GM Notes Compilation for Finals

8/2/2019 GM Notes Compilation for Finals

1/60

Global Marketing Compilation

Chapter 1: Introduction to Global Marketing

Market Development Strategy

This involves seeking new customers by introducing existing products or services into new geographical markets.

Diversification Strategy

A company creates new products or services and introduces them into new geographicalmarkets.

Marketing can also be thought of as a set of activities and processes that along with productdesign, manufacturing, and transportation logistics, comprise a firms value chain.

The Value Equation

Value = Benefits/ Price (money, time, effort, etc.)

The marketing mix is integral to the equation because benefits are a combination of theproduct, promotion, and distribution.

Ways to improve value for customers

1. Improved bundle of benefits a. Improved product

b. Design new channels of distribution c. Create better communication strategies d. Decrease time and effort spent to learn about a product e. Combination

2. Lower price 3. Both


2/60

Competitive Advantage, Globalisation, and Global Industries

When a company succeeds in creating more value for customers than its competitors, thatcompany is said to enjoy a competitive advantage. According to Thomas Friedman,globalisation is the inexorable integration of markets, nation -states and technologies to adegree never witnessed before- in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever before, and ina way that is enabling the world to reach into individuals, corporations and nation-statesfarther, faster, deeper and cheaper than ever before.

In a global industry, a companys position in one country is interdependent with its industry position in other countries.

Indicators of Globalisation

1. Ratio of cross-border trade to total worldwide production2. Ratio of cross-border investment to capital investment3. Proportion of industry revenue generated by companies that compete in all key

world regions

Some Methods Employed to Create Focus

1. Alliancesa. Mergersb. Acquisitionsc. Divestituresd. Folding some businesses into other company divisions

Three Primary Concerns of Global Marketing

1. Value2. Competitive Advantage3. Focus

Factors Affecting the Successful Applicability of Global Marketing Strategies


3/60

1. Customer preferences2. Competitors3. Channels of distribution4. Communication media

In single country marketing, strategy development addresses two fundamentalissues:

1. Choosing a target market2. Developing a marketing mix

Additional Issues for Global Marketing Strategies:

1. Global Market Participation: - the extent to which a company has operations inmajor world markets.

2. Standardisation versus adaptation :- The extent to which each marketing mix canbe standardised or adapted in various country markets.

3. Coordination of Marketing Activities: - Extent to which marketing activities relatedto the marketing mix are planned and executed independently around the globe.

4. Integration of Competitive Markets: - Extent to which a firms competitivemarketing tactics in different parts of the world are interdependent.

Factors Affecting a Companys Decision to Enter New Markets

1. Resources2. Managerial mindset3. Nature of opportunities and threats

BRIC

1. Brazil2. Russia3. India4. China


4/60

Importance of Global Marketing

The particular approach to global marketing that a company adopts will depend on industry conditions and its source or sources of competitive advantage.

The largest single market in the world in terms of national income is the United States,representing roughly 25% of the total world market for all products and services.

Management Orientations

The orientations are collectively known as the EPRG framework.

Ethnocentric Orientation

At some companies, the ethnocentric orientation means that opportunities outside the homecountry are largely ignored. Such companies are sometimes called domestic companies.Ethnocentric companies that conduct business outside the home country can be describedas international companies.

For a manufacturing company, ethnocentrism may mean foreign markets are viewed as adumping ground for surplus domestic production. Little or no systematic marketing researchis conducted outside the home country, and no major modifications are made to products.

Polycentric Orientation

The polycentric organisation is the opposite of ethnocentrism. The term multinationalcompany is often used to describe such a structure. It is a variant of the multinational modeldiscussed.

Geocentric Orientation

It was also known as a global or transnational company. Global companies tend to retaintheir association with a particular headquarters country. Transnational companies both serveglobal markets and utilise global supply chains; in addition, there is often a blurring of national identity.

One way to assess a companys degree of transnationality is to compute an average of three figures:

sales outside the home to total sales; assets outside of the home country to total assets; and employees outside the home country to total employees.


5/60

Multilateral Trade Agreements

The WTO was created to promote and protect free trade.

The information revolution- what Thomas L. Friedman refers to as the democratisation of

information- is one reason for the trend towards convergence.

Product Development Costs

Such costs must be recovered in the global marketplace because no single national market islikely to be large enough to support investments of this size.

World Economic TrendsEconomic growth has been a driving force in the expansion of the international economy and the growth of global marketing for three reasons.

1. Economic growth in key developing countries has created market opportunities thatprovide a major incentive for companies to expand globally.

2. Economic growth has reduced resistance that might otherwise have developed inresponse to the entry of foreign firms into domestic economies.

3. The worldwide movement toward free markets, deregulation, and privitsation is a

third driving force.

Leverage

Leverage means some type of advantage that a company enjoys by virtue of the fact that ithas experience in more than one country. It enables a company to expend less time, lesseffort, or less money.

Four important types of leverage are :

1. experience transfers,2. scale economies,3. resource utilisation, and4. global strategy.

Scale Economies.


6/60

Greater manufacturing volume to obtain traditional scale advantages within a single factory.

Global Strategy

A global strategy is built on an information system that scans the world business

environment to identify opportunities, trends, threats, and resources.

Restraining Forces

1. Management myopia2. Organisational culture3. National controls4. Opposition to globalisation


7/60

Chapter 2: The Global Economic Environment

The World Economy: An Overview

To achieve success, executives and marketers must take into account the following new realities:

1. Capital movements have replaced trade as the driving force of the world economy 2. Production has become uncoupled from employment 3. The world economy dominates the scene; individual country economies play a

subordinate role4. The struggle between capitalism and socialism that began in 1917 is largely over5. The growth of e-commerce diminishes the importance of national barriers and forces

companies to re-evaluate their business models.

According to orthodox economic theory, when a country runs a deficit on its trade accounts,its currency should depreciate in value. Today, it is capital movements and trade thatdetermines currency value.

Economic Systems

More robust descriptive criteria include the following:

1. Type of economy a. Advanced industrial state and emerging economy, transition economy or

developing nation2. Trade and capital flows3. The commanding heights4. Services provided by the state and funded through taxes5. Institutions6. Markets

The Washington DC based Heritage Foundation

Key economic variables considered:

1. Trade policy


8/60

2. Taxation policy 3. Government consumption of economic output4. Monetary policy 5. Wage and price controls

6.

