INTERNATIONAL BUSINESS

World financial markets

The Composition of Trade Between the 1960 s and the 1990 s the importance of manufactured goods increased while the role of primary commodities (i.e. rubber or mining) had decreased. More recently, there has been a shift of manufacturing to countries with emerging economies. There has been an increase in the area of services trade in recent years.

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Foreign exchange (Fx): money denominated in the currency of another nation or group of nations Exchange rate: the price of one currency expressed in terms another currency
The Foreign Exchange Market
Most are Over-the-counter (OTC) market through commercial and investment banks The Exchange-trade market specializes in securities, futures and options

Tariff Barriers
Tariff
Taxes on imported goods for the purpose of raising their price to reduce competition for local producers or stimulate local production

Ad Valorem Duty
An import duty levied as a percentage of the invoice value of imported goods

Specific Duty
A fixed sum levied on a physical unit of an imported good

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Tariff Barriers
Compound Duty
A combination of specific and ad valorem duties

Official Prices Variable Levy

An import duty set at the difference between world market prices and local governmentsupported prices

Lower Duty for more local Input

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Nontariff Barriers
Nontariff barriers (NTBs)
All forms of discrimination against imports other than import duties

Quantitative
Quotas: numerical limits placed on specific classes of imports Voluntary export restraints (VERs): Export quotas imposed by exporting nation

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Nontariff Barriers
Orderly Marketing Arrangements
Formal agreements between exporting and importing countries that stipulate the import or export quotas each nation will have for a good

Nonquantitative Nontariff Barriers

Direct government participation in trade Customs and other administrative procedures Standards

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World Trade Organization (WTO)

General Agreement on Tariffs and Trade (GATT) formed in 1947 was replaced by WTO in 1995. The goal of WTO is
To facilitate the development of a free and open trading system in the world To adjudicate trade disputes between or amongst member nations

WTO rulings are binding. If an offending country fails to comply with a judgment, the rights to compensation and countervailing sanctions will follow. Most-favored nation clause (MFN): is the fundamental principle of trade without discrimination. WTO Rounds-Doha Round (2001)

Economic Integration
Economic integration: is an agreement between or amongst nations within an economic bloc to reduce and ultimately remove tariff and nontariff barriers. Factors favoring integration are: - Cultural similarity - Geographic proximity - Political will Approaches to economic integration include: global integration via the World Trade Organization bilateral integration between two countries regional integration via an economic bloc

Effects of Economic Integration

Static effects: the shifting of resources from inefficient to efficient firms as trade barriers fall
Trade creation: production shifts from less efficient domestic producers to more efficient regional producers Trade diversion: trade shifts from more efficient external sources to less efficient suppliers within the bloc following the imposition of common external barriers

Dynamic effects: the gains from overall market growth, the expansion of production, the realization of greater economies of scale and scope, and the increasingly competitive nature of the market

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Types of Regional Economic Integration

Regional Cooperation: initial moves, no serious tariff implication Free Trade Area: no internal tariff Customs Union: no internal tariff and common external tariff Common Market: no internal tariff, common external tariff and factor mobility Economic Integration: no internal tariff, common external tariff, factor mobility, common fiscal and monetary policy, common currency, and political integration

Regional Economic Integration

Political union Economic union Common market FTA Preferential trading Agreement (tariff concessions on import of select items) Free Trade Among members Common external trade policy Harmonization of economic policies Complete political & economic integration Increasing integration

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Preferential trading agreement (PTA): e.g. south Asian PTA, grants tariff concessions to member countries on select products. FTA: remove all tariffs & non-tariff barriers among themselves while maintain with nonmember countries e.g. NAFTA Customs union: free trade among member countries & impose a common tariff on the non-member country.

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Common market: free trade among member countries & have a common external trade policy. It demands significant degree of harmony & cooperation on fiscal, monetary & employment policies. E.g. MERCOSUR, the south American grouping of Argentina, brazil, Paraguay & Uruguay. Economic union: the member countries in an economic union maintain a fiscal discipline, stability in exchange rates & stability in interest rates by way of unified monetary & fiscal policy e.g. euro zone

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Political union: a common parliament is created with representatives of member countries which works in synchronization with individual country s legislature. At this stage, the member countries are willing to dilute their national identities to a considerable extent & become a part of the union. E.g. Trading blocs: EU, NAFTA, ASEAN, APEC, GCC.

