Internal Assignment

International Business

Submitted to: Prof. Bharat Lalwani

Submitted by: Shah Alam (17P113)

Ques:-1. Explain in detail the new product launch approaches for international markets.
Ans: An international market entry strategy is defined as the planning and implementation of
delivering goods or services to a new target international market. It often requires establishing
and further managing contracts in a new foreign country. Few firms successfully operate their
business in a niche market without ever planning to expand into new markets (mostly due to
the localized nature of their Business) but most firms strive to expand through increased sales,
brand awareness and business stability by entering a new market. Developing a win-win market
entry strategy involves a thorough analysis of multiple factors, in a planned sequential manner.
There are 2 basic Strategic Frameworks for Market Entry Strategies which are all dependent
on Product type and the Product Lifecycle.
These frameworks have been developed built upon the theories of Innovation Diffusion Models
in monopoly and a competitive Game Theory frameworks based on theories of Business
Economics.

The Waterfall Strategy

In a Waterfall strategy, the business is spread in international markets sequentially. First a firm
enters a new market and establishes an identity in the same. Establishing an identity involves
estimation of potential market size and revenue patterns, identification of target segment,
creation of brand awareness, identification and creation of possible distribution channels and
finally formulation and implementation of sales strategy. All these strategies at individual stage
is dependent on the product type and the life cycle.
Once the product identity is established in the new market, the learning from the same is
utilized to expand into another new market, somewhat with similar structure, sequentially.
Learning is an iterative process in such a strategy formulation and it is a less risky process of
expansion of business.
Typically, products with a longer product life-cycle or in the maturity phase would follow a
Waterfall Strategy, for expansion into new markets.
Advantages and disadvantages of the waterfall strategy:
Advantages:

The waterfall market entry strategy allows revitalizing products in the maturity stage,
prolonging their life-cycle, while maintaining a stable position within the market. As only one
market is entered at a time, all the business expansion resources are concentrated there, which
minimizes risks. Besides that, as markets are chosen so that each next one resembles the
previous one, the transition to farther, more exotic markets happens more gradually, without
incurring additional risks connected with unfamiliar business environments.

The waterfall market entry strategy is also distinguished by the accumulation of business
expansion knowledge. Business skills from domestic market are used to incorporate in the first
foreign market. The additional knowledge gained there is used in the market, and the process
is repeated for as many times as there are foreign markets entered. Such an accumulation of
knowledge of business expansion knowledge allows making the risks smaller for each entry,
which makes the waterfall strategy especially advantageous in the long run, being suited for
businesses who plan to enter a significant number of markets.

Disadvantages:

As the waterfall market strategy implies entering only one foreign market at a time, it leaves
little room for failure. If a business is forced to withdraw from a foreign market at the initial
entry stages, the losses are comparatively small. If the company, however, has already invested
significant resources in establishing itself, the costs of withdrawing increase significantly, and
at the same time the company has no alternatives in other foreign markets. This is somewhat
compensated, if a new foreign market is not the first, and the company has a solid background
in other foreign markets, but this applies only to highly internationalized companies.

Another disadvantage is that a business potentially loses its first-mover advantage on other
foreign markets, as it simply does not enter them. Competitors can enter other markets faster
than the business in question establishes itself in a certain foreign market and is ready to expand
elsewhere.
The Sprinkler Strategy
Markets are approached simultaneously in the sprinkler strategy. While this is a more risky
strategic framework for entering new markets, typically it is more suitable for products with a
shorter life cycle (like Technology products) or are at the Introduction and Growth Stage of the
Product Life Cycle. In such a strategic framework, markets are entered simultaneously and
often a Skimming Product Pricing strategy is used to generate as much profits as possible from
sales. Experiences from market responses are limited to individual markets and the same are
not replicated in the other markets.
A successful implementation of the sprinkler strategy requires a high standardization of
marketing activities due to the extreme difficulty implied in the simultaneous maximization of
marketing activities' customization and of the number of successful market entries. Usually, a
certain amount of failed market entries and withdrawals from some markets is accepted if a
sprinkler strategy is used.