Property rights7. Regulations8. Black Market

Stages of Market Development

The World Bank has developed a four-category classification system that uses GNI percapita as a base.

Big Emerging Economies (BEM)

1. China2. India3. Indonesia4. South Korea5. Brazil6. Mexico7. Argentina8. South Africa9. Poland10. Turkey

Low Income Countries

About 40% of the worlds population is included in this economic category.

Lower-Middle Income Countries

Countries such as China, Indonesia, and Thailand.

The developing countries in the lower-middle income category have a majorcompetitive advantage in mature, standardised, labour-intensive industries.

Upper-Middle Income Countries

Malaysia, Chile, Hungary


9/60

Countries in this group that achieve the highest rates of economic growth aresometimes referred to collectively as newly industrialised economies (INEs). ISO -9000 certification for documenting compliance with recognised quality standards.

Mistaken Assumptions about the Bottom of the Pyramid (BOP):o The poor have no money o The poor are too concerned with fulfilling basic needs to waste money on

nonessential goods.o The goods sold in developing markets are so inexpensive that there is no

room for a new market entrant to make a profit.o People in BOP markets cannot use advanced technology o Global companies that target BOP markets will be criticised for exploiting the

poor.

High Income Countries

Post-industrial countries United States, Sweden, Japan Derived increasingly from the codification of theoretical knowledge rather than from

random inventions. Other characteristics are:

o The importance of information processing and exchangeo Ascendancy of knowledge over capital as the key strategic resource; of

intellectual technology over machine technology; of scientists andprofessionals over engineers and semi-skilled workers

o An orientation towards the futureo Importance of interpersonal relationships in the functioning of society

South Korea occupies a unique position among the high income countries in that itis the only one classified as an emerging market by influential stock market indexes.

The 30 nations that belong to the OEDC believe in market-allocation economicsystems and pluralistic democracy.

The recently OEDC has become more focused on global issues, social policy, and

labour market deregulation.

The Triad

Successful global companies had to be equally strong in Japan, Western Europe, andthe United States.


10/60

Today, two-thirds of world income as measured by GNI is located in the Triad. In the expanded Triad, the Japanese leg encompasses the entire Pacific Region. The American leg includes Canada and Mexico, and the boundary in Europe is moving eastward.

Marketing Implications of the Stages of Development

The stages of economic development described previously can serve as a guide to marketersin evaluating product saturation levels, or the percentage of potential buyers or households

who own a particular product. In countries with low per capita income, product saturationlevels for many products are low.

Balance of Payments

The balance of payments is a record of all economic transactions between the residents of the country and the rest of the world.

Trade in Merchandise and Services

Thanks in part to the achievements of GATT and the WTO, world merchandise trade hasgrown at a faster rate than world production since the end of World War II. Put differently,import and export growth has outpaced the rate of increase in GNP.

Services include:

Travel and entertainment Education Business services (engineering, accounting, legal services) Payment of royalties and license fees

Overview of International Finance

The foreign exchange market consists literally of a buyers and sellers market wherecurrencies are traded for both spot and future delivery on a continuous basis.

Who are the participants in the market?


11/60

The Central Bank can buy and sell currencies in the foreign exchange market andgovernment securities in an effort to influence exchange rates

Some of the trading in the foreign exchange market takes the form of transactionsneeded to settle accounts for the global trade in goods and services.

Economists use the concept of purchasing power parity when adjusting nationalincome data to improve compatibility.

Economic Exposure

This refers to the impact of currency fluctuations on the present value of a companysexpected future cash flows. Economic exposure is directly proportional to the amount of business a company conducts outside the home market.

When countries or regions experience currency and/or economic stress, we often have increasedexposure to certain risks, but also often have new profit opportunities. Potential increased risksinclude, among other things,

High receivable delinquencies and bad debts Delays or cancellations of sales and orders principally related to power and aircraft

equipment Higher local currency financing costs Showdown in established financial services activities.

Managing Exchange Rate Exposure

1. Sell products in the home countrys currency 2. Hedging exchange rate exposure involves establishing an off-setting currency position

such that loss or gain of one currency position is offset by a corresponding gain orloss in some other currency.

a. Porsche is fully hedged; that is it takes currency positions to protect allearnings from foreign-exchange movements.

b. External hedging methods- for managing both transaction and translation

exposure require companies to participate in the foreign currency market.Specific hedging tools include:i. Forward contractsii. Currency options

c. Internal hedging methods includei. Price adjustment clausesii. Intra-corporate borrowing or lending in foreign currencies


12/60

d. Currency optioni. A put option gives the buyer the right to, not the obligation, to sell a

specified number of foreign currency units at a fixed price, up to theoptions expiration date.

ii.

Conversely, a call option is the right to buy the foreign currency.3. Demanding a particular currency for its foreign sales.a. Does not eliminate risk; simply shifts it to the customers.b. In common practice, companies typically attempt to invoice exports

(receivables) in strong currencies and imports (payables) in weak currencies.However, in todays highly competitive world market, such a practice may reduce a companys competitive edge.


13/60

Chapter 3: Regional Market Characteristics and Preferential Trade Agreements

The WTO and GATT

Treaty among nations whose governments agree, at least in principle, to promotetrade among members.

Multilateral global initiative The WTO provides a forum for trade-related negotiations among its 150 members. The WTO has a Dispute Settlement Body (DSB) that mediates complaints

concerning unfair trade barriers and other issues between the WTOs membercountries.

During a 60-day consultation period, parties to a complaint are expected to engage in

good faith negotiations and reach an amicable solution. If that fails a complainant canask the DSB to appoint a three-member panel of trade experts to hear the casebehind closed doors.

Free Trade Area

Rules of origin discourage the importation of goods into the member country withthe lowest external tariff for transhipment to one or more FTA members with higher

external tariffs. The Group of Three (G3), an FTA encompassing Columbia, Mexico, and Venezuela. Closer Economic Partnership Agreement, a free trade agreement between China and

Hong Kong.

