in the host country do not

Retrenchment Strategy

-reduces the scale or scope of a corporation's businesses -corporations can cut back the scale of operations by closing factories and laying off employees, such as during difficult economic times or when competition increases -they typically reduce the scope of activities by selling unprofitable business units or those in industries unrelated to the corporation's main business

Demand Conditions (National Competitive Advantage)

-refers to the sophistication of buyers in the home market -drives companies to improve existing products and develop entirely new product technologies in order to satisfy their customers (improves competitiveness of entire group of companies in the market)

Doing Business in Central Europe

-remain formal in your relations unless your colleagues encourage informality -smooth the way for business by building close relationships and establishing solid references -find a local partner to help you with the inevitable difficulties of cross-cultural business -hire local professionals who understand U.S. and local business law -establish who is in charge so that people know who to turn to when needed

Focus Strategy (Business level)

-satisfies the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both -intense competition forces many products to be distinguished by price, quality, or design. In turn, the resulting expanded range of available products leads to more refined market segments. -some firms focus on a single geographic area whereas others serve the needs of one ethnic group

Strategy

-set of planned actions that management takes to meet objectives What's the company's present situation? Where does the company need to go from here? How should it get there? -How to outcompete rivals. -How to respond to economic and market conditions and growth opportunities. -How to manage functional pieces of the business. -How to improve the firm's financial and market performance. Why? -To improve its financial performance. -To strengthen its competitive position. -To gain a sustainable competitive. advantage over its market rivals. -yield above-average profits. -Makes competition difficult for rivals *about doing something differently from rivals

Comparative Advantage

-specialize in that which they can produce more efficiently -the inability of a nation to produce a good more efficiently than other nations, but an ability to produce that good more efficiently than it does any other good.

Methods of promoting trade

-subsidies -export financing -foreign trade zones -special government agencies *protecting trade can create global depression

Ad Valorem Tariffs

-tax imposed on the value of property

Wholly-owned subsidiaries

-the firm owns 100 percent of the stock -can be done two ways 1. set up a new operation in that country or it 2. can acquire an established firm and use that firm to promote its products in the country's market Advantages: -when a firm's competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode, since it reduces the risk of losing control over that competence -gives a firm the tight control over operations in different countries that is necessary for engaging in global strategic coordination (i.e., using profits from one country to support competitive attacks in another) -may be required if a firm is trying to realize location and experience curve economies. Disadvantages -generally the most costly method of serving a foreign market. Firms doing this must bear full costs and risks of setting up overseas operations.

Value density

-value of a product relevant to weight and volume high- emeralds, perfumes low- value is low compared to cost of shipping

Management Contracts

-when one company supplies another with managerial expertise for a specific period of time -the supplier of expertise is compensated with either a lump-sum payment or a fee based on sales. -used to transfer specialized knowledge of technical managers and business management skills -allow a firm to risk few assets when going international, let a nation upgrade its utilities when lacking financing, and help advance the skills of a nation's workforce Disadvantages: -can endanger the lives of home-country managers when abroad in unstable markets, and can create new competitors in target markets by transferring valuable skills

Alliance

-when two or more entities cooperate (but do not form a separate company) to achieve the strategic goals of each. Alliances may be formed for short or long periods, and can be formed between a company and its suppliers, buyers, and competitors -share the cost of an international investment project, tap competitors' specific strengths, and access distribution channels. -yet, conflict among partners may undermine cooperation, and an alliance may create a future competitor in a target market or even globally Factors to consider: -Cultural differences can reduce managers' confidence in their ability to control operations in the host country. A lack of cultural familiarity can cause a firm to avoid investment entry and pursue exporting or contractual entry. -Political instability in a host country increases the risk exposure of assets. Political uncertainty can cause companies to avoid investment entry in favor of other modes. But a target market's laws can encourage investment if, for example, it imposes high tariffs or low quota limits on imports. -Market size is often a determining factor in entry mode choice. Rising incomes can encourage investment to help a firm better understand the target market and prepare for growing demand. For example, companies are undertaking enormous investments in China, but making far more modest investments or pursuing exporting and contractual entry in smaller markets. -Low-cost production and shipping can give a company an advantage by helping it control total costs. If producing in a host country lowers a firm's total production costs, it can encourage investment, licensing, or franchising. -As international experience grows, a firm may select entry modes that require deeper involvement, but which also involve greater exposure to risk. Selecting Partners: -Commitment -Trustworthiness -Cultural knowledge -Valuable contribution