Advantages and disadvantages of the sprinkler strategy:

Advantages

 Once a market is successfully entered, its market entry barriers work against potential
followers (first-mover advantages).
 The risk associated with multiple simultaneous market entry attempts is distributed
regionally (risk diversification).
 Entering multiple markets simultaneously is likely to result in a high volume of sales which
is beneficial with respect to capacity utilization.
 By achieving market entry in multiple markets the company makes full use of its
competitive advantage.
 Multiple simultaneous market entries in foreign markets allow for a more rapid
development of international markets.
Disadvantages

 A successful implementation of the sprinkler strategy incurs a high need for many financial
and personnel resources in a very short time frame.
 If too many market entries are unsuccessful and the strategy fails, major losses to the
company are highly probable.
 There is less or no opportunity to learn from earlier market entries and apply the lessons
learned when making later market entries.

Ques:- 2. Explain in detail the various E-Business models.

Ans: Internet users totaled 3.8 billion worldwide, according to a 2016 study by the International
Telecommunication Union, the United Nations organization that oversees international
communications. This amounts to about 47 percent of the world's population, an exponential
leap from the 6.5 percent the study reported in 2000. It also found that 79.1 percent of
Europeans are Internet users, the highest of any geographic region in the world. The U.S. isn't
far behind with 74.6 percent of its population using the Internet. The number of websites also
is growing, jumping from 582 million in 2011 to more than 1 billion in 2014, according to
Internet research firm Netcraft. These numbers are projected to continue to grow over the years.
Electronic business, or e-business, is the use of the Internet to conduct business and is a
lucrative and highly profitable domain that generated a mammoth $119 billion in sales in in
the fourth quarter of 2017 alone.
B2C:
The business-to-consumer, or B2C, model of e-business sells products directly to retail
consumers online. Amazon.com is an example of a B2C model. The e-business has only an
online identity through which it offers a range of products to customers. Other B2C enterprises
include bestbookbuys.com and gartner.com. Most B2C models generate revenue from direct
sales and processing fees. B2C also is known as electronic retail or e-tail.
B2B:
The business-to-business, or B2B, model involves companies using the Internet to conduct
transactions with one other. B2B e-business accounts for more than 90 percent of all electronic
commerce, according to the U.S. Census Bureau. The main reason for this is the complexity of
B2B transactions. Unlike B2C transactions that involve sellers offering products and services
and buyers purchasing them, B2B transactions are multifaceted and often involve multiple
transactions at each step of the supply chain. B2B businesses generate revenue from direct
sales.

C2B:
Consumer-to-business, or C2B, is a unique e-business model in which consumers create value
and demand for products. Reverse auctions are a common characteristic of C2B models, in
which consumers drive transactions and offer their own prices for products. The airline ticket
website Priceline.com is an example of a C2B e-business model. The website allows customers
to bid for tickets and offer their own prices. Shopping sites such as cheap.com, gilt.com and
ruelala.com also are C2B.
C2C:
Consumer-to-consumer, or C2C, e-business models enable consumers to behave as buyers and
sellers in third-party-facilitated online marketplaces. Craigslist is an example of a third-party
marketplace. The company brings together disparate buyers and sellers to conduct business.
Other examples of C2C websites include eBay and PayPal. A C2C model generates revenues
in several ways, including personal ad fees, membership or subscription fees, sales
commissions and transaction fees.
B2G:
Business to Government model is a variant of B2B model. Such websites are used by
governments to trade and exchange information with various business organizations. Such
websites are accredited by the government and provide a medium to businesses to submit
application forms to the government.
G2B:
Governments use Government to Business model websites to approach business organizations.
Such websites support auctions, tenders, and application submission functionalities.
G2C:
Governments use Government to Citizen model websites to approach citizen in general. Such
websites support auctions of vehicles, machinery, or any other material. Such website also
provides services like registration for birth, marriage or death certificates. The main objective
of G2C websites is to reduce the average time for fulfilling citizen’s requests for various
government services.

Ques:- 3. Explain in detail the Trade related mode of international business expansion
Ans: There can be number of ways to approach an international market so as to have
international presence and achieve firm’s strategic goals. Trade tends to be an institutional
mechanism by which a firm expands its operations overseas.
Expansion can be done through trade in the international market as this path has low risk. The
product can be manufactured in home country & then shipped to other countries where we want
to make our products available. This involves much lower risks and is a low cost and simple
mode of entry.
We can connect with an export intermediary based at the targeted country; this is known as
indirect export. Here the firm is not required to deal with hassles of export operations, it need
little international experience, and much less resource commitment. It may take place either
through home-based agents or through merchant intermediaries.
Then we can go through agents who do not take the title of the goods and operate on behalf of
principal firms, rather than themselves on commission basis. There are three types of Export
Agents
 Importer’s buying agents
 Country-controlled buying agents
 Buying offices