Customs Union

Andean Community o Social integrationo Decide together what each country should produceo Foreign goods and companies were kept out as much as possibleo Abolished all foreign echange, financial and fiscal incentives, and export

subsidies by 1992. Central American Integration System

o Gained momentum with the granting of observer status to Panama Mercosur


14/60

CARICOM

SICA countries agreed to conform to a common market external tariff of 5 % to 20% formost goods by the mid 1900s.

ASEAN Plus 3 China Japan Korea

ASEAN Plus 6

Australia New Zealand India

Marketing Issues in the Asia-Pacific Region

Mastering the Japanese takes flexibility, ambition, and a long term commitment. Marketersmust also master the keiretsu system of tightly knit corporate alliances.

European Union

Maastricht Treaty set the stage for the transition from the EMS to an economic andmonetary union (EMU) that includes a European Central Bank and a singleEuropean currency known as the Euro.

The single currency area, which officially began on January 1st 1999, is expected tobring many benefits to companies in the euro zone

o Eliminating costs associated with currency conversion and exchange rateuncertainty.

The EFTA and the EEA

Norway, Iceland, and Liechtenstein are the only remaining EFTA countries that are not EUmembers.

The Lone Convention and the Contonou Agreement

Designed to promote trade and provide poor countries with financial assistance from aEuropean Development Fund.


15/60

The Middle East

Includes 16 countries.

Differences in economic and political categorieso Mostly free

Bahrain Kuwait Saudi Arabia United Arab Emirates

o Mostly Unfree Qatar

o Repressed Iran

Saudi Arabia, monarchy of 22 million people and 25% of the worlds known oilreserves.

Cooperation Council for the Arab States

1981 Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates 45% percent of the worlds known oil reserves

Cooperation in all economic, social and cultural affairs Gulf finance ministers drew up an economic cooperation agreement covering o Investmento Petroleumo abolition of custom dutieso harmonisation of banking regulations, financial region, industrial strategy

and monetary coordination Coordination in trade development, policies and prices.

Marketing Issues in the Middle East

Decisions are not usually made by correspondence over the phone. The Arab business person deals with the person, not the company.

Africa


16/60

EU remains main trading partner Emerging Non-Oil Mena Countries

o Jordano Lebanono Moroccoo Tunisia

ECOWAS

Treaty of Lagos. By Jan 1990, tariffs on 25 items manufactured in ECOWAS members states had been

eliminated. Liberia, and Sierra Leone are still experiencing political conflict and economic decline.

East African Corporation Established a formal mechanism to promote trade and economic integration Tariff issues Devlop regional ties in tourism and coordinate energy projects

South African Development Community

In discussions with the EU about formation of a FTA. Another concern is war in Congo.


17/60

Chapter 4: Social and Cultural Environments

Culture can be defined as ways of living, built up by a group of human beings, that aretransmitted from one generation to another.

Hofstede defines culture as the collective programming of the mind that distinguishes themembers of one category of people from another.

Two categories

1. Material/ physical2. Nonmaterial/ subjective/ abstract

a. Attitudeb. Belief c. Behaviour

Aesthetics: Colours

1. Red is a popular colour in most parts of the world.a. Tied to centuries old traditions of viticulture and winemaking b. Associated with

i. Activeii. Hot

iii. Vibrantiv. Emotional

v. Sharp vi. Soft drinks and good tasting

c. Red is poorly received in most African countries2. Blue because of its association with the sky and water has an elemental connotation

with undertones of a. Dependability b. Constancy c. Eternity

3. White connotes purity and cleanliness in the West, but is associated with death inparts of Asia.

4. In the Middle East, purple is associated with death.5. Gray connotes inexpensive in China and Japan, while it is associated with high quality

and expensive in the U.S.6. Chinese associate brown with soft drink labels and with good tasting.


18/60

7. South Korean and Japanese associate yellow with soft drinks and good tasting.

Language and Communication

Linguists have divided the study of spoken or verbal language into 4 key areas:

1. Syntax (rules of sentence formation)2. Semantics (system of meaning)3. Phonology (system of sound patterns)4. Morphology (word formation)

Other Points:

Semiotics is the study of signs and their meanings. In Korean

o 8282, Pal Yi, hurry upo 7179, chil han chil gu, close friendo 4 5683 968, I love you

Communication issues which may arise

Sequencing Phasing- pertains to whether certain important agenda items are discussed

immediately after the parties have taken some time to establish rapport.

High and Low Context Cultures

Insisting on competitive bidding can cause complications in low context cultures.

Long term values include:

Persistence Ordering relationships Observing this order Sense of shame


19/60

Gaman, Japanese, patience.

In Japan and other Asian cultures characterised by a low tolerance for ambuigity, buyers willbe conscious of brand names and are likely to exhbit high brand loyalty.

A company can and should provide reassurance by stressing warranties, money back guarantees, and risk-reducing features.

The higher the power distance, the lower the level of trust. Organisationally, high PDI findsexpression in tall, hierarchical organisations, a preference for centralisation and relatively more supervisory personnel.

Cutler argues that print advertising is, by its very nature, designed to communicate to anindividual reader.

Japanese, kuchikomi,word of mouth.

Although Japanese teens pay attention to print and television advertising, it is clear thatmarketers can reach this segment by providing selected youngsters with product samples.

Martin Ross- 3 types of brand images

1. Functional2. Social

3. Sensory In countries where power distance is high, social brand images enhance brand performance.Conversely, by limiting the use of social and sensory images and emphasising the functionalbenefits, marketers can enhance brand performance in countries or regions with lowerpower distance. Sensory brand images perform well in countries where high individualism isa dominant culture pattern and social brand strategies would be effective in countriescharacterised by low individualism.

Avoiding the Self-Reference Criteria requires a person to suspend assumptions based onprior experience and success and be prepared to acquire new knowledge about humanbehaviour and motivation.

