International Business Study Notes PDF

**International Business Study Notes:** **LECTURE 1: INSIGHTS INTO INTERNATIONAL BUSINESS & GLOBAL MARKET TRENDS** **INTERNATIONAL VS DOMESTIC BUSINESS MANAGEMENT:** - Major business concepts & principles are universally applicable - International business management is: 1. More complex (g...

**International Business Study Notes:** **LECTURE 1: INSIGHTS INTO INTERNATIONAL BUSINESS & GLOBAL MARKET TRENDS** **INTERNATIONAL VS DOMESTIC BUSINESS MANAGEMENT:** - Major business concepts & principles are universally applicable - International business management is: 1. More complex (greater the more you move away from the "home" country) 2. Riskier 3. New, and thus presents new and unknown problems (language differences, negotiation techniques, legal procedures...) 4. Different than national environments - The **[biggest issue]** international firms face is **Psychic Distance** - Psychic Distance= captures uncertainty of decision makers due to lack of knowledge on foreign markets - Consequence of overall social + economic factors differing from what decision makers are used to - The **[main obstacle]** of international firms is the **Self-Reference Criterium** - *Unconscious* reference to one's own cultural values, experiences + knowledge - Not everyone thinks alike - To **counter this**, the corporation must select appropriate personnel (easily adaptable, open minded, knowledge of other cultures) for international assignments + engage in sensitivity training - Internationalization affects ALL areas of a firm (marketing, human resources, finance, manufacturing & distribution...) **LEVELS OF INTERNATIONAL BUSINESS & MARKETING:** - There are different terms to classify how international a business and its marketing operations are: 1. **Domestic Marketing:** - Least international commitment (focus on domestic) - This is normally the starting point start by trying out product/service in home country to establish firm 2. **Export Marketing:** - Limited international commitment - Involves direct/indirect exporting - *[Ethnocentric]* (domestic market focused): domestic markets, strategies, techniques, and personnel are seen as superior. International markets are secondary. Don't adapt products to sell internationally) 3. **International Marketing:** - Substantial international commitment - Focus on individual countries/regions - *[Polycentric]* (adapt to different): focus on importance & uniqueness of each international market. These firms are normally fully decentralized (marketing strategies are location specific) - *[Regiocentric:]* global marketing concept where world regions share economic, political, cultural traits are seen as different markets. Regional offices coordinate marketing activities (Europe, Asia, America...) - Foreign guided investment 4. **Global Marketing** - Extensive international commitment - Focus on segments rather than countries/regions - *[Geocentric:]* global marketing concept: World is perceived as the total market. Marketing strategies aimed at market segments rather than geographic locations. - These are multinational firms that view 1 single market, thus they don't change their marketing strategies McDonald's - Unless you begin a start-up firm in the technology sector you normally go trough all these phases, but if you do, you're known as a **BORN GLOBAL** firm **GLOBALIZATION ANALYSIS:** - **Globalization**= movement towards expansion of economic and social ties between countries through the spread of corporate institutions & capitalist philosophy that leads to the shrinking of the world in economic terms. 1. **GLOBALIZATION ANALYSIS AT A GLOBAL SCALE:** - Nowadays everything changes super quickly in markets and just the whole environment - Thus, firms must be flexible and have the ability to respond quickly to market changes - Globalization has led to a greater interdependence between different countries & their economies - Integration of Economies consists of: a. The opportunities to buy and sell in any country in the world b. The opportunities for labour and capital to locate anywhere in the world c. Growth of global markets in finance 2. **GLOBALIZATION ANALYSIS AT A COUNTRY SCALE:** - Not all countries are globalized to the same extent - Emerging markets: India, BRICs... 3. **GLOBALIZATION ANALYSIS AT A SECTOR SCALE:** - Many industries aren't competitive unless they're globalized - Trend toward the globalization of brands and standardization of product portfolio in multidomestic sectors (Olá Gelados) - The name of the company may be different but: a. Logo is the same b. Company behind it is the same c. Available products are the same 4. **GLOBALIZATION ANALYSIS AT A COMPANY SCALE:** - Multi-National or Trans-national corporations (MNCs and TNCs) are firms that have its headquarters in one country and operations in another or many others **DRIVERS OF INTERNATIONAL EXPANSION:** - Competition - Regional economic + political integration - Due to the growth of economic cooperation - Technology - Improvements in transportation + logistics - Communication networks & internet access - Economic growth - Growth of emerging markets - Converging consumer needs - There are also some firm specific drivers: 1. High Product Development Costs (firm must look at other markets to recover investment costs) 2. Experience Transfers (experience in 1 country serves as basis for strategies in new markets) **REASONS TO EXPORT/INVEST IN FOREIGN MARKETS:** - Serve markets that the firm has no/limited production facilities - Satisfy host government's requirement that local subsidiaries have exports - Remain price-competitive in home country - Test foreign markets - Domestic market saturation - Looking for new inputs (raw materials + talent) - Offset domestic market's cyclical cycles - Extend product's life cycle - Improve efficiency of production **INTERNATIONALIZATION OBSTACLES:** - Self-reference Criterion - Government Barriers - Restrictions placed on foreign corporations (tariffs, import quotas...) - Foreign investment laws that limit investments in certain areas - Risk Situations: - Country risk - Financial risk - Political risk **LECTURE 2: MACROECONOMIC ENVIRONMENT ANALYSIS FOR INTERNATIONAL BUSINESS** **PESTEL ANALYSIS:** - PESTEL Analysis assesses the external environment (market environment) the firm is thinking or is operating in - PESTEL splits the analysis into 6 factors: 1. Political 2. Economic 3. Social 4. Technological 5. Legal 6. Environmental **PESTEL ANALYSIS- POLITICAL:** - Government type - Policies in the country - Funding and grants available - Government initiatives in the sector the firm is planning to operate in. **PESTEL ANALYSIS- ECONOMIC:** - This focuses on the current & future economic state of the industry - There are 6 main economic variables that MUST be looked at: 1. **Real GDP** - Real Gross Domestic Product - Normally divided by the \# workers in economy - Measures **how well economy makes goods/services people find useful** - Imperfect measure of economic well-being 2. **Unemployment Rate** - Unemployed= a person must WANT to work and be ACTIVELY LOOKING for a job, but hasn't found one yet - Labour Force= individuals in a country that are employed + unemployed - **Unemployment rate = unemployed individuals ÷ labour force** - Best indicator of **how well economy is doing relative to its productive potential** - There are different types of unemployment - Frictional Unemployment: occurs due to workers & firms spending time searching for the best match - Cyclical Unemployment: occurs during recessions 3. **Interest Rate** - Governs the **redistribution of purchasing power across time** - Many different interest rates in the economy vary by duration & risk degree (often rise & fall together) - **Nominal** Interest rate= interest rate in terms of money (no inflation considered) - **Real** Interest Rate= interest rate in terms of goods & services (considers inflation) 4. **Inflation Rate** - Measure of **how fast overall price level is rising** - Hyperinflation: price level rising by \>20% per month 5. **Stock Market** - **Index of future expectations** - A high value= investors expect economic growth to be rapid, high profits, & low unemployment 6. **Exchange Rate** - Governs the terms on which international trade & investment occur - Nominal Exchange Rate: rate at which monies of different countries can be exchanged one for another - Real Exchange Rate: rate at which goods/services produced in different countries can be exchanged for one another - If domestic currency APPRECIATES (value rises vs other currencies): foreign-produced goods are cheaper leading to high imports. Low exports due to domestic-made goods being + expensive for foreigners - If domestic currency DEPRECIATES (value falls vs other currencies): locally produced goods are cheap making exports high. Foreign-made goods are expensive, making imports low. - These are crucial to consider global product portfolio management - Different product formats positioned at strategic price levels (differ) in distribution channel to take advantage of opportunities offered by different foreign markets **LECTURE 3: INTERNATIONAL CULTURE & ITS AFFECT ON BUSINESS DECISIONS** - Analyzing the external environment consists of seeing: - Demographic trends - Economic trends - Ecological trends - Technological trends - Political-legal trends - Social-cultural trends - Competitors **PESTEL ANALYSIS- SOCIAL:** - Among a group of people, and when taken together, they constitute a design for living - In the social factors we can distinguish between 2 things: 1. Norms - Social rules + guidelines prescribing appropriate behaviour in specific situations - Folkways= routine conventions of everyday life - Mores= central to functioning of society and its social life 2. Values - Abstract ideas about what a group believes to be good, right, & desirable - Bedrock of culture - Have emotional significance - Freedom **The HOFSTEDE MODEL:** - Hofstede defined a model that compares nations in terms of different dimensions - The values distinguish country cultures from each other are categorised into 4 separate groups: 1. Power Distance 2. Individualism vs Collectivism 3. Masculinity vs Femininity 4. Uncertainty Avoidance - Then, the Long-Term Orientation dimension was added in 1991 - Lastly, 2 new dimensions for more recent times: 1. Pragmatic vs Normative 2. Indulgence vs Restraint - Let's look at each in more detail: 1. **Power Distance** - Appropriateness of power authority in a firm - Power Respect: authority is inherent in one's position within a hierarchy - Power Tolerance: individuals assess authority in view of its perceived rightness or their own personal interest 2. **Individualism vs Collectivism** - Relative importance of interests of individuals vs interests of groups - Individualism: interests of individuals are more important - Collectivism: interests of groups are more important - Individualistic countries= USA & Collectivist= Japan & China 3. **Masculinity vs Femininity** - Can