Another approach can be the Merchant Intermediaries, which are nothing but exports
intermediaries that buy and sell goods for a profit and take title of the goods and assume risks
thereof.
We can also go for Merchant Exporters, who collect produce from several manufacturers or
producers, export directly in their own name and work on profit margins.
Next option can be International Trading Companies which generally are large companies that
accumulate, transport, and distribute goods in various markets. Trading companies have been
operating for centuries as pioneers of international trade.
Other approach can be Trading/Export Houses that are Home-country based firms involved in
international trading activities that serve as merchant intermediary for exports. As a part of
export development strategies, most countries facilitate such trading/exports houses.
Direct Exports can also be a good choice which is about making domestically produced
products available in foreign markets without employing any market intermediary in the home
county. It does not mean that the goods are sold directly to foreign-based end customers.
Manufacturers’ Export Agents or Sales Representatives can also be an approach, where the
individual intermediaries who operate on a commission basis, travel frequently to overseas
markets and carry out business in the name of the firm rather than in their own name. These
agents specialize in one or a few countries and offer their services to a number of manufacturers
for non-competing products.
We can also go for Overseas-based Buying Agents which are foreign based agents that have
exclusive contract arrangements to perform the exporting firm’s business, generally paid on
the basis of a specific percentage of profit and the cost incurred.
Merchant importers can also be tapped; they are overseas-based trader who imports products
and further sells these to a wholesaler or a retailer for a profit. Merchant importers take
possession and title of the goods, therefore assuming risks and responsibilities thereof.
Distributors can also be chosen to purchase the goods and subsequently sell them either to a
market intermediary or to the ultimate customer. The distributors have contractual agreements
with the exporting manufacturers and deal with them on a long-term basis.
Then comes the Piggybacking (Complementary Exports) which uses well-established
distribution network of another company in foreign country.
Counter-Trade can also be the approach. It goes with various forms of trade arrangements
wherein the payment is in form of reciprocal commitments for other goods or services rather
than an exclusive cash transaction. In addition, trade financing and price-setting are tied
together in a single transaction. There can be different forms of Counter-Trade:
 Simple barter: Direct and simultaneous exchange of goods without use of money.
 Clearing arrangement: The transaction of goods and services that extends an agreed
period of time.
 Switch trading: Trading involving a third party, known as switch trader in the
transaction to facilitate buying of unwanted goods from the importer and make payment
by cash or barter to the exporter.
 Counter purchase: A deal involving two separate transactions payable in hard currency,
each with its own cash value.
 Buyback: Often used as a marketing tool to sell plant and equipment wherein the
payment is recovered by way of output from plant and equipment sold.
 Offset: Partial payment is made by the importer in hard currency, besides promising to
source inputs from the importing country and also make investment to facilitate
production of such goods.

Ques:- 4. Explain in detail the Investment mode of international business expansion

Ans: Investment Modes of Business Expansion becomes a concern when a country is found
attractive enough to justify a firm’s long-term commitment, investment modes of expansion
are often adopted. Below mentioned are the different investment modes:

Overseas Assembly

Exports of components, parts or machinery in CKD condition and assembling these parts at a
site in a foreign country. In order to respond to import restrictions, high tariff and freight
charges, and assembling operations overseas is often adopted to expand business. In
international assembly, a manufacturer exports components, parts or machinery in Completely
Knocked Down (CKD) conditions and assembles these parts at a site in a foreign country.

Supplies from other suppliers are often sourced at the foreign assembly site. In the food and
pharmaceutical industry, the equivalent of assembly is known as mixing wherein imported
ingredients are used at the firm’s overseas facilities.

Assembling is often used to overcome the import restrictions in target countries. Japanese
automobile manufacturers had to begin assembling in Europe mainly to deal with import
barriers. As the local content in these assembly operations was negligible, these were also
termed as ‘screw driving operations’.

International Joint Venture

Equity participation of two or more firms resulting in formation of a new entity. International
joint ventures offer equity investment opportunities in foreign countries with sharing resources
and risks with partner firms. It serves as an effective strategy to expand in countries with
investment restrictions. A firm shares equity and other resources with other partner firms to
form a new company in the target country.
In addition to capital, joint ventures give access to other resources and strengths of the partner,
such as market know-how, technology, skills, local operating knowledge, etc. The partner firms
may be either one or more local companies in the target country or firms either from third
country or home country.