In diffusion of innovations, Rogers distilled the research into 3 concepts


20/60

1. Adoption process2. Characteristics of innovations3. Adopter categories

Charactertistics of innovation:

1. Relative advantage (how product compares with existing products)2. Compatibility 3. Complexity 4. Divisibility (ability of product to be tried and used on a limited basis without great

expense)5. Communicability (the degree to which benefits of an innovation or the value of a

product may be communicated to the potential market)

Adopted Categories

At least, in the West, adoption is a social phenomenon that is characterised by a distributioncurve. Adopters tend to be:

Younger Wealthier

Higher social status

One of the main reasons for the normal distribution of adopter categories is the interactioneffect; that is, the process through which individuals who have adopted an innovationinfluence others.

Diffusion of Innovations in Pacific Rim

Likely to be fewer innovators in Japan and other Asian countries, where risk avoidance ishigh.

Marketing Implications of Social and Cultural Environments

Environmental sensitivity reflects the extent to which products must be adapted to theculture-specific needs of different national markets. There are environmentally sensitive


21/60

products that do not require significant adaptation to the environments of various worldmarkets. At the other end of the continuum are products that are highly sensitive to differentenvironmental factors. The greater a products environmental sensitivity, the grester the needfor manegers to addrss specific economic, regulatory, technological, social and cultural

environmental conditions.


22/60

Chapter 5: The Political, Legal, and Regulatory Environments of Global Marketing

Political culture reflects the relative importance of the government and legal system and

provides a context within which individuals and corporations understand their relationshipto the political system.

Salient issues arising from the political environment include:

1. governing partys attitude toward sovereignty,2. political risk,3. taxes,4. the threat of equity, dilution, and expropriation.

Nation-States and Sovereignty

Sovereignty can be defined as supreme and independent political authority.

Government actions taken in the name of sovereignty occur in the context of two important criteria:

1. Countrys stage of development 2. Political and economic system in place in the country

Conversely, when many nations reach advanced stages of economic development, theirgovernments declare that (in theory at least), any practice or policy that restrains free trade isillegal.

Political Risk

Political risk is the possibility of a change in a countrys political environment or governmentpolicy that would adversely affect a companys ability to operate effectively and profitably.

Companies can purchase insurance to offset potential political risks arising from the politicalenvironment. In Japan, Germany, France, Britain, the United States, and other industrialisednations, various agencies offer investment insurance to corporations doing business abroad.


23/60

The OPIC provides various types of political risk insurance to U.S. companies; in Canada,the Export Development Corporation performs a similar function.

Taxation

The high level of political risk currently evident in Russia can be attributed in part toexcessively high taxes on business operations. High taxes encourage many enterprises toengage in cash or barter transactions that are off the books, and sheltered from the eyes of the tax authorities. This, in turn, has created a liquidity squeeze that prevents companiesfrom paying wages to employees; unpaid, disgruntled workers can contribute to politicalinstability.

Many companies make efforts to minimise their tax liquidity by shifting the location of income.

Earnings stripping is where foreign companies reduce earnings by making loans to U.S.affiliates rather than using direct investment to finance U.S. activities. The U.S. subsidiariescan deduct interest it pays on such loans and thereby reduce its tax burdens.

Seizure of Assets

Creeping expropriation has been applied to limitations on economic activities of foreignfirms in particular countries. These have included:

1. Limitations on repatriation of profits, dividends and royalties

2. Technical assistance fees from local investments or technology arrangements

Other issues include:

1. Local content requirements2. Quotas for hiring local nationals3. Price controls4. Other restrictions affecting return on investments5. Discriminatory tariffs6. Non-tariff barriers

Representatives of expropriated companies may seek recourse through arbitration at the World Bank Investment Dispute Settlement Centre.


24/60

International Law

Article 38 of the ICJ Statute:

The Court whose function is to decide in accordance with international law such disputes as

are submitted to it, shall apply:a. International conventions, whether general or particular, establishing rules expressly

recognised by contesting statesb. International custom, as evidence of general practice accepted in law;c. The general principles of law recognised by civilised nationsd. Subject to the provisions of Article 59, judicial decisions and the teachings of the

most highly qualified publicists of the various nations, as subsidiary means for thedetermination of rules of law.

Common Law versus Civil Law:

A civil law country is one in which the legal system reflects the structural concepts andprinciples of the Roman Empire in the 6 th century. Private law is the all-inclusive source of authority by reference to which every disputed case must be referred for decision. In civillaw countries, a contract between two or more parties, who are fully liable for the actions of the company forms companies. Asian countries like Japan, Korea, Thailand, Indochina,

Taiwan, Indonesia, and China are civil law jurisdictions. In much of Central Europe, civil law prevails.

In a common law country, many disputes are decided by reliance on the authority of pastjudicial decisions (cases). Common-law countries often rely on codification in certain areas.In common-law countries, companies are legally incorporated by state authority. The U.S., 9of Canadas 10 provinces, and other former colonies with Anglo-Saxon history, foundedtheir systems on common law. Asian countries like India, Pakistan, Malaysia, Singapore, andHong Kong are common law jurisdictions. Common law tends to prevail more in EasternEurope.

Islamic Law

The sharia is a comprehensive code governing Muslim conduct in all areas of life, including business. The code is derived from two sources:

1. The Koran2. Hadith

a. Based on the life teachings by Muhammadb. Spells out the products and services that are haram (forbidden)


25/60

c. Guidelines of Hadith correspond with common law.

Sidestepping Legal Issues: Important Business Issues

Jurisdiction

Jurisdiction pertains to global marketing insofar as it concerns a courts authority to rule onparticular type issues arising outside of a nations borders or to exercise power overindividuals or entities from different countries.

The court may examine whether the foreign company maintains an office, solicits business,maintains bank accounts or other property, or has agents and employees in the state inquestion.

Intellectual Property Rights

A patent is a formal legal document that gives an inventor the exclusive right to make, use,and sell an invention for a specific period of time.

A trademark is defined as a distinctive mark, motto, device or emblem that a manufactureraffixes to particular product or package.

A copyright establishes ownership of written, recorded, performed, or filmed creative work.

Counterfeiting is the unauthorised copying and production of a product.

An associative counterfeit, or imitation, uses a product name that differs slightly from a well-known brand but is close enough that consumers will associate it with the genuine product.

Piracy is the unauthorised publication or reproduction of copyrighted work.

Antitrust

Some legal experts believe that the pressures of global competition have resulted in anincreased evidence of price-fixing and collusion among companies.