be considered as goal orientation - What motivates people to achieve different goals - Aggressive goal behaviour= masculinity= value material possession, money, & assertiveness - Passive Goal Behaviour = Femininity= value social relevance, quality of life, and welfare of others 4. **Uncertainty Orientation** - Emotional response to uncertainty and change - Uncertainty Acceptance= positive response to change & new opportunities - Uncertainty Avoidance= prefer structure and a consistent routine 5. **Time Orientation** - extent to which members of a culture adopt a long vs short-term outlook on work and life - Long Term Orientation: value dedication, hard work, & thrift - Short-Term Orientation: value traditions & social obligations 6. **Indulgence vs Restraint** **LECTURE 4: ANALYSIS OF INTERNATIONAL ENVIRONMENT- POLITICAL & LEGAL ISSUES** **PESTEL ANALYSIS- POLITICAL FACTORS:** - This focuses on the political and legal environment - Development in political & legal environment can have serious consequences on the firm's marketing efforts - Be aware of: 1. Legislation regulation business 2. Effects of government agencies (FDA, FCC, EPA) on the firm 3. Growth of public interest groups that positively/negatively affect the business - Some **Political Risks** include: 1. Confiscation 2. Expropriation 3. Domestication - Some **Economic Risks** include: 1. Exchange controls 2. Local-content laws 3. Import restrictions 4. Tax/price controls 5. Labour problems - Risks from Civil Violence, NGOs, terrorism... - **Models:** 1. Freedom House 2. Fraser Institute 3. Heritage Foundation 4. International Country Risk Guide **Takeovers:** - **Takeover**= host-government actions that result in a firm's loss of ownership/direct control - **Expropriation**= FORMAL seizure of an operation - Taking over foreign-owned property by the state for political purposes - **Confiscation**= an expropriation without compensation - State takes over property on the grounds of illegality - The diagram below shows a model that decomposes the political risk into 3 separate groups: Firm Specific Risk; Country Specific Risk; Global Specific Risk:  - These risks can be mitigated through the use of some strategies and tools - The most common tools include: 1. **Engagement with host government** - Multinationals engage with local governments to build strong relationships & understand political + regulatory environments - Lobbying, keeping opened communication channels - Partnering on policy initiatives to reduce uncertainties 2. **Risk analysis** - Detailed assessments of political & economic climate of the target market - Use data and analytics to find potential risks & prepare strategies to mitigate them 3. **Local joint venture** - Partnerships with local firms allows the multinational to benefit from the partner's knowledge of the local landscape - Reduces the risk of cultural misunderstanding - Enhances credibility within local market 4. **Risk consultants** - External professionals specializing in assessing + advising on political 6 economic risk - Provide expertise to help companies navigate complex environments 5. **Credit default swap** - Financial instrument used to hedge against political & economic risks - Specially used in the case of loan default & sovereign debt - Transfers risk from 1 party to another 6. **Operational hedging** - Firms diversify their operations across many regions to reduce dependency on just 1 market/country 7. **Political Risk Insurance** - Insurances protects firms against losses caused by political events - Often provided by private insurers **Country Risk Assessment Framework:** - A framework used by S&P Global Ratings - It's designed in the following way: 1. **Sources** - Gets data from sovereign criteria, Banking Industry Country Risk Assessment Criteria and external source 2. **Sub-factors** - There are 4 primary risk subfactors that are evaluated on a scale from 1 to 6 where 1 is the highest score - **Economic Risk**: economic environment of the country - **Institutional Risk:** evaluates governance, regulatory environment + institutional stability - **Financial System Risk**: considers health & stability of financial system - **Payment Culture**: analyses country's rule of law + enforcement of contracts + payment behaviour 3. **Assessment Process:** - Average score of subfactors is calculated to make a preliminary country risk assessment - Then the score is subject to 2 types of adjustments - Rounding: if the preliminary score ends is: a. 0.25 round up to stronger score b. 0.75 round down to weaker score c. 0.5 decide based on qualitative trends - Exceptional factors: specific outliers/trends may shift the score up/down 4. **Final Outcomes:** - Adjusted score becomes the Final Country Risk Assessment - 1= very low risk & 6=very high risk **PESTEL ANALYSIS- LEGAL FACTORS:** - The bases of legal systems include: 1. **Common law** - Primarily based on judicial precedents (case law) - Judges interpret & apply laws based on past laws - UK, United States 2. Code law: - Aka civil law - Based on comprehensive written statutes and codes - Judges apply these codified laws strictly without interpreting them beyond their wording 3. **Theocratic law:** - Legal systems are based on religious principles and doctrines - Islamic law 4. **Marxist-socialists tenets** - Legal systems based on Marxist ideology (collective ownership + state control) - Laws are created to support the goals of socialism & protect state-owned property - To solve international legal disputes, there are different mechanisms in place: 1. **Jurisdiction:** - Determine which country's court has the authority to hear case - Jurisdiction based on where dispute arose or where parties are located 2. **Conciliation (mediation):** - Non-binding process where a neutral 3^rd^ party (mediator) helps disputing parties reach a mutually acceptable solution 3. **Arbitration:** - Binding dispute resolution process where parties submit their case to an impartial arbitrator or panel - Decisions are enforceable under international treaties 4. **Litigation:** - Process of resolving disputes in court - More formal, expensive & time consuming - **Intellectual Property Rights (IPR):** 1. **Counterfeiting and piracy:** - Unauthorized use, duplication, or distribution or products/trademarks of creative works - Common in software, media, fashion industry 2. **Inadequate Protection:** - Shows challenges in some countries where legal systems fail to enforce IPR effectively - Leads to economic losses for rights holders 3. **International Conventions:** - Paris Convention for the Protection of Industrial Property - **Business on the Net (Cyberlaw & Unresolved Issues):** 1. **Domain Names:** - Disputes can arise over ownership/misuse of domain names 2. **Collection of Sales Tax/Duties:** - Online transactions across borders raise issues of how + where to impose taxes, often leading to legal ambiguities 3. **Contracts, Jurisdiction, Validity Issues:** - Legal challenges emerge when determining which country's laws apply to online contracts and if these are enforceable **LAWS AFFECTING BUSINESSES:** - There are many laws affecting the way businesses operate internationally - **Commercial Laws**: governs aspects of business operations: 1. **Company Formation** - Legal processes for establishing a business entity in a particular jurisdiction 2. **Marketing Laws** - Regulate advertising, consumer protection + competition to ensure fair practices (false advertising) 3. **Antitrust Laws** - Prevent monopolies & promote fair competition - Gvern practices like price fixing, market allocation & anti-competitive mergers 4. **Green Marketing Issues:** - Regulations related to promoting products/services based on environmental benefits - Ensures firms are not misleading customers with false environmental claims (greenwashing) - **There are also Foreign Corrupt Practices Act (FCPA):** - A US law with extraterritorial reach, meaning it applies to US companies and their subsidiaries, even abrod - Prohibits bribing foreign officuals to obtain/retain business - Ensures ethical business practices in international markets & hold firms accountable gloablly - **Export Restrictions:** - Regulations that control the export of goods/services/technology to certain countries/individuals - Include trade embargoes, tariffs, or restrictions on dual-use goods - Businesses must stay updated on these laws (changes occur often) **Import Controls:** - There are import laws and controls affecting the way businesses operate internationally - Tariffs: taxes imposed on imported goods - Make them more expensive to preotect local industry - Generates revenue for government - Makes foreign goods less competitive vs local ones - Voluntary Restraint Agreements: agreements between exporting & importing countries where exporter voluntarily limits quantity of exports - Avoids strictire trade barriers/retaliation by importing country - Protect industries in the importing country from being overwhelmed by foreign competition - Quota Systems: limits quantity/value of a certain good that can be imported within a specific time period - Control the supply of imports to protect domestic industries - Stabilize local markets by limiting competition - This can lead to Administrative Issues: 1. Monetary & Social Costs to Consumers - Import controls lead to higher prices for consumers, disproportionately affecting low-income groups, while benefitting local producers/protected industries 2. Downstream Change in Imports: - Firms & importers may find ways to circumvent these restrictions by modifying products/shifting trade routes to avoid nrrowly defined protectionist measures 3. Failure of Protected Firms to Improve Efficiency: - Domestic industries shielded by import controls may lack the incentive to innovate/improve productivity **LECTURE 5: INTERNATIONAL MARKET RESEARCH & MARKET SELECTION** - The Internationalization Decision Process consists of making several decisions: 1. What product/product line should be used to launch into the global market? 2. What factors make some markets more strategic than others? How to pick markets? 3. Where to find the right information about international markets & issues? 4. What should firms consider in determining the right mode of entry? **Foreign Market Selection and Assessment:** - When deciding to enter a foreign market, a firm must analyse its different dimensions to see if its ideal for the firm: 1. **Country Risk** - Political risk - Economic environment - Monetary environment 2. **Market Research** - Target population - Market research (offer and demand) 3. **Tariff & Non-Tariff Barriers** - Tariff: custom duties - Non-Tariff barriers: technical, sanitary, patents, trademarks... 