Wholly Owned Subsidiary

Setting up a fully owned new entity in a foreign country. A firm expands internationally to
have complete control over its overseas operations by way of 100 per cent ownership in the
new entity, known as wholly owned subsidiary. Besides ownership and control, wholly owned
subsidiaries help the internationalizing firm protect its technology and skills from external
sharing.

Greenfield Operations

Creating production and marketing facilities on a firm’s own from scratch is termed as
Greenfield operations.

Mergers and Acquisitions

Transfer of existing assets of a domestic firm to a foreign firm lead to mergers and acquisitions.
In cross-border mergers, a new legal entity emerges by way of merging assets and operations
of firms from more than one country. A Cross-border acquisition involves transferring
management control of assets and operations of a domestic company to a foreign firm.

As a result, the local firm becomes an affiliate of the foreign company. Generally, mergers
occur in friendly settings wherein two firms come together to build a synergy. On the other
hand, acquisitions can be hostile takeovers by purchasing the majority of shares of a firm from
the open market.

Ques:- 5. Write short notes on:

a) Consequences of Poor documentation for export transaction
b) Aligned documentation system (ADS)

Ans: a) Consequences of Poor documentation for export transaction:

In an international trade transaction, a number of trade intermediaries and government
authorities are inevitably involved, such as government agencies monitoring international
trade, e.g., DGFT, export promotion councils, export inspection agencies, shipping companies,
freight forwarders, insurance companies, banks, port trust, central excise, custom authorities,
etc., which have their own documentary requirements.
Strict compliance with procedural formalities and fulfilling documentary requirements need
meticulous planning and desired skills for successful consummation of an export order.
Poor documentation may result in a number of problems in executing an export order which
may lead to additional costs to the exporter.
 These costs may be of three types:
I. The cost of interest charges incurred by exporters as a result of delays in receiving
payment.

II. The cost of putting the problem right, such as telephone bills, courier charges for
sending replacement documents, bank charges for amending documents, such as letter
of credit and, possibly, loss of credit insurance cover

III. Perhaps the most serious, but also the most difficult to quantify, is the cost to the
relationship between the exporter and the customer. More often than not, a new
customer will be so upset by poor documentation and the problems that it causes that
she/he will be reluctant to do further business with such an exporter.

Few other thing that can go wrong while creating export documents and their consequences:

 If you have the wrong contact name or if you don’t have a contact’s name and phone
number listed for your shipments and there are problems en route, your goods may arrive
late or not arrive at all. The wrong contact information will delay shipments, so make sure
you’ve checked with all parties and verified their contact information before you start
your paperwork (and again before you send your goods on their way).

 If you have the wrong address on a waybill, your goods could be delivered to the
wrong location. The container may end up sitting in a warehouse, and you will be stuck
paying fees to store it while you’re getting it straightened out.

 Creating inaccurate packing lists. If customs wants to review your goods—and the
goods are incorrectly labeled—officials may have to tear apart your entire shipment in
order to find and examine what they’re looking for.

 Wrong information on bank draft: If your bank draft form isn’t filled out correctly, you
may not get paid on time

 Export Control Classification Number (ECCN): In addition to classifying your

products with the proper Schedule B or HTS code, you need to determine whether or not
your products require an export license before you ship them. The first step of this process
is determining who has jurisdiction over your goods. Once you’ve determined
jurisdiction, you need to identify whether or not your products have a classification
number under the International Traffic in Arms Regulations (ITAR) or the Export
Administration Regulations (EAR). Most products fall under the jurisdiction of the EAR,
and most items don’t require an export license. But you should never just make that
assumption.
Ans: b) Aligned documentation system (ADS)

The standardisation of the pre-shipment export documents is done on the basis of the system,
popularly known as Aligned Documentation System (ADS).
The primary objective has been to ensure benefits to everyone in the international trade
chain from easier documentation. To enter information on an easy basis and access the
information with greater convenience, Aligned Documentation System (ADS) is adopted.
Documents related to exports are printed on uniform length and standard A-4 size of
paper. Initially, information is entered in Master Document 1 and Master Document 2.
From these documents, Common information, required to be incorporated in all the
relative documents, is entered in the slots at the same locations. An exporter can develop
14 out of 16 Commercial Documents with the help of Master Document 1. Shipping order
and bill of exchange are the only two Commercial Documents that cannot be developed
as these have not been standardized. In a similar manner, with the help of Master
Document 2, three of the Regulatory Documents-GR form, Shipping Bill/ Bill of Export
and Port trust copy of Shipping Bill can be developed. Main advantage of this system is
to enter the data quickly and read them with greater ease and speed. Document alignment
is a major trade facilitation activity. Aligned Documentation System is based on the U.N.
layout key. Deriving national document subsets from the UN Layout Key rules simplifies
trade documentation on an international scale, bringing considerable benefits to traders.