The European Commission has the power to block a proposed merger or joint venture,approve it with only minor modifications, or demand substantial concessions before granting approval.


26/60

A cartel is a group of separate companies that collectively set prices, control output, or takeother options to maximise profits.

Licensing and Trade Agreements

Licensing is a contractual agreement in which a licensor allow a licensee to use patents,trademarks, trade secrets, technology, or other intangible assets in return for royalty payments or other forms of compensation.

Important considerations in licensing include:

1. Analysis of what assets a firm may offer for licensing,2. Price of assets3. Whether to grant the right to only make the product or to grant the rights to use

or sell as well.

Among the exclusions by the U.S. Omnibus Trade and Competitiveness Act was greasepayments to low-level officials to cut red tape and expedite routine governmental actionssuch as clearing shipments through customs, securing permits, or getting airport passportclearance to leave a country.

The Regulatory Environment

Regulatory agencies address a wide range of marketing issues, including:

1. Price controls2. Valuation of imports and exports3. Trade practices4. Labelling 5. Food and drug regulations

6. Employment conditions7. Collective bargaining 8. Advertising content9. Competitive practices


27/60

As noted by The Wall Street Journal :

1. Predatory in the U.S. but paternal in Germany 2. Easier to open a business in the U.S. than in Germany because Germans value social

consensus over risk taking, but it s harder to hire people because Americans worry more about discrimination lawsuits.

3. Easier to import childrens clothes in the U.S. than Japan because Japanesebureaucrats, defend a jumble of import restrictions, but its harder to open a bank inthe U.S. because Americans strongly defend state prerogatives.


28/60

Chapter 12: Pricing

Product costs establish the price floor. Prices for comparable substitutes create the priceceiling.

Pricing Strategies

1. Market Skimming a. May occur at the introduction stage of the product cycle

2. Penetration Pricing a. Appropriate to saturate market prior to imitation by competitors

Considerations for Setting Price

1. Prices reflection of products quality 2. Competitive price3. Pricing method or objective4. Discounts/allowances for international customers5. Differ prices with market segments

6. Elastic or inelastic market segment7. Reasonable or exploitive (governments view) 8. Dumping Laws

> Price Ceiling

> Optimum Price

> Price Floor


29/60

Cost-Based Pricing

1. Full absorption cost method2. Rigid cost-plus pricing 3. Flexible cost-plus pricing

Full Absorption Cost Method

Absorption costing means that all of the manufacturing costs are absorbed by the units produced.

In other words, the cost of a finished unit in inventory will include direct materials, direct labor,

and both variable and fixed manufacturing overhead . As a result, absorption costing is also

referred to as full costing or the full absorption method.

Absorption costing is a method for appraising or valuing a firm's total inventory by including all

the manufacturing costs incurred to produce those goods. These manufacturing costs include:

Direct Materials - These are the raw materials such as wood, metal, bricks, etc that are

used in order to create a finished usable good which will be demanded by the market.

Direct Labor - Direct Labor is the manwork and total factory hours put behind

assembling the raw materials, creating the finished good, etc.

Fixed Manufacturing Overhead - This includes expenses such as rent of factory wherethe raw materials are turned into finished goods, amortization of factory building,

utilities, etc.

Variable Manufacturing Overhead - These are the general and administrative expenses

in the manufacturing process.

Absorption costing is different from the other costing methods because it takes into account fixed

manufacturing overhead (includes expenses such as factory rent, amortization, utilities). One

drawback of absorption costing is that managers can increase production levels without taking

into account total sales (whether there is enough demand for all the goods they are producing).

Amity School Slides


30/60

The full absorption cost method defined per-unit product cost as the sum of all past or current

direct and indirect manufacturing and overhead costs. When goods cross national borders, there

are costs and expenses such as transportation, duties and insurance. By adding the desired profit

margin to the cost-plus figure, managers arrive at a selling price.

Rigid Cost-Plus Pricing

Rigid cost-plus pricing sets prices without regard to any considerations. They make no

adjustments to reflect market conditions outside the home country. The advantage of rigid cost

based pricing is its simplicity. The disadvantage is that this approach ignores demand and

competitive conditions in the target markets, setting prices too high or low. A rigid cost approachcan result in severe price escalation, leading to exports that cost too much.

Flexible Cost Plus Pricing

An alternative method, flexible cost plus pricing, ensures that prices are competitive in a

particular market environment. Experienced exporters and global marketers use this approach.Flexible cost plus incorporates the estimated future cost method to establish the future cost.

Terms of Sale

Obtain export license if required Obtain currency permit Pack goods for export Transport goods to place of departure Prepare a land bill of lading Complete necessary customs export papers Prepare customs or consular invoices


31/60

Arrange for ocean freight and preparation Obtain marine insurance and certificate of the policy

Incoterms

Ex-works seller places goods at the disposal of the buyer at the time specified in the

contract; buyer takes delivery at the premises of the seller and bears all risks and

expenses from that point on. Delivery duty paid seller agrees to deliver the goods to the buyer at the place he or she

names in the country of import with all costs, including duties, paid. FAS (free alongside ship) named port of destination seller places goods alongside the

vessel or other mode of transport and pays all charges up to that point FOB (free on board) sellers responsibility does not end until goods have actually been

placed aboard ship CIF (cost, insurance, freight) named port of destination risk of loss or damage of goods

is transferred to buyer once goods have passed the s hips rail CFR (cost and freight) seller is not responsible at any point outside of factory

Environment Influences on Pricing Decisions

Currency Fluctuations Inflationary Environment Government Controls, Subsidies, Regulations Competitive Behavior Sourcing

Pricing Policy Alternatives

Extension (ethnocentric) Adaptation (polycentric)


32/60

Geocentric Intermediate course of action Recognizes that several factors are relevant to pricing decision

Local costs Income levels Competition Local marketing strategy

Transfer Pricing

Pricing of goods, services, and intangible property bought and sold by operating units ordivisions of a company doing business with an affiliate in another jurisdiction