4. **Distribution Channels & Promotion** - Done through doing business trips to the location - Participating in trade fairs - Internet - The figure above shows the International Market Research Framework (structured process for conducting research in global markets: 1. **Research Objectives** - **Information Requirement or Problem Definition**: clearly define the aim of the research + identify specific information needed - **Consider Management Level:** a. Corporate= broad company-level strategy b. Regiona= focus on specific regions c. Local= tailored for local markets - **Consider Decision Level:** a. Strategic= long-term goals & direction b. Tactical= short-term actions & decisions - **Examine Previous Data** a. Review exsiting internal/external data to see past trends, avoid redundancy + refine research focus - **Collect Secondary data:** a. Gather already available data from reports or publications.. 2. **Methodology** - **Choose Unit of Analysis** (decide on geographic or market focus for research): a. Global: worldwide perspective b. Region: focs on specific continents/trade blocks c. Country: National-level analysis d. Local: specific cities or communities - **Design Primary Methodology (**plan specific research techniques): a. Sampling Plan: define how to chose sample b. Measurement Equivalence: ensure consistency across varied markets/cultures c. Instrument: pick appropriate tools for data collection d. Research Technique: quantitative vs qualitative data e. Data Aalysis Technique: decide how data is processed & interpreted 3. **Collect Data** - **Implement Research Design:** a. Execute datra collection b. Get primary data from the market 4. **Report and Recommendations** - **Analyze Data:** a. Process & interpret collected data to identify trends, insights, & key findings - **Add new Knowledge to Database:** a. Integrate research findings in firm's knowledge base for future use - **Modify Business Strategies:** a. Use research insights to make informed chanages to business strategies/decisions **International Market Research- Selection & Information on Foreign Markets:** - **Identify-Gather-Analyze International Information** to help decision-making on: 1. Foreign markets with greatest potential 2. Entry Barriers & Access Regulations 3. Competitors 4. Modes of Entry & Structure of distribution 5. Adaptation of the product/service to the demand 6. Intermediary margisn & retail price - The issue is: 1. **Greater Complexity, Extension + Cost** - Solution: Selection methods (scrutiny-reduction) **International Market Information- Market Research:** - There are different research methods:  - All these methods help in: 1. **Pre-Selection of more favourable markets** - Assess potential accessibility + risks 2. **In Depth Research** - Matching of product with market needs 3. **Final Selection of New Market** - Select new market based on new insights - Size of market: worthy of effort & preferable in growth phase (not maturity or decline) - Sustainable competitive advantage (quality, service, price, design, etc.) - Find a suitable partner (mode of entry) **Guidelines for Market Research:** - This is specific for targeting international/foreign markets - We use a Framework that identifies Market Research Guidelines - The aim of this model is to narrow the possible target markets for the product/service - When identifying a target market, we must use comparable analogies from the following perspectives: 1. **Same Country, Comparable Product:** - Analyse products similar to the one being introduced in the same country - Understand local demand patterns & consumer behaviour 2. **Same Product, Comparable Country:** - Assess how the same product performs in countries with similar economic, cultural, or market conditions - Use insights from comparable markets to predict performance 3. **Same Product, Neighbour Distributor** - Evaluate performance of same product in neighbouring regions/markets serviced by similar distribution channels - Helps identify potential spillover opportunities/shared demand patterns 4. **Same Country, Comparable Company:** - Study competitors/firms offering similar products in same country - Analyse their strategies, market share, & customer engagement to refine the approach - Another model we also use to evaluate international markets are the **10 Selection Criteria**: 1. **Country Economic Growth:** - Measures pace of economic growth in a country - Use data from International Monetary Fund 2. **Purchasing Power Parity (PPP):** - Measures relative value of currencies & standard of living in a country - Use CIA Factbook to find data 3. **Volume of Imports** - Measures how much a country imports specific products/category - Locate customs tariff codes via **Taric** & use **International Trade Statistics** to analyse volume of imports 4. **Growth of Imports** - Measures rate at which imports of a certain product/category are increasing - Use Comtrade for tracking import growth trends 5. **Exports from Country of Origin** - Measures volume + trends of exports from home country to target market - Use Chamber of Commerce or Custom Data 6. **Trade Barriers** - Measures tariffs, duties & restrictions on imports into target market - Use Market Access Database to identify barriers 7. **Non-Trade Barriers** - Measures non-tariff restrictions like quotas, certifications, or standard - Use Global Trade Alert database to find this data 8. **Commercial Risks** - Measures risks related to payment defaults, political instability, & market volatility - Use TradingSafely for risk assessments 9. **Ease of Doing Business** - Measures administrative simplicity + regulatory environment of market - Use World Bank Doing Business Index to see this for different nations 10. **Transparency and Corruption:** - Measures level of corruption and transparency in the country - Use Transparency International's Corruption Index - This aids in accessing a market's potential, accessibility & risk **Export Market Selection** - **Export Market Selection**= process of opportunity evaluation leading to the selection of foreign markets in which to compete in - Identifying the right market is important: - Target market decisions are antecedent to development of foreign marketing programs, thus prior to cost of marketing - The nature + location of its markets affects a firm's ability to coordinate them - Establishing bases at appropriate foreign markets can be a major dimension in a global positioning strategy - **Market Segmentation**= breaking down the market for a particular product into segments of customers which differ in terms of their response to marketing strategies - Firm can tailor marketing policies to the need of each segment to obtain greater profits than is possible by using a uniform strategy for the whole market - Export Market Segmentation: - International markets tend to have greater differences between then than domestic markets - This is due to economic + cultural + political environments - Evaluation should be done by means of: a. **Measurability**: degree for which segments can be identified & to which the size and purchasing power of segments can be measured b. **Accessibility**: degree to which resulting segments can be effectively reaches + served c. **Profitability**: degree to which resulting segments are profitable enough to be considered for separate marketing attention d. **Actionability**: degree to which separate effective programs can be formulated for attracting + serving segment - Let's look at the following **Model for Selecting a Target Country** 1. **Start with all Countries** - Start with a broad set of potential markets (consider ALL countries) 2. **Preliminary Screening:** - Filter out unsuitable countries based on many factors (mentioned now) - [Consumer/User Profile:] assess demographics & behaviour of potential consumers - [Direct Estimate of Market Size]: evaluate potential market size for the product - [Market Size Indicators]: use metrics to gauge overall market potential (GDP, purchasing power...) 3. **Accept/Reject Decision:** - Based on preliminary screening split countries into 2 groups - [Accepted Group]= countries that have potential - [Rejected Group]= countries that don't meet the criteria and are excluded from considerations 4. **Prospective Target Countries:** - For the accepted countries, conduct a deeper analysis 5. **Estimating Company Sales Potential:** - [Top-Down Estimates]: use macro-level data to predict overall market potential (industry sales trends...) - [Bottom-Up Estimates]: use micro-level data (firm specific resources, capabilities...) to see if firm can meet market demand 6. **High Market-Potential Countries:** - After evaluating sales potential, find countries with high potential for success 7. **Estimating Sales Potential for High Potential Markets:** - Conduct a more detailed evaluation - [Entry Conditions:] assess trade barriers, regulatory environment + ease of entry - [Competition Audit]: analyse existing competitors in the market - [Distribution Channels]: evaluate availability + efficiency of supply chains & logistics - [Consumer/User]: understand consumer preferences + behaviour 8. **Secondary Target Markets:** - If some high-potential countries are deemed not fully suitable after detailed evaluation, classify them as secondary target markets for future entry 9. **Final Accept/Reject Decision** - Make a final decision on viable target markets & those that aren't 10. **Target Country:** - Process concludes with identifying most suitable target country to focus firm's resources and efforts **Which Market to Enter & When?** - When selecting foreign markets, we must evaluate market potential and learning potential: 1. **Market Potential:** economic + market factors indicating if a foreign market is worth entering a. **Market size growth** (how fast market is growing) b. **Demand** (population) c. **Level of Economic Development** (country's economic condition) d. **Costs** of market entry e. **Capital Spending** (investment required to become established in market) f. **Distance** (CAGE Framework) g. **Cultural Distance** (Political + regulatory differences) h. **Economic Distance** (differences in economic structures + income levels) i. **Geographic Distance** (physical distance + transport logistic costs) 2. **Learning Potential**: market's ability to provide insights or skills that can improve firms' global competitiveness a. **Sophisticated/Demanding consumers** (improve product quality) b. **Pace of Technology** (how advanced the market is in adopting new technologies) **Bases of Segmentation** - Segmenting a market can be done at different levels 1. Dimensions of a Country's Attractiveness + Competitive Strength +-----------------------------------+-----------------------------------+ | **COUNTRY ATTRACTIVENESS** | **COMPETITIVE STRENGTH** | +===================================+===================================+ | - Market size (total + segment) | - Market Share | | | | | - Market growth (total + | - Product Fit | | segment) | | | | - Contribution Margin | | - Market Seasons + Fluctuations | | | | - Product Quality | | - Competitive Conditions | | | (intensity, barriers) | - Market Support | | | | | - Economic + Political | - Quality of distributors + | | Stability | service | +-----------------------------------+-----------------------------------+ 2. General Market Indicators vs Specific Product Indicators +-----------------------+-----------------------+-----------------------+ | | **GENERAL MARKET | **SPECIFIC PRODUCT | | | INDICATORS** | INDICATORS** | +=======================+=======================+=======================+ | **Country Market | - Demographic + | - Economic + Legal | | Level** | population | constraints | | | characteristics | | | | | - Market condition | | | - Socioeconomic + | | | | Political + | - Product-bound | | | Cultural | culture | | | characteristics | | | | | - Lifestyle | | | | characteristics | +-----------------------+-----------------------+-----------------------+ | **Customer Market | - Demographic | - Behavioural | | Level** | Characteristics | Characteristics: | | | (age, gender, | consumption + use | | | religion...) | patterns + | | | | attitudes + | | | - Psychological | benefits | | | characteristics: | sought... | | | personality | | | | | | | | - Socio-Economic | | | | Characteristics: | | | | income, | | | | occupation, | | | | education... | | +-----------------------+-----------------------+-----------------------+ **In-Country Segmentation:** - In larger countries it could be necessary to decide which area, city, or region to focus the business and marketing efforts on - This is because different regions will have different characteristics (preferences, purchasing patterns, trends...)  **Market Entry Strategies:** - When entering a market, different things must be considered - The first being **Timing of Entry- Being the First Mover** 1. Advantages: - Pre-empt competitors - Build brand recognition and customer loyalty early - Gains cost advantages by moving down the experience curve - Creates switching costs for customers 2. Disadvantages. - High pioneering costs - Exposed to more risk due to unforeseen market changes - Later entrants may learn from the first mover's mistakes - We must also consider the following factors shown in the diagram: **Strategic Importance of Market + Firm's Ability to Exploit the Market** 1. High Strategic Importance + High Exploitability= **RAPID ENTRY** 2. High Strategic Importance + Low Exploitability= **PHASE-IN ENTRY TO BUILD PRESENCE** 3. Low Strategic Importance + High Exploitability= **OPPRTUNISTIC ENTRY** 4. Low Strategic Importance + Low Exploitability= **IGNORE** **Market Expansion Strategies:** - There are 2 expansion strategies we focus on: 1. **Market Concentration Strategy:** - Drawn by the power of the market - This focuses on specialization - Scale + Market penetration - Greater Market knowledge - Higher degree of control 2. **Market Spreading Strategy:** - Diversifying across multiple markets - This means that it's based on flexibility & there's less dependence on specific export markets - There's a lower perception of risks + uncertainty - Product Factors: volume, frequency, diversity, life cycle... - Environmental Factors: market size, growth, stability, uncertainty, buyer loyalty, heterogeneity - Export Marketing Factors: costs of expanding markets **LECTURE 6: ENTRY MODES IN INTERNATIONAL MARKETS- EXPORTING** - This is what companies should consider when entering a new foreign market - A company can enter a market differently and it must consider different factors - Key decisions include: 1. Selecting the product/product line for the global market 2. Identifying strategic markets and choosing suitable entry modes 3. Finding and using relevant international market information 4. Deciding how quickly to expand globally - These are the most common Modes of Entry: 1. Exporting: 2. Contractual Agreements 3. Joint Venture 4. Acquisition 5. Greenfield Investment - Let's look at this deeper: 1. **Exporting**= selling goods produced in 1 country to buyers in another country - Simplest and most common mode for starting international operations - Direct Exporting= company handles all export operations - Indirect Exporting= company uses intermediaries to handle export activities +-----------------------------------+-----------------------------------+ | **ADVANTAGES** | **DISADVANTAGES** | +===================================+===================================+ | - Realize location + experience | - High transport costs | | curve economies | | | | - Trade barriers | | | | | | - Problems with local marketing | | | agents | +-----------------------------------+-----------------------------------+ 2. **Contractual Agreements**= agreements allowing foreign firms to use intangible assets (technology, trademarks or system) without direct investment by the parent company - Licensing: allowing foreign firm to produce + sell products using licensor's intellectual property in exchange for a defined fee - Franchising: giving foreign business right to use company's brand, product + operational model in exchange for some % of revenues +-----------------------------------+-----------------------------------+ | **ADVANTAGES** | **DISADVANTAGES** | +===================================+===================================+ | - Low development costs & risks | - Lack of control over quality | | | | | | - Can't engage in global | | | strategic coordination | +-----------------------------------+-----------------------------------+ 3. **Joint Venture**= partnership where a local firm collaborates with a foreign one to create a new business entity (both share control, costs, risks + profits) +-----------------------------------+-----------------------------------+ | **ADVANTAGES** | **DISADVANTAGES** | +===================================+===================================+ | - Access to local partner's | - Lack of control over | | knowledge | technology | | | | | - Sharing development costs + | - Inability to engage in global | | risks | strategic coordination | | | | | - Politically acceptable | - Inability to realize | | | location + experience | | | economies | +-----------------------------------+-----------------------------------+ 4. **Wholly Owned Subsidiaries**= company establishes new business/buys existing one in a foreign market, keeping all ownership & control - Greenfield Investment= building a subsidiary from scratch in a foreign country - Acquisition= buying existing firm in the target market +-----------------------------------+-----------------------------------+ | **ADVANTAGES** | **DISADVANTAGES** | +===================================+===================================+ | - Technology protection | - High costs & risks | | | | | - Can engage in global | | | strategic coordination | | | | | | - Can realize location & | | | experience economies | | +-----------------------------------+-----------------------------------+ 5. **Piggybacking**= smaller firm (rider) uses distribution network of a larger, established firm (carrier) to enter foreign market - Common for non-competing complementary goods - **Rider Company**: uses a consolidated network and tests and external market - **Carrier Company**: monetizes its network and increases its range of products 6. **Export Consortiums**= group of firms (\>=3) work together to promote/distribute goods in foreign markets - In Origin: focused on promoting generic products (regional specialities) - In Destination: focused on joint distribution in foreign markets, often with shared export costs 7. **Turnkey Projects=** firm designs, contracts, and equips a facility in a foreign market and then hands over operations to client when its ready to function - Common in industries like construction & manufacturing 8. **Intra-corporate Transfers=** a multinational firm moves goods between its own subsidiaries in different - Often used optimize supply chain efficiency  - Thus, when entering a foreign market, firms must consider: **Exporting:** - **Partner Mindshare**= measurement of strength of a relationship between manufacturer & export-partner in terms of trust, commitment, and cooperation - Drivers include: a. Commitment & trust b. Collaboration c. Mutuality of Interest and Common Purpose + Product, Brand & Profit - The 3 major Types of exporting include: 1. **Indirect Export**= export activities are done through an intermediary/domestic firm. There are different types of indirect export modes: a. **Export Buying Agent**: overseas customer's hired purchasing agent operating on basis of orders received from customer/buyer b. **Broker**: bring a buyer & seller together and performs the contractual function. Doesn't actual handle products sold/bought & broker receive a commission c. **Export Management Company** (Export House): conducts business in the name of each manufacturer it represents for many firms d. **Piggyback**: non-competitive but related & complementary products 2. **Direct Export**= firm performs exporting activities itself. The firm does it itself through its export departments but can also use *[distributors]* and *[agents]*: +-----------------------------------+-----------------------------------+ | **DISTRIBUTOR** | **AGENT** | +===================================+===================================+ | - Independent firm that stocks | - Independent firm that sells | | the manufacturer's product | on behalf of manufacturer | | | | | - Freedom to pick customer & | - Usually it won't see or stock | | price | product | | | | | - Profit from differences | - Exclusive, semi-exclusive, | | between seller & buyer price | non-exclusive | | | | | - Exclusive representatives: | - Commission on pre-agreed | | sole distributors in a | basis | | country | | | | - Sells to wholesalers & | | - Buy on their own accounts | retailers | | | | | - Represents manufacturer in | - Gather some market & | | all aspect of sales & | financial information depends | | servicing | on contract | +-----------------------------------+-----------------------------------+  3. **Cooperative Export**= collaborative agreements with other organizations - These are known as Export Management Companies (EMC) - This is usually used for small and medium enterprises - Their functions: a. Exporting in the name of the association b. Consolidating freight & negotiating rates c. Performing market research d. Appointing selling agents abroad e. Setting prices for export f. Allowing uniform contracts & terms of sale - What to look for in an intermediary? 