Advantages of Aligned Documentation System

1. Dispenses Conventional Documentation preparation: Once information is entered
into Master Documents, it becomes possible to prepare many Commercial and
Regulatory Documents with the help of masking reproduction technique. The
documents are aligned to one another. All documents are printed in the same size of
paper. Common items of information are given the same relative slots in each of the
documents included in the system. The common items of information occupy the same
relative position on each form. For example, shipper top left, references top right,
signatory details bottom right and so on.

2. Easier to Complete and Access: This makes forms both easier to complete and easier
to process. Since common positions are used for data items, it is possible to use a
‘Master Document.’ This master document can be used to produce a range of
documents using a photocopier and overlays (to provide the form outlines and hide
unwanted data).

3. Benefit to All Parties: All parties in the international trade chain benefit from easier
document processing. Using documents that comply with UN alignment standards
speed up form preparation, cut costs and reduce errors. Exporters may actually get paid
quicker than otherwise!

4. Better Image: Aligned documents simplify document checking and training new staff.
They even enhance an organization’s professional image.
Situation Today
By the mid-1980s, the use of aligned documents has been widespread in a number of
countries. Its true potential has begun to materialize as master/photocopier systems started
yielding to computerized export documentation systems. Success stories include banking
and transport (apart from rail). For the purpose of Documents Aligned System, documents
have been classified into two categories as under:
a) Commercial Documents
b) Regulatory Documents

COMMERCIAL DOCUMENTS:
Objectives
The objectives of Commercial documents are:
1. To effect physical transfer of goods from the exporter’s place to the importer’s place.
2. To transfer property and title of goods from the exporter to the importer and Realization
of export proceeds from the exporter to the importer.

Out of the 16 commercial documents in the Export Documentation Framework, as many as 14

documents have been standardized and aligned one to another. Commercial documents may be
classified as Principal Export Documents and Auxiliary Documents.

Principal Export Documents: These are the eight documents, which are required to be sent
by the exporter to the importer. These are known as Principal Export Documents. They are:
(i) Commercial invoice
(ii) Packing list
(iii) Certification of inspection/quality control (where required)
(iv) Bill of lading/Combined Transportation Documentation
(v) Shipping Advice
(vi) Certificate of origin
(vii) Insurance Certificate/Policy (In case of CIF export sales contract)
(viii) Bill of exchange.

Auxiliary Export Documents: The remaining eight documents, other than principal export
documents, are known as auxiliary export documents. They are:
(i) Proforma invoice
(ii) Intimation for Inspection
(iii) Shipping Instructions
(iv) Insurance Declaration
(v) Shipping Orders
(vi) Mate’s Receipt
(vii) Application for Certificate of Origin and
(viii) Letter to the Bank for Collection/Negotiation of Documents.
REGULATORY DOCUMENTS:
Regulatory pre-shipment export documents are those which have been prescribed by
different government departments and bodies in the context of export trade. These
documents are meant to comply with the various rules and regulations under relevant laws
governing export trade such as export inspection, foreign exchange regulations, export
trade control and customs etc. There are 9 regulatory documents associated with the pre-
shipment stage of an export transaction. Out of them, only 4 have been standardized. The
regulatory documents are as follows:
(1) Gate Pass-I/Gate Pass II: The Central Excise Authorities prescribe them.
(2) ARE-1: These are Central Excise forms. Earlier, AR4 and AR5 Forms have been
used. In their place, ARE 1 form, now, is used.
(3) Shipping Bill/Bill of Export: They are standardized and prescribed by the Central
Excise Authorities.
• For export of goods.
• For export of duty free goods.
• For export of dutiable goods.
• For export of goods under claim for duty drawback.
(4) Export Application/Dock Challan: Standardized and prescribed by the Port Trust
Authorities.
(5) Receipt for Payment of Port Charges: Standardized.
(6) Vehicle Ticket.
(7) Exchange Control Declaration Forms: GR/PP forms are standardized and prescribed
by RBI.
(8) Freight Payment Certificate.
(9) Insurance Premium Payment Certificate.