Intra-corporate exchanges

Cost-based transfer pricing

Market-based transfer pricing

Negotiated transfer pricing

Counter-trade

Counter-trade occurs when payment is made in some form other than money

Options

Barter

Counter-purchase

Offset

Compensation trading

Cooperation agreements

Switch trading


33/60

Chapter 13: Channel Decisions

Distribution is the physical flow of goods through channels. Channels are made up of acoordinated group of individuals or firms that perform functions that add utility to a productor service

Channels Create Utility via:

1. Place2. Form3. Time4. Information

Distributor wholesale intermediary that typically carries product lines or brands on aselective basis

Agent an intermediary who negotiates transactions between two or more parties but doesnot take title to the goods being purchased or sold

Guidelines for Dealing with Channel Intermediaries

Select distributors dont let them select you

Look for distributors capable of developing markets, rather than those with a few good customer contacts

Treat local distributors as long-term partners, not temporary market-entry vehicles

Support market entry by commitment of money, managers, and proven marketing ideas

From the start, maintain control over marketing strategy Make sure distributors provide you with detailed market and financial performance

data

Build links among national distributors at the earliest opportunity


34/60

Physical Distribution and Logistics Management

Order Processing

Order entry

Order handling

Order delivery

Warehousing

Inventory Management

Transportation

Rail

Truck

Air

Water

Inland water transportation

Ocean transportation

Pipeline


35/60

College Essay on Globalisation and the IMF

Globalisation benefits the rich and powerful countries more than it benefits the nations of

the Caribbean. To what extent is this true?

Globalisation is the growth of social, economic and cultural development across borders. It does,

in fact, benefit the rich and powerful or developed countries more than it benefits the developing

nations of the Caribbean. This is mainly due to the one-sided or unequal exchange that usually

occurs between the developed and developing countries. Even the oldest independent countries

in the Caribbean often find themselves dependent on the more developed countries not only to

invest in them and present themselves as markets, but to aid in the development process of the

country and the Caribbean region in general. This demand for foreign investments from

developed countries only serves to further reinforce the dependence and weakness of theCaribbean countries, but the strength of the developed countries.

Due to the great power and wealth that these developed countries possess, they are often able to

have a greater say in the international affairs. This assures that they are always able to make or

influence decisions that will be to their benefit and often to the detriment of the Caribbean

countries. This advantage of the developed countries creates a disadvantage for the Caribbean

countries as they are usually faced with the worst end of economic bargains as they are easily

manipulated. This was the consequence of the emergence of international trading organisations

which were able to dictate the rules of free trade in the new, globalised economy. This is

reflected in the case where the United States persuaded Britain to cease their guaranteed

acceptance of banana from the Caribbean, so that their own banana crops could stand a better

chance of competition on the global market. This, of course, will benefit the United States as

they will have more markets for their crops while Jamaicas economy will suffer if banana, one

of the countrys main export crops, can find no market.

The benefits of globalisation for the developed countries do not stop there. Globalisation and its

partner, free trade- as illustrated by the banana incident- leads to greater competition on the


36/60

market. The developed countries, at the end of the day, stand a much better chance of winning

this competition. This is because the developed countries are highly industrialised and hence

highly mechanised. This means that they are then able to produce goods cost effectively, as well

as mass produce goods, and so are able to sell their goods at much lower prices than the

Caribbean. To top it all off, their goods are often considered to be of better quality than that

which is produced in the Caribbean. Subsequently, Caribbean countries will only continue to

lose their markets as a result of competition on the global market from the more developed

countries.

A great effect of globalisation has been the emergence of Multinational Corporations. These are

agents that are privately owned and controlled in one country, which is usually a developedcountry. However, they carry out at least 25% of their production across national borders. These

agencies invest in the Caribbean for two main reasons. Firstly, to take advantage of cheap labour

and material; and secondly, to avoid high production cost and taxes back home. These, of course,

are not in any way aimed at aiding in the development of the Caribbean. This is despite the claim

that globalisation is expected to aid in the development of the global economy. The

Multinational Corporations usually engage in repatriation of funds. For eg. in Haiti, an average

of $50 million a year was transferred to the United States between 1977 and 1984. ( Export-Led

Development and the Lewis Model in Haiti by Alex Dupuy, IN Caribbean Sociology Edited by

Christine Barrows, 2001, pg. 903) They usually use their influence to drive locals out of

business. They often operate contrary to laws and legislations. The better paying positions are

still reserved for their own people. And yet Caribbean countries find themselves competing

amongst each other for this kind of non-profitable investment in them, in hopes of somehow

heightening their position on the globalised market. Frankly, however, the only thing that seems

to be heightened is their position on the MNCs list of most vulnerable and easily manipulated

countries, for the purpose of exploitation. And all this for the promise of increased minimum

wage employment, financial loans with undoubtedly high interest and the alleged easing of

economic strain on a country.


37/60

Globalisation also encourages the brain drain. As trans portation and migration to the more

developed countries become easier, this occurs as the educated, skilled and wealthy population

leaves the country. The developed country then benefits from an influx of highly qualified

workers, while the Caribbean is left with an employment problem. A shortage in doctors and

teachers often leads the government to be forced to make the wages more attractive in order to

keep and attract workers.

Also, due to globalisation, there is the spread of the material culture of developed countries,

which produces at least two consequences that are closely interlinked. Firstly, due to the spread

of their material culture, developed countries find a market for their goods in the developing

countries. This leads to the second consequ ence. The developed countries currency will alwaysbe of greater value than that of the developing countries. Also the currency of some developed

countries, such as, Britain and the United States, can be used worldwide, while developing

countries have to earn foreign exchange. As the demand for foreign goods increases, the demand

for foreign currency also increases needed to buy these foreign goods. If the demand for foreign

currency is too high then the currency is devalued, prices go up and once again, the superiority of

the currency of the developed country is reinforced.

However, globalisation is not just purely economic and social. The spread of non-tangible

cultures of the developed countries may lead to the suppression and erasure of other cultures.

This occurs in a massive attempt to accept a modernised culture in place of a traditional one in

hopes that this will aid in the industrialisation, modernisation and development process.

According to David Browne et al (2003), the continuous penetration of foreign images, views

of the world and lifestyles could inhibit the d evelopment of small countries.