1. Size of firm 2. Knowledge/Use of promotion 3. Reputation with Supplier, Customers, and Banks 4. Sales Performance Record 5. Cost of Operations 6. Overall Experience 7. Knowledge of Business methods in manufacturer's country **Export Procedures:** - The most common export documents include: 1. Sales Contract 2. Export Declaration & License 3. Proforma Invoice 4. Certificate of Origin 5. Insurance Certificate 6. Inspection Certificate - These can be split into Primary & Auxiliar Documents: - The diagram below explains the process for international trade transactions:  1. **Buy**: this section consists of Preparing for Export: - **Establishing** Sales **Contract** (terms of sale) - **Order Goods**: buyer places their order - **Advise on Delivery**: establish logistics for delivery timelines & methods - **Request payment**: ensure payments methods + terms are clear 2. **Ship**: consists of Transport & Regulatory Procedures - Establish Transport & **Deliver Goods** - **Provide waybills, goods receipt & status** report (waybills & receipt act as proof of transport; status report tracks shipment progress) - **Get import/export license** (legal permission secured) - **Customs declarations** (get documents needed by customs for clearance of goods) - **Provide cargo declarations** (ensure all details of shipment are documented) - **Apply trade security procedures** (inspections to ensure compliance) 3. **Pay**: prepares for import & financial procedures: - **Provide Credit Rating** (assess buyer's financial reliability & creditworthiness) - **Provide Insurance** (protect foods against damage/loss during transit) - **Provide Credit** (offer financial options to facilitate transaction) - **Execute Payment** - **Issue Statement** (provide invoices & payment confirmations) **Export Terms of Sale:** - **INCOTERMS** is the universal trade terminology developed by the International Chamber of Commerce - **Clean Bill of Lading**= shipping document issued by carrier stating that the goods were received in good condition (no damage or defects) - Used for trade financing & payments as it assures the buyer of the goods' condition at time of shipment - Ensures trust between trading parties + facilitates smooth transactions - **Dirty (Foul) Bill of Lading**= shipping document issued by carrier indicating that the goods were received with visible damage, defects, or other irregularities - Contains specific notations/clauses that detail damage/missing items - Typically not acceptable in transactions involving a Letter of Credit, unless explicitly agreed upon by the buyer - Leads to disputes or claims (potential finance or reputational risks for seller) - **FOB**= Free on Board - **FAS**= Free alongside Ship (port of call) - **CIF**= Cost, Insurance, Freight (foreign port) - **CFR**= Cost and freight (foreign port) - **DAF**= Delivered at Frontier **Export Payment Methods:** - There are different payment methods to consider in international transactions - Payment Procedures are the payment terms offer by exporters to foreign buyers - This can be: 1. Cash in Advance: when credit standing of buyer is unknown or certain, they may be asked to pay up-front (full or partial) 2. Open Account: seller ships goods before the buyer pays - seller assumes payment risk - offered to reliable customers in economically stable countries 3. Consignment: exporter ships goods to importer, but the payment is made only after the goods are sold to a 3^rd^ party/end customer - Goods are shipped to buyer and the payment is made when sold 4. Letter of Credit: promise to pay seller specified amount when bank has received documents stipulated in letter of credit - Document issued by buyer's bank - Confirmed Letter of Credit= correspondent bank in seller's country agrees to honour issuing bank's Letter of credit - Irrevocable Letter of Credit: once seller accepts Letter of Credit, the buyer can't alter/cancel it without seller's consent - Looking at the Letter of Credit in more detail, it simply involves the exchange of documents & money through intermediaries. It has the following steps: 1. Buyer & seller agree on terms of sale (sales contract dictates Letter of Credit to be used to finance transaction) 2. Buyer competes an application for a Letter of credit & forwards it to their bank 3. Issuing bank (buyer's) forwards the letter of credit to a correspondent bank in the seller's country 4. Having received assurance of payment, seller makes the shipping arrangements **LECTURE 7: ENTRY MODES IN INTERNATIONAL MARKETS- MORE THAN EXPORTING** - This is what companies should consider when entering a new foreign market - There are more entry modes than exporting - We'll look at this in more detail in this section **Strategic Alliance:** - There are different types of strategic alliances - A key example is a joint venture: - All joint ventures are strategic alliances - Not all strategic alliances are joint venture - Not necessary for strategic alliances to have equity investment - Not necessary for strategic alliances to form a new business entity - Some examples include: 1. **Licensing Agreements** grants rights to intellectual property - Advantages: a. It's a low cost b. Low risk market entry c. Allows host country to gain technology + create jobs d. Allows host country & licensee to keep most profit e. Circumvents trade barriers - Disadvantages: a. It provides limited profits b. There's the risk of licensee becoming a strong competitor c. Licensee's poor performance can reflect o company d. Breach of contract e. Difficult in terminating licensing agreement - Licensor grants the licensee intellectual property - Brand & patent must be registered in the name of the licensor - Company gets revenue from fees/royalties from licensee 2. **Joint Venture**: 2 or \> firms create a new entity in a new market to share risks & benefits - Advantages: a. Access to local knowledge & resources b. Risk sharing c. Overcoming trade barriers - Disadvantages a. Conflicts between partners b. Profit sharing (lower profits) c. Loss of control - A joint venture agreement specifies what each partner brings to the table - It provides a clear definition of the JV's goals & operational roadmap - It also gives a detailed governance structure and financial arrangements **Franchise Agreement:** - Total transfer (granting) of a business in exchange for royalty payments - In a franchise agreement the franchisor shares: 1. Patents 2. Brands 3. Training 4. Suppliers 5. Commercial & marketing management - This is common in retail & consumer services - Provides a rapid international expansion - Need to adapt the offer to tastes & practices of the market - There are different types of Franchises: 1. **Industrial franchise**: name & know-how necessary to manufacture the product is granted. Basic components are supplied to product manufacturer, ensuring control over quantity & quality 2. **Commercial Franchise**: franchiser gives product to franchisee and also gives commercial know-how, merchandising, & advertising coverage. 3. **Franchising of Services**: franchisor transfer know-how in the provision of services (requires standardization of the image & design layout) 4. **Master Franchise**: most common method in distant countries where the selection of franchisees and control of the sales network is difficult and costly for the franchisor at home- You assign to a company (master franchise) the rights to operate the business in a given area. These rights are transferred by master franchisor to sub-franchisees (with territorial exclusivity). 5. **Direct Franchising**: abroad, they are managed directly from head office without support of a subsidiary, joint venture, or franchise master 6. **Corner Franchise**: be present in the department stores/shipping malls of main urban centres. Necessary to design stands/sales areas that convey same image through all locations. This is compatible with a network of own stores, though a different range of products must be offered, or the retail price must be controlled. Used in sale of top brand textiles and footwear and luxury goods **Management Contract:** - An agreement where 1 firm fives managerial expertise & services to another entity in a foreign country, without direct ownership of the business operations - Advantages: 1. Minimum Investment: firm doesn't need to invest heavily in foreign market 2. Minimum Political & Economic Risk: no direct ownership/significant asset commitment, the firm avoids many risks associated with foreign investment - Disadvantages: 1. Low profit: firm earns through management fees (very limited) **Direct Foreign Investment:** - **Direct Foreign Investment (DFI)** models through progressive implementation modes - These are varied ways firms can establish presence in a foreign market by progressively increasing their commitment & investment levels: 1. **Branch Commercial Office:** - Simple, cost-effective method to establish a minimal physical presence in a foreign market - Used to expand/control sales network - Handles typical commercial agent transactions - Operates as a sales office with a small staff - Does not bill customers or take risks - Allows businesses to assess market before committing to investment 2. **Commercial Affiliate:** - More established for of DFI where affiliate operates as a legal entity controlled by the parent firm - Engages in importer-distributor operations - Affiliate buys from parent company & takes financial + operational risk - This closes knowledge on the market - Direct contact with clients, enhancing market dieback + customer relationships 3. **Production Affiliate** - More significant commitment where the firm establishes production facilities in foreign market - High financial investment & management resources - Cost advantages (lower production costs) - Supply efficiencies for large markets - Commonly used in production-oriented emerging countries **Local Commercial Subsidiaries:** - **Local Commercial Subsidiary**: firm established in foreign market that operates as a separate legal entity, but is fully controlled by the parent company - Acts as the company's representative to handle marketing, sales, & customer relations locally - Advantages: - **Close to customers** enables direct interaction with clients, thus better understanding & stronger relationships - Provides **valuable insights into local clients**, market trends, & retail environment - Ensures parent company **retains full control** over branding, messaging, and positioning of its products in market - Disadvantages: - High costs (operational + set up) for staff, facilities, and compliance with local regulations **Acquisition:** - **Acquisition**: buying an existing firm in the foreign market, allowing the acquiring company to entering market by leveraging the acquired firm's assets, customer base, & operations - Advantages: - **Quick market penetration** (immediate access to market) - Combines strengths of both firms (market efficiency, knowledge & resource sharing) - Disadvantages: - **Host country** **resentment** as acquisitions can face backlash from local stakeholders - Acquiring an established firm is **very costly** - **Unforeseen problems** like cultural mismatches, operational inefficiency, or legal disputes **Local Manufacturing:** - **Local Manufacturing**: establishing production facilities in a foreign country to produce goods locally. - It's a form of Foreign Direct Investment (FDI) & shows great commitment to the market - Advantages: - **Job creation for host country** - Host country gains resources (gives access to capital and technology) - **Low Trade barriers** as reduces impact of import/export tariffs - **Higher Profit margins** due to lower transportation costs & import duties - **Utilization of Local Labour** (cost advantages & good for society) - Host **country's economic incentives** (governments can provide tax breaks & subsidies to attract foreign manufacturers) - Disadvantages: - **Expropriation Risk** so host government could seize control of business assets - **Large Capital Investment** **Assembly Operations:** - **Assembly Operations**: setting up facilities in a foreign market to assemble components into finished goods locally, rather than importing fully manufactured goods. - It's a form of Foreign Direct Investment (FDI) & shows great commitment to the market - Advantages: - **Circumventing Trade barriers** (helps avoid import tariffs and makes it easier to comply with trade agreements or local regulations) - **Utilization of Local Labour** (leverages cost-effective local labour assembly tasks + contribute to local employment) - Disadvantages: - **Local Product Content Laws** (many countries require a % of final product's components to be locally source s& compliance of these laws can increase costs) **LECTURE 8: MARKETING MIX DECISIONS: STANDARDIZATION VS ADAPTATION IN PRODUCT AND BRANDING** - In the internationalization process, a key decision is deciding which product/product line should be used to launch into the global market - Will this be a standardized product or will be an adapted version? - Marking Mix consists of: 1. Product 2. Price 3. Promotion 4. Plan **International Marketing Mix Decisions- PRODUCT:** - When considering the product to launch, a firm must make some decisions: 1. What product lines should be used as a launch pad for internationalization? 