Low-cost Strategy (Business level)

-works best with mass-marketed products aimed at price-sensitive buyers -contain administrative costs and the costs of its primary activities, including marketing, advertising, and distribution. -efficient production in large quantities can help a firm guard against attack by competitors because of the large start-up costs it requires. A drawback of this strategy is that it can encourage low customer loyalty. Price-conscious buyers will purchase from any low-cost leader, all else being equal

Proprietary Concerns

-you know something that you don't want everyone else to know (coke formula) -companies prefer to control foreign production -governments may be concerned about who controls operations within their borders because they fear decisions will be made contrary to the national interest -mergers (partner) and acquisitions (buy company)

Managing Foreign exchange

1. Match the company's foreign currency needs with the best provider the company can afford. 2. Major banks located in financial centers often have cost and service advantages over local banks. 3. Consolidate individual money exchanges into larger ones to reduce fees. 4. Get the best rate possible by developing relationships with big banks and monitoring fees charged. 5. Technology can help reduce errors, speed execution, and reduce time needed to exchange currencies.

Trade Restrictions

1. Tariffs 2. Quotas 3. Embargoes 4. Local content requirements 5. Administrative Delays -designed to impair the flow of imports into a country 6. Currency controls -restrictions on the convertibility of a currency

Foreign Trade Zones

A designated geographic region through which merchandise is allowed to pass with lower custom duties (taxes) and/or fewer customs procedures

Freight Forwarder

A specialist in export-related activities such as customs clearing, tariff schedules, shipping fees, and insurance. A freight forwarder can also pack merchandise for export and will accept responsibility for getting a shipment from the port of export to the port of import.

Bilateral Agreements

Canada has signed bilateral free trade agreements with Colombia, Costa Rica, Chile, Peru, and Panama, Honduras -The goal of all these agreements is to strengthen economic relations between the two signatory countries by increasing bilateral trade, improving labour and environmental cooperation, and reducing or eliminating duties and non-tariff barriers to trade and investment

Management Issues (FDI)

Control: -selling price in local market -shared ownership -> better communication with government officials, industry protections, worker training, technology transfers Purchase-or-build: -benefits -> existing company's goodwill in the marketplace, brand recognition, and potential sources of financing -drawbacks -> obsolete equipment, poor labor relations, and an unsuitable location A greenfield investment lets a company start operating with a clean slate, but drawbacks include obtaining permits, arranging financing, and hiring local personnel Production costs: include worker benefits, training programs, and burdensome regulations Customer knowledge/Buyer behaviour: -local presence can give companies valuable knowledge Following clients: -FDI puts the supplier nearer to their customers where they can better understand and anticipate their needs Following Rivals: -belief that not matching rivals' moves means the loss of a "first mover" advantage or being shut out of a lucrative market altogether

Foreign Exchange Market

Currency conversion: -helps facilitate international transactions, investments abroad, and the repatriation of profits back to the home country Currency hedging: -helps insure against potential losses from adverse changes in exchange rates. Currency arbitrage: -lets investors seek profits by conducting an instantaneous purchase and sale of a currency in different markets Currency speculation: -lets traders purchase or sell a currency with the expectation that its value will change over time and generate a profit

Forward Market

Currency swap: -used to reduce exchange-rate risk and lock in a future exchange rate Currency option: -used to hedge against exchange-rate risk and obtain foreign currency at a favorable rate Currency futures: -contract is similar to a currency option but is an enforceable contract and all conditions are fixed

Degree of Export Involvement

Direct exporting: -involves selling directly to buyers in a target market A sales representative does not take title to merchandise and generally represents only one company's products. A distributor takes ownership of merchandise when it enters their country and sells locally using its own distribution channels. Indirect exporting: -selling to intermediaries who resell to the target market. An agent represents companies in the target market and tends to receive a commission on sales. An export management company (EMC) exports on behalf of an indirect exporter and operates contractually as an agent or distributor. The typical EMC will gather market information, formulate promotional strategies, research customer credit, arrange shipping, and coordinate export documents. While the EMC offers a deep understanding of the target market, this can hinder development of a client's own exporting skills. An export trading company (ETC) provides more services than those directly related to exporting. The typical ETC offers its client import, export, and countertrade services, access to distribution channels, storage facilities, new trade and investment projects, and manufacturing services