As the more developed countries have greater political and economic power they are better able

to manipulate situations to suit themselves. This benefit is spread to even the private sector of

these countries, from which the Multinational Corporations are born. As a result, despite the


38/60

good intentions of globalisation, the concept can always be manipulated in a practical manner by

the developed countries to ensure that it is them - and not the entire globe- that benefits most from

the globalisation process.


39/60

Notes on the IMF

The International Monetary Fund.

The International Monetary Funds (IMF) primary responsibility is to oversee the functioning of

the international monetary system

To join the IMF, countries must pay a deposit, called a quota. Quotas are important because

they determine a countrys voting power within the organization, serve as part of a nations

official reserves, and determine a countrys borrowing power from the IMF

A country is allowed to borrow up to 25 percent of its quota from the IMF. Additional

borrowings require that countries agree to IMF conditionality. A Dollar-Based Gold Standard. Under the international monetary system established at

Bretton Woods, all countries agreed to peg the value of their currencies to gold (the dollar

was pegged to gold at a value of $35 per ounce). Thus, the agreement was a fixed exchange

rate system. In addition, the United States agreed to redeem the dollar for gold at the request

of foreign central banks. In this way, the dollar played a key role in the Bretton Woods

system.

The Bretton Woods system provided a generally stable environment for international

business because under the agreement, each country agreed to maintain the value of its

currency within 1 percent of its par value.

An additional feature of the Bretton Woods agreement was an adjustable peg mechanism that

allowed a country to alter the value of its currency in extraordinary circumstances. The text

provides an exam ple of the circumstances that prompted Great Britain to readjust the pounds

peg value in 1967.

Main Purposes of the IMF are:

1. Promote international monetary cooperation

2. Facilitate expansion and balanced growth of international trade


40/60

3. Promote exchange stability, maintain orderly exchange arrangements, and avoid

competitive exchange devaluation.

4. Make resources of the Fund temporarily available to members.

5. Shorten the duration and lessen the degree of disequilibrium in the international

balance of payments.

The Bretton Woods Agreement established the IMF as the agency to regulate the fixed

exchange rates and enforce the rules of the international monetary system.

Special Drawing Rights

This is an IMF asset whose value is based on a basket of the five biggest members currencies

(France, Germany, Japan, UK, USA). SDR is set daily and changes with increases and declines

in the values of its underlying currencies. The significance of the SDR is that is it the unit of

account for the IMF. Each nation is assigned a quota based on the size of its economy when it

enters the IMF. Payment of this quota by each nation provides the IMF with the funds it needs to

make short-term loans to members.

Advantages and Disadvantages

With economies around the world on the verge of collapsing. Some are pointing to the IMF as a

potential saviour of the world economy. They argue that the IMF can play a key role in avoiding

financial crisis and restoring confidence to a battered international economy. Yet, at the same

time many view the IMF with disdain, arguing that their intervention causes more problems than

it solves.

What does the IMF actually do? and Why is its role so Controversial.


41/60

The IMF was founded in 1944, to facilitate the post war economic recovery. In particular the

IMF was to play a role in stabilising exchange rates and balance of payments, whilst its sister

organisation the World Bank would provide loans for long term development.These days the

IMF plays a role in:

Compiling statistics and evaluation of its member countries economies (Nearly all in UN

are members of IMF)

Intervening in Financial crisis to provide loans and conditions for restructuring the

economy to avoid future crisis.

Advantages of the IMF

IMF can be seen as lender of last resort. When a country is seeing an exodus of currency

due to a balance of payments crisis, the IMF can provide crucial loans to stabilise the economy

and prevent a collapse of confidence.

Supporters argue that the IMF can also impose necessary reforms on an economy.

Reforms such as privatisation, fiscal responsibility, control of Money supply, and attacking

corruption. These policies may cause short term pain, but, are essential for preventing future

crisis and long term development.

Provides an exernal assessment of the economy, which helps the government to

implement popular ideas.

Yet, despite the potential benefits of having a monetary fund which can provide an effective

counter to financial crisis, the role of the IMF has proved very controversial.

It's critics argue the IMF is dominated by the perspective of the G8 industrialised nations. They

argue the IMF insists on blanket policies of structural adjustment which may actually harm the

economies they are intervening.
http://www.imf.org/external/index.htmhttp://www.imf.org/external/index.htm


42/60

IMF recommends decisive action to buttress the region's financial sector

Friday, October 21, 2011

The International Monetary Fund (IMF) has called for Caribbean governments to act decisively

to address "persistent" weakness in the financial sector while stressing the need for stronger

resolve to reduce high public debt.

It said economic recovery remains weak as states continue to struggle to recover from the

protracted recession, and warned that a further decline in advanced economies would dampen

regional recovery and add pressure to an already heavy public sector burden.

"Fiscal consolidation efforts should, to the extent possible, preserve growth and competitiveness

by avoiding step cuts in infrastructure spending," the IMF's Regional Economic Outlook

launched earlier this month stated.

It cited as "troubling", the fragilities in the region's financial sector specifically the Eastern

Caribbean Currency Union, where, in July, the Eastern Caribbean Central Bank intervened in the

operations of ABI Bank because of liquidity problems.

Reference was also made to the issues involving the failed CLICO and British American

Insurance Companies that have still not been resolved.

"In the Eastern Caribbean Currency Union, ECCU, financial sector health indicators have

continued to deteriorate, highlighting the importance of steps to further strengthen the sector,"

the report explained.


43/60

"The authorities need to diagnose the health of the financial system quickly and develop options

for strengthening balance sheets, and avoid further compromising public finances."

The IMF said while countries such as Jamaica, Antigua & Barbuda, and St. Kitts and Nevis have

moved to reduce their public debt, greater efforts are needed over the medium term as debt levels

across the region have climbed by nine per cent of the Gross Domestic Product since the crisis.

"A strategy to gradually reduce public wage and pension spending - not only in central

government but also in autonomous agencies - will be necessary to guarantee public debt

sustainability, with the added benefit of improving the region's competitiveness," it added.

According to the report, tourism-intensive economies are projected to expand lower during 2011-

2012, almost one percent lower than previously anticipated.

However, it said the mineral-rich countries of Guyana and Suriname would benefit from record

gold prices.

Growth in Haiti, it stated, is expected to fall just over two percent percent from the 8 per cent

projected in April due to the slow pace of reconstruction efforts.