2. Degree of adaptation required 3. How to develop a product/attribute for international market? 4. Should the launch of a new product in all markets be simultaneous or sequential? - When selecting the product lines for internationalization, it's key to consider these 3 factors: 1. **Profitability Potential**: how profitable the product would be in the market? 2. **Risk**: the higher the product adaptation required, the higher the risk 3. **Benefits from Internationalization**: other benefits that may come from internationalization - This can be expressed in the following matrix - Ideal Product: **HIGH PROFITABILITY + HIGH EXPECTED BENEFITS + LOW RISK** - You use this matrix in terms of product, this you place products on the matrix to see if it would work for a specific target market - When considering the degree of adaptation, a firm must either decide to: 1. Standardize Product: product homogeneous for all markets 2. Adapt Product: adapt product for the target market (according to local tastes, customs...) - Thus a firm can use 2 strategies: 1. **GLOBAL STRATEGY**= standardize product - Assumes customer needs + preferences are largely the same - Prioritizes economies of scale, reducing costs through unified product, distribution + marketing - Idea for products with universal appeal 2. **MULTIDOMESTIC STRATEGY**= adapt product - Focuses on meeting specific needs of each market, often at expense of efficiency - Localized marketing + production + distribution - Suitable for products where local preferences play a major role - Moreover, when considering this, a firm must understand its product and understand its product features and attributes: 1. **Intangible Attributes**: non-physical/visible characteristics of the product - Linked to branding, perception + user experience - **Brand image & Position**: perception of brand globally vs locally - **Cultural & Emotional Appeal**: emotional connection product creates with consumers of specific market - **Marketing Communication**: product's promise + alignment with cultural expectations - **Customer Quality Perception**: what constitutes quality in 1 market isn't the same in another - **Standardization:** brand global identity is consistent/always the same - **Adaptation**: intangible attributes like messaging/branding adjusted to fit local culture 2. **External Attributes**: Factors external to the product itself (market-specific characteristics, legal requirements, environmental conditions) - **Regulations + Standards:** legal requirements like labelling, packaging laws, & safety standards - **Climate + Environmental Conditions**: packaging/product design may need adaptation to extreme temperatures - **Cultural Preferences**: local tastes & aesthetics influencing product adaptation - **Competitive Landscape**: competitor offerings & consumer expectations within a market - **Standardization:** product may stay consistent globally if external attributes don't vary much across markets - **Adaptation**: external attributes are customized to meet local regulations & cultural nuances 3. **Internal Attributes**: physical/functional characteristics of the product itself (design, engineering + performance) - **Core Product Features**: functionalities & benefits of product provides - **Design & Packaging:** physical appearance of product & how it's presented to customers - **Ingredients & Materials**: specific components/ingredients used - **Durability + Usability**: how product performs under varied conditions - **Standardization:** internal attributes stay consistent across all markets - **Adaptation**: internal attributes like flavours, sizes, or specifications are modified for local preferences - Product adaptations may have to be done, thus they can either be **voluntary** and **mandatory**: **Diffusion & Adoption of Products in International Markets:** - There are key criteria influencing how quickly + widely a product is accepted in a foreign market - The level Evaluation Criteria: 1. **Product Type:** - Products in globally standardized sectors (electronics, fast fashion, beverages...) tend to have quicker diffusion + adoption - Products needing changes in consumer habits/preferences face more challenges in adoption 2. **Product Life Cycle** - Diffusion in influence by stage of product life cycle - Products in introduction + growth stage have a faster adoption - Countries with similar levels of consumption per capita & economic development are more likely to adopt goods at the same pace 3. **Consumer Typology:** - Innovative Consumers: markets with a high proportion of innovative consumers (USA) see faster diffusion - These are called "Leading Markets": high demand & supply thus, are ideal for initial product launches 4. **Type of Purchase**: - **Joint Purchase**: products complementary or part of a system tend to experience faster adoption since they enhance value of an existing good - **Separate Purchases**: standalone products may face slower diffusion as they rely on individual customer decisions 5. **Information & Price:** - The more info needed to explain product & its benefits, the slower the diffusion - Higher prices can slow adoption as they reduce accessibility for a larger audience 6. **Launch Strategy:** - **Simultaneous Launch**= Common for global goods with standardized use a. Leads to faster + widespread diffusion as products enters multiple markets simultaneously - **Sequential Launch**= introducing product in stages across different markets a. May align with varying PLC stages in different countries - The **International Product Life Cycle**: - Evaluates stages of international product life cycle identity locus of operations & target markets at each stage - Identify the different dimensions of international product mix with firm illustrations - Examine the new product development process & the activities involved at each stage in international markets - Examine degrees of product newness & address international diffusion processes - The lifecycle has the following stages: 1. **Introduction Stage**: - Products are 1^st^ developed in industrialized countries - Products are traditionally 1^st^ marketed in industrialized countries - Increasingly, product lifecycles are shortened & product is marketed in emerging markets as well 2. **Growth Stage**: - Increasing competition from other multinationals - Rapid product adoption - Product is marketed mostly in developed countries - Product is exported to developing countries 3. **Maturity Stage**: - Product is adopted by the most target consumers - Sales are levelling off - Profits fall due to intense competition - Manufacturing operations move to developing countries to take advantage of cheap labour - New competitors (firms from developing nations) 4. **Decline Stage**: - Products are rapidly losing ground to new technologies and product alternatives - Decrease in sales & profit - Product life cycle is extended through sales to consumers in developing countries - In Product Planning and Development, multinationals must have some considerations, particularly these 5 possible international policies: 1. Maintenance of Product Line 2. Introduction of New Products 3. Adaptation of Product Characteristics 4. Search for New Uses 5. Elimination/Withdrawal of Products **Role of the "BRAND":** - A brand isn't just a name, logo, or a slogan - A brand also consists of: 1. **Visible Factors**: name, logo, advertising 2. **Core strategic foundation of brand** (product quality, competitor/demand analysis, market segmentation, positioning strategy...) - **Brand**= any sign that can be graphically represented (word, name, symbol, shape...) - Used to distinguish products of 1 firm from those of others - A brand can be a source of competitive advantage as: 1. It can be **hard to imitate** (brand creates differentiation) 2. **Value for the company & consumers** (strong brand fosters customer loyalty & provides trust in quality) 3. **Generates Income** outside Core Structure (licenses, franchises...) 