Import/Export financing

Exporters risk not receiving payment after delivery, whereas importers fear that delivery might not occur once payment is made. Open account: an exporter ships merchandise and later invoices the importer. This method is often used when two parties are familiar with each other, or for sales between two subsidiaries within an international company. This method creates the risk of nonpayment for exporters while removing the risk of non-shipment for importers. Advance payment: an importer pays for merchandise before it is shipped. This method is often used when two parties are unfamiliar with each other, the value of the transaction is small, or the buyer has a poor credit rating. This method creates the risk of non-shipment for importers but eliminates the risk of nonpayment for exporters -Lack of trust: can usually be solved by hiring a third party such as a trustworthy bank (Documentary collection) -A draft (or bill of exchange): a document ordering the importer to pay the exporter a specific sum of money at a specific time. -A bill of lading: a contract between the exporter and shipper that specifies the merchandise destination and its shipping costs. -Documentary collection reduces the risk of non-shipment because the bill of lading is proof of shipment. However, the risk of nonpayment increases because the importer does not pay until it receives all necessary documents from the exporter

Franchising

Franchising is a specialized form of licensing in which a franchiser not only sells intangible property (normally a trademark) to a franchisee, but also insists that the franchisee agrees to abide by strict rules as to how he/she conducts business. basically a specialized form of licensing in which the franchisor not only sells intangible property to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business. Advantages: -very similar to those of licensing -specifically the firm is relieved of many costs and risks of opening up a foreign market. Disadvantages: -may inhibit the firm's ability to take profits out of one country to support competitive attacks in another -quality control. The geographic distance of the firm from its foreign franchisees can make poor quality difficult for the franchisor to detect.

First-mover Advantage

New trade theory: -there are gains to be made form specialization and increasing economies of scale -companies first to market can create barriers to entry -government can play a role in assisting home-based companies First mover: economic strategic advantage gained by being the first company to enter an industry -if you can get there first, you can dominate the market -creates a barrier to entry for potential rivals -may allow a country to dominate in a product -ability to pre-empt rivals and capture demand by establishing a strong brand name -ability to build up sales volume in that country and ride down the experience curve ahead of rivals. To the extent that this is possible, it gives the early entrant a cost advantage over later entrants. This cost advantage may enable the early entrant to respond to later entry by cutting prices below the (higher) cost structure of later entrants, thereby driving them out of the market -ability of early entrants to create switching costs that tie customers into their products or services. Such switching costs make it difficult for later entrants to win business

Government Intervention in trade

Political Motives: 1. Protect jobs 2. Preserve national security imports- must have a domestic supply of weapons, fuel, transportation exports- dual uses (industrial and military) Economic Motives: 1. Protect young industries 2. Pursue Strategic Trade Policy benefits- South Korea and global conglomerates drawbacks- low profit margins 3. Cultural Motives -protection of national identity

Home methods

Promotion: -insurance to cover the risks of investing assets abroad -loans to firms wishing to increase their investments abroad. -tax breaks on profits earned abroad or negotiate special tax treaties -apply political pressure to get other nations to relax their restrictions on FDI inflows Restriction: -impose a higher tax rate on income earned abroad than that levied on domestic earnings -impose sanctions that prohibit domestic firms from making investments in certain nations

Host Methods

Promotion: -tax incentives and/or low-interest loans to attract investment -infrastructure improvements -> including better seaports for containerized shipping, improved roads, and advanced telecommunications systems Restriction: -prohibit foreign companies from investing in certain industries or owning certain types of businesses -may also require foreign investors to hold less than a 50% stake in a local firm -performance demands -> can dictate the portion of a product's content that originates locally, stipulate that a portion of output must be exported, or demand that certain technologies be transferred to local businesses