Structure of European Union

European Parliament (elected by the peoples of the Member States) Council of the European Union (representing the governments of the Member States) European Commission (driving force and executive body) Court of Justice (ensuring compliance with the law) Court of Auditors (controlling sound and lawful management of the EU budget)

North American Free Trade Agreement (NAFTA)

Established in 1994 by United States, Canada and Mexico, phases in over a period of 15 years Claims a total GNI that is greater than that of the 25-member EU NAFTA covers: Market access (tariff and nontariff barriers) Trade rules (subsidies and antidumping) Services Investment Intellectual property Dispute resolution Good example of trade diversion

Regional Integration Groups

Americas
North American Free Trade Agreement (NAFTA) Central American Free Trade Agreement (CAFTA)

Latin America
MERCOSUR Latin American Integration Association (ALADI) Central American Common Market (CACM) Caribbean Community and Common Market (CARICOM) ANDEAN Group

Regional Integration Groups

Europe
European Union (EU) European Free Trade Association (EFTA)

Asia
Association of Southeast Asian Nations (ASEAN) Asia Pacific Economic Cooperation (APEC) South Asian Association for Regional Cooperation (SAARC) Economic Cooperation Organization (ECO) Gulf Cooperation Council (GCC)

Africa
Southern African Development Community (SADC) Common Market for Eastern and Southern Africa (COMESA) Economic Community of West African States (ECOWAS)

MERCOSUR
Established in 1991
Brazil Argentina Paraguay Uruguay

Generates 80% of South America s GNP Signed free trade agreements with Bolivia and Chile Negotiating with EU for free trade agreements

Association of South East Asian Nations (ASEAN)

Organized in 1967 Member countries are protected in terms of tariff and nontariff barriers Holds tremendous potential market opportunities with 500 million consumers

Intl. marketing mix

Product: the uniqueness of product in the marketing mix is that all the other elements of the marketing mix i.e. price, place, promotion are designed to achieve successful exchange of the product for consumer satisfaction & income. Product decisions: important product decisions in intl. marketing are: Market segmentation decision: or market selection decision

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Firm related factors

Market selection decision

Market related factors

Company resources i.e. financial, human, Technological & managerial factors

Economic policy Business regulation Currency stability Political Ethnic Infrastructure Cultural Trade practices Determinants of market selection

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Product mix decisions: it pertains to the type of products & product variants to be offered to the target market (list of all the products offered for sale) Products specifications: it includes factors like styling, shape, size & other attributes & factors like packaging & labeling Positioning & communication decisions: positioning is the image projected for the product e.g. beefeater is a low priced gin in (UK) home market but in US beefeater was positioned as a high priced gin & was successful.

Price
Pricing for export market, however is more complex & difficult than for the new domestic market. Export pricing will have to accommodate into itself the trade practices & regulations of the overseas market. It takes into account additional costs involved in respect of packaging, labeling, marking etc. export pricing thus, involves the careful consideration & incorporation of a variety of factors

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Types of costs in export marketing: Production costs fixed, variable Selling & delivery costs holding stocks, packing, transport, documentation, pre-shipment inspection, insurance. Pricing objectives: a firm s pricing policy may be guarded by any one or more of the following objectives: market penetration, market share, market skimming, fighting competition, preventing new entry, shorten pay-back period, disposal of surplus (dumping), profit maximization, ROI, meeting export obligation

Factors affecting pricing

Intl. marketing objectives: the objective of marketing is a very imp. Factor determining the price e.g. if objective is market penetration, the price charged may be low. When a firm exports to make use of excess capacity, marginal cost basis may be adopted for price. Costs: the pricing decision is influenced by the fixed & variable costs of production & the transportation & marketing costs. Competition: a monopolist normally has high degree of freedom in pricing

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Product differentiation: if the company s product is highly differentiated than those of the competitors, the company will have more freedom to manipulate price. Exchange rate: e.g. if rupee is steadily appreciating, the Indian exporter would be constrained to quote high dollar prices. Market characteristics: demand trends, consumer income levels, importance of the product to the consumers, trade characteristics like trade margins

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Image: it may be easier for a well reputed firm to change a higher price than others. Govt. factor: export pricing is influenced by govt. policies & regulations. E.g. tax concessions, intl. agreements & other incentives & assistance like cheap credit, supply of remittances etc., at regulated prices.