4. **Doesn't depreciate** easily (a well-kept brand generates value over time) 5. **Relevance to Consumers** (strong brand remains important + meaningful to its target market) 6. Allows **simultaneous use across markets (**1 brand can effectively operate in many sectors) - **Brand Identity**= collection of all elements the firm uses to make unique image & perception of its brand in consumers' minds - Integral part of brand equity & directly contributes to brand value - Key elements include: 1. **Brand Name** (recognizable & distinguishable) 2. **Logotype** (unique typography/design representing brand name) 3. **Symbols** (visuals enhancing brand recognition) 4. **Package Shape + Graphics** (design + visual appeal) 5. **Colours** (specific colours associated with brand) 6. **Product & Benefit Descriptions** (value propositions & benefits communicated by the brand) - **Brand Equity**= value a brand adds to product based on consumer perception, loyalty & overall reputation. Components of Brand Equity include: 1. **Perceived Quality** (how consumers rate quality of products) 2. **Brand Association** (emotional/cognitive connections consumers make with brand) 3. **Brand Personality** (set of human traits associated with brand) 4. **Proprietary Brand Assets** (patents, trademarks, & others protecting brand) 5. **Brand Loyalty** (tendency of consumers to stick with the brand & buy again) 6. **Brand Name Awareness** (extent to which consumers recognize the brand) - Relationship between Brand Identify & Brand Equity: - **Brand Identity** focuses on how the **firm defines ITSELF** - **Brand Equity** represents how **CONSUMERS PERCEIVE + VALUE** the brand - Thus, a local brand differs from a global brand - Having a **Global Brand** has the following advantages & drawbacks: +-----------------------------------+-----------------------------------+ | **ADVANTAGES** | **DISADVANTAGES** | +===================================+===================================+ | - Economies of Scale (shared | - Lack of Local Identity (may | | resources across markets) | fail to connect with local | | | preferences) | | - Global & Universal Identity | | | | - Limited Adaptation (may not | | - Simplified communication (no | align with local needs) | | need to promote separate | | | local brands) | - Legal Issues (issues with | | | registration/compliance | | - Prestige & Status | across countries) | | | | | - Recognition by Travelers | - Consumer Opposition | | | | | - Consistent Corporate Image | - High Recognition time | | (strengthens brand | (requires more time to | | reputation) | establish) | | | | | - Efficient Marketing | - Consistency Challenges | | Coordination (cohesive | (ensuring quality is the same | | messaging) | globally) | +-----------------------------------+-----------------------------------+ - A **Local Brand** has the following advantages & drawbacks: +-----------------------------------+-----------------------------------+ | **ADVANTAGES** | **DISADVANTAGES** | +===================================+===================================+ | - Local adaptation | - Loss of economies of scale | | | | | - Government & Consumer | - Higher costs due to localized | | acceptance | production & marketing | | | | | - Faster market penetration | - High brand creation costs | | (easier to establish trust & | (separate brands) | | familiarity) | | | | - Diffuse international image | | | (lack of consistency | | | globally) | +-----------------------------------+-----------------------------------+ - Having a **Private Label/Distributor/3^rd^ Party Brand** (a brand developed by retailers) has the following advantages & drawbacks: +-----------------------------------+-----------------------------------+ | **ADVANTAGES** | **DISADVANTAGES** | +===================================+===================================+ | - Higher Dealer Margins | - Price-based Competition | | (attractive to retailers due | (limited differentiation, | | to profitability) | race to bottom on pricing) | | | | | - Quick Market Entry (little | - Lack of Identity (weak brand) | | time needed to establish | | | presence) | - Risk of Market Exit (reliance | | | on price competitiveness | | - Low Positioning Costs (less | increases vulnerability) | | investment in marketing) | | +-----------------------------------+-----------------------------------+ **International Marketing Mix Decisions- PRICING:** - Products must be priced according to many factors - Thus, companies must consider these factors **Low Pricing Strategies:** - **Low Pricing Strategy**: market approach where a firm sets its products prices lower than its competitors to achieve specific business goals - Focuses on attracting customer by emphasizing affordability & value +-----------------------------------+-----------------------------------+ | **ADVANTAGES** | **DISADVANTAGES** | +===================================+===================================+ | - Attracts price sensitive | - Low profit margins | | customers | | | | - Low quality perception | | - Quick market penetrations | | | | - Price wars (competitors may | | - Drives high sales volume | lower their prices, reducing | | | this firms' profitability) | | - Competitive advantage (go-to | | | option for affordable goods) | - Customer loyalty issues | | | | | | - Difficulty increasing prices | +-----------------------------------+-----------------------------------+ - There are different types of Low Pricing Strategies: 1. **Penetration Pricing**= prices are ser low initially to attract clients + gain foothold - Used to enter new market quickly (rapidly gain market %) 2. **Economy Pricing**= consistent low prices - Minimizes production & marketing & distribution costs - Targets price-sensitive customers 3. **Promotional Pricing**= temporary discounts/special offers to drive sales & attract new customers 4. **Loss-Leader Pricing**= selling certain products at a loss to attract customers who may then buy other higher-margin products - A Low Strategy is used when: 1. Entering a new market (disrupt established players) 2. High Price Sensitivity (customers are highly price conscious) 3. Economies of Scale (producing & selling large volumes at lower costs) 4. Competitive Markets (stand out in saturated market) - A Successful Brand Strategy must be: 1. Easy to Pronounce 2. Short 3. Legally Protected 4. Complete 5. Related to the Product **LECTURE 9: MARKETING MIX DECISIONS: RETAIL & DISTRIBUTION DECISIONS** - This is what a firm must consider when choosing the way it will distribute its products/services in an international market - Entering an international market or expanding to a foreign market can occur if: 1. In the **Origin Country:** a. Saturation of local market b. Intensification of competition, limiting profitability c. Legal restrictions 2. In the **Country of Destination:** a. Less developed markets with a need for the product b. Niche markets the product appeals to c. Opportunities for new commercial structures d. Flexible legislation e. Consumers are opened to foreign brands 3. **Management Reasons:** a. Scale economics b. Greater bargaining power with suppliers c. Barriers to competition - Trends in **International Distribution** include: 1. **Concentration** - Distribution channels are controlled by fewer & larger players - Centralizes powers & creates efficiency in distribution systems - Can lead to higher dependency on specific distributors 2. **Internationalization:** - Expansion of distribution systems across borders emphasizes standardizing channels globally - Supports standardization + increases reach to international markets 3. **Increase in Distribution Marks:** - Growth in branding of distribution systems (distributors create private labels) - Captures consumer loyalty 4. **New Distribution Formulas** - Innovative approaches are emerging to cater to evolving consumer needs - **Category-Killers**= stores/brands dominating specific category (toys, electronics...) with extensive product ranges + competitive pricing - **Vertical Retailers**= firms owning entire supply chain (production to retail) allowing greater control over pricing, quality & customer experience (Zara) - **Discount Stores**= focused on offering low prices by cutting margins (Lidl) - **Convenience Stores**= prioritize availability & accessibility for customers (high traffic areas and urban centres) - **Outlets**= retailers in selling surplus/off-season stock at lower prices **International Pricing Decisions (Marketing Mix):** - **Pricing Policy**= active instrument to achieve marketing goals - Prices can be used to achieve a specific goal: 1. **Maximize profitability** 2. **Achieve specific sales volume** 3. **Create a quality image (positioning)** - When thinking about pricing decisions, international firms must consider: 1. Role of pricing policy in strategy & competitive positioning 2. Factors to consider when establishing international pricing policy 3. Adaptation vs standardization of pricing policy to specific market characteristics 4. Influence of internet on international pricing 5. Transfer prices between parent firm & subsidiaries - Pricing in international markets is influenced by primary & secondary factors - These are known as the **7 C's of International Pricing:** 1. **Costs** - Primary - Cost of producing & delivering food to consumers 2. **Competitors** - Primary - Firms may set lower prices, match competitors, or price higher depending on their market position & goals 3. **Customers:** - Primary - Customer buying behaviour, demand elasticity, and willingness to pay influences pricing 4. **Cultural Differences** - Deep understanding of local culture, preferences & values is a must - Perceptions of value & product utility differ across cultures, affecting willingness to pay 5. **Channels of Distribution** - Longer/more complex distribution networks mean higher costs - These costs can increase prices & complicate logistics in international markets 6. **Currency Rates:** - Fluctuations in exchange rate affect pricing & profit margins - Firms must account for conversion costs & exchange rate volatility 7. **Control by Government:** - Secondary - Regulatory frameworks & governmental interventions can affect pricing decisions - When determining prices in an international strategy, firms consider:  1. **Company Variables:** - Costs: production, distribution + marketing - Establishes price floor (minimum price to profit) - Company's Strategic Goal can be market penetration, profit max, brand positioning 2. **Market Variables** - Demand (level of consumer interest + willingness to pay for product) - Competition (pricing strategies of competitors in the market that may need adjustments to stay competitive) - Legal Barriers (regulations & restrictions affecting pricing) - Exchange Rates (currency fluctuations and conversion costs affecting price stability & profitability) - "Made-Inn" Effect (consumer perception of product based on origin country) 3. **Product Variables** - International Product Life Cyle (pricing varies on stage of product life cycle) - Value Added (additional value product gives to consumers that justifies higher pricing) **International Pricing based on Demand** - **Elasticity of Demand=** measures consumer demand sensitivity to price - There are 2 types of demand curve: 1. **Elastic Demand**= small change in price leads to large change in demand 2. **Inelastic Demand=** change in price has small effect on quantity - This is crucial in International Pricing Decisions: 1. **Market Research:** - Firms must pick (through market research) what target consumer is ABLE + WILLING TO pay in a specific international market - Involves understanding cultural + economic + purchasing power factors 2. **Inelastic Demand Products** - Low price sensitivity - Customers willing to pay higher prices as they product may be a necessity - May have no close substitutes - May be a luxury item with perceived higher value - Pricing Strategy= firms set higher prices as demand won't fall much 3. **Elastic Demand Products** - High price sensitivity - Price increase means a large fall in demand, as consumers may switch to alternatives/reduce consumption - Pricing Strategy= firms must remain competitive in pricing & may focus on cost control to stay competitive **International Pricing based on Competition** - Using competitor prices as a reference - Serves as a reference & positioning with respect to other competitors, particularly in relation to the Price/Value relationship offered by the product - In mature & highly competitive markets