Promotion Mix

Push Strategy: -when a firm pressures channel members to carry a product and promote it to final users. Manufacturers of products sold in department and grocery stores often use a push strategy. -is difficult when channel members, not producers, wield power. It can also be ineffective when distribution channels are lengthy, in which case a pull strategy might be better -personal selling emphasis -Industrial products; complex new products -Short distribution channels -Few print or electronic media Pull strategy: -used when a company creates buyer demand that will encourage channel members to stock a company's product. Buyer demand is generated and "pulls" products through distribution channels to end-users -if an emerging market has few forms of mass media, increasing consumer awareness and generating demand can be difficult. For example, billboards and radio can be used effectively when most consumers have no cable or satellite television or no access to broadband Internet. -may be best when buyers display brand loyalty because they know the product they want. A push strategy can be more appropriate for inexpensive consumer goods and when buyers are not brand loyal because they may seek the least expensive brand that a retailer carries -mass media advertising -Consumer goods -Long distribution channels -Marketing message can be carried via -print/electronic media

Impact of Multinational

Short run: donor country looses, recipient gains Long run: donor country gains, recipient loses (if local firms are replaced, foreign firm takes best resources, local entrepreneurship is displaced) -recipient gains if idle resources used, optimum use of resource production factors, upgrade of resource quality Maximize positive effects and minimize negative: -regulate capital outflows (repatriation) -part of capital inflows be in loans (rather than equity) -export requirements, joint ventures

Product life cycle

Stage 1: -the new product stage -a good is produced entirely in the home market and virtually no export market exists Stage 2: -the maturing product stage -a good is produced in the home market and in markets abroad that are large enough to warrant production facilities Stage 3: -the standardized product stage -a company builds production capacity in relatively low-cost nations that will then serve global markets

Standardize/Adapt

Standardize- technology is causing needs and preferences to converge worldwide. Companies should, therefore, market the same products in the same way in all countries. This strategy helps contain costs Adapt- modifying and marketing strategies is expensive -better satisfy local needs. A company can exploit its unique international image to take market share from local competitors. Factors: -Laws and regulations of the target market can force product alteration. Cultural differences between home and target markets can force adaptations to better suit local buyers' product preferences. -National image of the country in which a product is designed, manufactured, or assembled can have a strong influence on buyers' perceptions of quality and value. -Counterfeit goods can damage buyers' image of a brand. -Advancements in global communications and the rapid pace of new product development is shortening product life cycles

Strategy Formulation Process

The first stage is to identify the company's mission and goals, which involves defining the business and its main objectives. The second stage involves identifying a company's core competency and value-creating activities, which requires analyzing a firm's unique abilities, primary and support activities, and the national and international business environments. The third stage is to formulate strategies, which means selecting a multinational or global strategy and then formulating corporate- , business-, and department-level strategies.

Pricing Issues

Transfer price: a product's selling price when it is sold among a company and its subsidiaries. Multinational companies sometimes use transfer pricing to manage their global tax burdens by having subsidiaries in high-tax countries charge low prices for their output exported to affiliated parties. Arm's-length price: the free-market price that unrelated parties charge one another. Governments may assign arm's-length prices on intra-company transfers to reduce tax evasion with the use of transfer prices. Emerging markets, which need schools, hospitals, and infrastructure, are often hurt most by the manipulation of prices solely to reduce corporate taxes. Price control: is an upper or lower limit placed on the price of a product within a country. Upper-limit price controls provide price stability when inflation is driving up prices. Lower-limit price controls can be used to help local companies compete against the less expensive imports of foreign companies or be used to ward off price wars. Dumping: occurs when the price of a good is lower in export markets than in the domestic market. Charges of dumping can arise when a foreign competitor floods a target market with inexpensive imports to undercut competitors' prices, or can arise when changes in exchange rates cause unintentional dumping

Countertrade

the trade of goods and services for other goods and services that cannot be traded for money -may be required by the government of a country to which a firm is exporting goods or services. -contracts may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably -most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading

Convertible (hard) currency

trades freely in the foreign exchange market, with its price determined by the forces of supply and demand (can get exchanged with other countries) Countries that restrict the convertibility of their currencies may be trying to: -Preserve the nation's hard currencies to repay debts owed to other nations -Preserve hard currencies to pay for imports and finance trade deficits -Protect its currency from speculators -Keep individuals and businesses from investing in other nations

Market Segment

• demographic/socioeconomic segmentation (gender, age, income, occupation, education, household size, and stage in the family life cycle) • psychographic segmentation (similar attitudes, values, and lifestyles) • Behavioural segmentation (occasions, degree of loyalty) • product-related segmentation (relationship to a product)