Pricing methods/approaches
Cost based pricing: under this method the price includes a certain %age of profit margin on the sum total of the full cost of production, marketing costs & an allocation of overheads. Market oriented pricing: allows the prices to be charged in accordance with the changes in market conditions. Market sluggish lower price Demand high high price

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Following competitors: Setting the price at the same level as that of competitor Setting price below that of competitor Pricing higher than that of competitor, depending upon the quality of the product, the image & reputation of the firm, uniqueness or similarity of the product. Customer determined price: in a no of cases, the foreign buyer specifies the price at which he is prepared to buy the product.

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Break-even price: it is the price for a given level of o/p there is neither any loss nor profit. Marginal cost pricing: means taking advantage of the flexibility b/w the lower limit of break even price & the upper limit of the competitor s price for similar product. Transfer pricing: or intracompany pricing refers to the pricing of goods transferred from operations or sales units in one country to the company s unit elsewhere.

Methods of intl. payments

The terms of payment describe how & when the money should be transferred to the seller. Various factors affecting the terms of payment include the risk associated, speed, security, cost & the market competition. The major term of payment used in intl. markets are: Advance payment: the payment is remitted by the buyer in advance either by a draft mail or TT (telegraphic transfer). Generally, such payments are made on the basis of sample receipt & its approval by the buyer. The clean remittance is made after accepting the order but before the shipment through banking channels.

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Open account: the exporter & the importer agree upon the sales terms without documents calling for payments. However, the exporter prepares the invoice, & the importer can take delivery of goods without making the payment first. Subsequently, the exporting & importing firms settle their accounts through periodic remittances. It lacks safeguard measures against non payment.

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Consignment: the shipment of goods is made to the overseas consignee & the title of goods is retained with the exporter until it is finally sold. Consignment sales involve certain additional costs such as warehouse charges, interest, insurance & commission of agents. Documentary credit: the exporter is unwilling to part with his goods unless he/she is assured of receipt of the payment from the exporter & vice-versa. In such situations, the bank plays a crucial role of an intermediary providing assurance to both the importer & the exporter in an international transaction.

Intl. distribution channels

Channels of intl. marketing distribution may be defined as a series of independent organizations n/wed together to make the products or services available to the end consumer in intl. markets. Selection of the channels depends on the following criteria: Intl. marketing objectives, financial resources, firm s marketing image, speed of market entry, specific product need

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Intl. marketing channel Indirect Agents Merchant intermediaries Direct

Broker Country controlled Importers buying /commission buying agent agent agent Buying office Merchant exporter Intl. trading cos Export/ trading house

E-channel

Intl. border

Agents Broker /commission Manufacturer agent Agent/Sales rep. Buying agent

Merchant intermediaries Merchant Intl. trading exporter cos Export/ trading house

Dumping
It means selling in the foreign market at a price below the cost of production or selling in the foreign market at a price below the home market price. If the foreign price is above the home market price it is referred to as reserve dumping. Dumping is of 3 types: Sporadic (sell excess stock that arise occasionally) Intermittent (periodic sale of goods at prices below the home market price) Long period (resorted to facilitate the utilization of full capacity of the plant continuously).

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Steps in pricing: Defining pricing objectives Analyzing market characteristics Calculating costs Calculating value of incentives Determining export price

Promotion mix
Difference in the marketing environment necessitate valuations in the communication mix because a channel or medium that is very effective in one market may not be effective in another market. Some channels which are effective in certain markets may not be available or underdeveloped in some other markets.
Identifying target audience Determining Communication objectives Determining the msg. Budget decisions

Steps in developing marketing communication

Communication mix decisions

Communication mix
It is also called as promotion mix, has 4 major elements or tools or channels. Which communication tool or tools should be used or the nature of mix is determined by the marketing environment & the company s objectives & resources. Advertising: is any paid form of non-personal presentation & promotion of ideas, goods or services by an identified sponsor. Mass media advertising (TV, newspaper, magazines) Direct advertising (sales literature, samples & gifts).

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Sales promotion: are short term incentives to encourage purchase or sale of a product or service. E.g. trade fairs, exhibitions, sample gifts, lotteries etc. Personal selling: is defined as oral presentation, preferable when the product is technical in nature. Public relations: variety of programmes designed to improve, maintain or project a company or product image

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PRODUCT Change product Adapt product Develop new product

Dont change promotion Straight extension PROMOTION

Product adaptation

Product invention

Adapt promotion

Promotion adaptation

Dual adaptation

Intl. product-promotion strategies