as well as oligopolistic markets it's easy to use - Use of predatory pricing practices (dumping) is illegal in most markets **International Pricing & Positioning** - International firms can compete in 2 different factors: 1. Cost 2. Differentiation +-----------------------------------+-----------------------------------+ | **COMPETING IN COST** | **COMPETING IN DIFFERENTIATION** | +===================================+===================================+ | - Competition in low prices | - Competition in quality, | | | technology, & innovation | | - Goal is to achieve highest | | | market share | - Goal is to create long-term | | | value & sustainable benefits | | - Hard to keep long-term | | | competitive advantage, | - Requires pricing policy that | | especially for firms in | reinforces quality & prestige | | developed countries | of the brand | +-----------------------------------+-----------------------------------+ **Standardization vs Adaptation in Pricing and Coordination:** - Firms must use different strategies to balance pricing across all markets (domestic & export pricing) - Key comparisons between domestic & export prices: 1. **Domestic Price \< Export Price** - Cost logic - Domestic markets normally have lower costs associated to logistics, tariffs & tariffs - Export prices are higher as they consider shopping, custom duties, & regulatory compliance 2. **Domestic Price \> Export Price** - Suspected dumping (firm sells product abroad at lower price than domestic market, often to gain market % or dispose excess inventory) - This is illegal in many countries - Can lead to legal actions 3. **Similar Prices (Global Strategy)** - Uniform global strategy - Firms with global brands keep consistent pricing across markets, ensuring brand equity & avoids significant disparities - Minor differences occur due to local taxes/exchange rates but are generally very small 4. **Differentiated Prices under a Global Strategy** - Market adaptation - Firms tailor prices to each market based on local purchasing power, competition, & demand elasticity - **Price Adjustment Strategies** include:  **International Price Quotation- Filling an Order:** - There are critical components of international price quotations that companies must be aware of : 1. **Unit Price + Total Price:** - Price per unit & total cost based on quantity ordered - Ensures transparency 2. **Currency** - Indicates currency the transaction is conducted in - Crucial to address currency risks & exchange rate fluctuations 3. **Incoterms + Delivery Place** - Define responsibilities of buyer & seller regarding transportation, insurance, & custom duties - Place of delivery is where ownership & responsibility transfer occurs - Simplify, Clarify & Standardize the "buy-sell" international contract 4. **Delivery Term** - Timeframe for when goods are delivered - Ensures alignment with customer expectations & logistical capabilities 5. **Means of Payment + Deadline** - How and when payment is made - Included deadlines for payments to avoid disputes & delays 6. **Offer Validity:** - Period for which quoted price is valid - Protects seller from unexpected cost changes (currency shifts, input price increases) **International Pricing Based on Cost:** - This is basing the price of a good based on the costs of its production - This example highlights some key takeaways: 1. **Price Escalation**= each stage in supply chain adds costs, increasing final price for consumer 2. **Multiple Margins**= importers, wholesalers, & retailers add margins to ensure profitability 3. **Transparency**= clear cost breakdown helps manage price strategies & justify higher prices in international markets 4. **Challenges**= firm must stay competitive while covering all costs & ensuring profitability **Transfer Pricing Strategy:** - Prices of goods transferred from a firm's operations/sales units in 1 country to its units elsewhere - Refers to intracompany pricing/transfer pricing - May be adjusted to enhance ultimate profit of firm AS A WHOLE - 4 arrangements of pricing goods for intracompany transfer: 1. Sales at local manufacturing cost + standard mark up 2. Sales at cost of most efficient producer in firm + standard mark up 3. Sales at negotiated prices 4. Arm's length sales using = prices as quoted to independent customers - Benefits of Transfer Pricing: 1. **Lowering duty costs** by shipping goods into high-tariff countries at minimal transfer prices (duty base & duty are low) 2. **Reducing income taxes in high-tax countries** by overpricing goods transferred to units in such countries - Profits are eliminated & shifter to low tax countries 3. **Eases dividend repatriation** when dividend repatriation is curtailed by government policy by inflating prices of goods transferred **LECTURE 10: MARKETING MIX- COMMUNICATION & PROMOTION** - Marketing communications tell customers about the benefits & values of a company, product/service - It also creates branding - Communication & Promotion are the most visible elements of the Marketing Mix - They are key in the communication of positions - International firms must address the following questions regarding communication: 1. Communication tools more suitable for MSE 2. Standardize or Adapt tools of the International Communication Policy? 3. Differences between the send & the messenger in origin vs foreign country - Foreign country media available & define the target audience vs target market - Unique selling proposition **Process of International Communication: Budget Determination:** - To develop a communication strategy, a firm must allocate budgets for international marketing, emphasizing the steps to guide target audience from awareness to action - The Key Components include: 1. **Budget Determination**: communication budgets in international markets are determined using many approaches - **% of Sales**: fixed % of firm's revenue is allocated to communication - **Competition Based**: budgets are based on competitor's spending levels - **Communication Goal**: focus on achieving specific goal, resulting in more tailored budgets (increasing awareness, driving sales...) - **Market Similarity**: budgets are adapted based on how similar the new market is, reducing costs in familiar markets 2. **Sequence of Communication**: logical sequence to convert potential customer to buyer: - **Awareness**: target audience becomes aware of brand/product - **Communication Tools**: advertising is critical here (tv, social media...) - **Comprehension:** consumers understand product features, benefits & value proposition (PR plays a critical clear in delivering clear + persuasive info) - **Acceptance (Interest**): customers develop interest & positive attitude towards product or brand (sales promotions & personalized communications) - **Action (Purchase)**: final step in convincing customers to buy (discounts, personal selling...) 3. **Communication Tools**: tools helping to execute the sequence efficiently - **Advertising**: creates broad awareness & interest - **Sales Promotion**: offers incentives to accelerate buying decision - **Public Relations (PR):** builds credibility & strengthens brand perception - **Personal Selling**: engages directly with customers, addressing specific queries/objectives - Advertising can have different goals: 1. provide crucial information about a product - Features, benefits & availability - Introduction stage 2. **Reminder=** keeps brand/product in consumer's mind after initial awareness - Common for maturity stage - Keeps consumer loyalty 3. **Persuasive**= convinces target audience to choose specific brand/product - Used to build presence - Drive sales in competitive markets 4. **Reinforcement**= reassures customer on their buying decision & highlights product benefits - Helps build long-term brand loyalty - Increases customer satisfaction **Establishing a Budget:** - There are 4 common methods to determine an advertising budget - Each budget has its own approach and rationale: 1. **Competitive Parity Method**= budget based on spending levels of competitors - Ensures firm remains competitive in its advertising efforts - It avoids under/overspending vs market standards - Doesn't consider firm's specific goals/financial situation 2. **Affordable Method=** allocates whatever funds are available for advertising after overing other expenses - Ensures advertising doesn't strain overall budget - Simple & cost-effective for small businesses/startups - Doesn't account for market conditions or impact of advertising on sales 3. **Objective-and-Task Method:** budget is set by identifying specific advertising goals & calculating cost of tasks needed to achieve them - Links depending to results - Goal-oriented & tailored to firm's needs - Can be complex & time consuming 4. **% of Sales Method**= budget is a fixed % of firm's sales revenue - Aligns advertising with firm's financial performance - Simple & ensures spending scales with revenue - Can lead to reduced spending during low sales periods, limiting growth opportunities **Summary of the International Promotion Plan:** - When developing an international promotion plan, a firm must follow any stages - A successful international promotion plan ensures effective communication with target audiences in diverse markets - The steps are the following: 1. **Selection of Promotional Objectives** - Define goals (awareness, brand loyalty...) - Identify target markets where promotion efforts are focused - Specify target audiences (demographics, behaviours...) - Guides promotion strategy 2. **Selection of Promotion Tools & Message** - Choosing appropriate tools (advertising, personal selling, public relations...) - Craft a message resonating with target audience & aligning with cultural norms & values - Ensures tools and message effectively convey the intended value proposition 3. **Media Selection** - Choosing appropriate media channels (TV, social media, print...) based on audience preference & media consumption habits - Must consider media reach, cost, & compatibility with promotional message - Maximized impact + reach of promotional efforts 4. **Budget Determination** - Choose budget and budget decision method (methods in section above) - Allocate financial resources efficiently to meet promotional goals 5. **Evaluation** - Measuring the success of the campaign based on predefined goals (ROI, sales growth, brand awareness) - Continuous improvement (using insights from evaluation to refine future campaigns) - Ensures promotional efforts deliver desired outcomes & identify areas for optimization **Communication Tools:** - A common tool many international firms use is the **Integrated Marketing Communications** - Coordinated marketing strategy integrating all elements of marketing mix to deliver a consistent + unified message across all channels & markets - Addresses challenges of communicating across national borders in global markets, ensuring they work together effectively - Ensure message remains consistent, regardless of medium & context - Components of IMC: 1. **Advertising**