44/60

Paper on Regional and National Economic Development in the Caribbean

While regional and national economic development could be enhanced by supporting

Caribbean integration, Caribbean leaders have several hurdles which must be negotiated if

such integration is to materialise. Discuss in light of the CARICOM experience.

Abstract

While regional and national economic development could be enhanced by supporting Caribbean

integration, Caribbean leaders have several hurdles which must be negotiated if such integration

is to become a reality. Some of these hurdles will be discussed in light of the CARICOM

experience throughout this paper.

According to Wild, Wild and Han (2006), regional economic integration, or regionalism, refers

to the process whereby countries in a geographic region cooperate with one another to reduce or

eliminate barriers to the international flow of products, people or capital. The authors also went

on to say that, A group of nations in a geographic region u ndergoing economic integration is

called a regional trade bloc. There are five levels of this kind of regional and national economic

development. These are, respectively, free-trade area, customs union, common market, economic

union and political union.

In Caribbean history, regional and national economic development has been in response to the

forces of globalisation. As such, the Caribbean has made several attempts to integrate, from the

West Indian Federation in the early 1960s to CARICOMs inception with the Treaty of

Chaguaramas in 1973. The continued attempts at Caribbean integration have led to the attempt at


45/60

maturity of CARICOM from the customs union to common market level as CSME. However, as

previously mentioned, there are several hurdles that must be overcome before the ideal theory

and proposed benefits of the CSME or CARICOM can be realised. These benefits and the

hurdles hindering their attainment will be discussed under the relevant headings.

Regional and National Economic Development Could Be Enhanced by Supporting

Caribbean Integration

As the question clearly points out, there are several benefits that may be derived from

regional and national economic integration in the Caribbean, as a result of CARICOM. In order

to identify these benefits, it is perhaps best to look at the key elements of the CARICOM/CSME

market economy as provided by www.caricom.org (n.d.). These will be identified and discussed

as follows.

The first advantage or key element is that of free movement of goods and services.

According to www.caricom.org (n.d.), this will be achieved through measures such as

eliminating all barriers to intra-regional movement and harmonising standards to ensure

acceptability of goods and services traded. This will lead to trade creation, which is the

increase in level of trade between nations that result from regional economic integration (Wild,

Wild & Han, 2006). This, in turn, has advantageous spill over effects on the member-states

involved. For starters, consumers and industrial buyers in member nations would be faced with a

wider selection of goods and services from which to choose, thereby increasing their bargaining

power and free market competitive forces. Another result of trade creation is that buyers can then

purchase goods and services at lower costs, thereby increasing demand and stimulating the

economy and general standard of living, as citizens have more money to spend and invest.

The second advantage, based on a key element of CSME and CARICOM is that of theright to free establishment. According to www.caricom.org (n.d.), this refers to the right of

CARICOM owned businesses to operate in any Member State without restrictions. Obviously,

this has several benefits for Caribbean companies hoping to expand regionally. This kind of

expansion would allow these businesses to gain the kind of experience and knowledge that it

would take to expand on a larger scale to other viable, international locations. If Caribbean
http://www.caricom.org/http://www.caricom.org/http://www.caricom.org/http://www.caricom.org/http://www.caricom.org/http://www.caricom.org/


46/60

businesses became more competitive in the international market, then there would be the

potential for greater profits, which when repatriated back to their respective Caribbean home

countries, would lead to an inflow of capital and foreign exchange.

The third key element is that of free movement of labour, which directly compliments theright to establishment. This is hoped to be achieved through measures such as removing all

obstacles to intra-regional movement of skills, labour and travel, harmonising social services

(education, health, etc.), providing for the transfer of social security benefits and establishing

common standards and measures for accreditation and equivalency. (www.caricom.org , n.d.).

Free movement of labour would allow for citizens to improve their chances of employment

(Wild, Wild & Han, 2006), as well as, allow different member states to take advantage of the

skills most available in each region. This would then help Caribbean businesses to improve the

quality of workers that they may select, as well as, encourage foreign direct investment from

MNCs looking for a large, skilled labour force to employ.

The fourth key element identified by www.caricom.org (n.d.), is that of a common

external tariff and common trade policy. This is advantageous to the Caribbean Member States

as it allows for greater consensus, which strengthens the Caribbean as a single unit, against

outside countries and competitors. An already working example of this is seen in the European

Union, which is considered the most formidable trading block in the world, based on the strength

they have accrued from the consensus among member states. This consensus gives them a

greater bargaining power, and the pooling of resources allows them to compete more effectively

in the global market.

The final key element that will be addressed is that of free movement of capital which

will be attained through measures such as eliminating foreign exchange controls, convertibility

of currencies (or a common currency) and integrated capital market, such as a regional stock

exchange (www.caricom.org, n.d.). In the Caribbean, the Organisation of East Caribbean States(OECS) has already achieved this. On the 29 th of December 2010, the OECS Heads of

Government signed a treaty to establish an economic union. Even before this, however, the

States had already employed the use of a common currency, which CARICOM has not yet been

able to implement (Caribbean Business Enterprise Trust Inc., 2006). The benefits of this

common currency can be demonstrated in the strength of their East Caribbean dollars (EC$)
http://www.caricom.org/http://www.caricom.org/http://www.caricom.org/http://www.caricom.org/http://www.caricom.org/http://www.caricom.org/http://www.caricom.org/


47/60

against the Jamaican currency, based on their value against the US dollar. The EC$ is stabilised

at roughly $2.70 to US$1, while the Jamaican dollar is roughly $84.40 to US$1. While this may

have benefits of cheaper export products, Jamaica imports far more than it exports, so this

benefit is often not felt by its citizens.

Caribbean Leaders have Several Hurdles which must be Negotiated if such Integration is

to Materialise

Regardless of the benefits that can be gained from integration, the Caribbean leaders have

many hurdles which must be negotiated before such integration will materialise. Four of these

hurdles are, namely, relinquishing the national interest for that of the regional interest, ease and

safety of movement of people, undue pressure from the United States and the embargo enforced

against Cuba, and finally, economic obligations to CARICOM.

For about six decades, the Caribbean, in response to globalisation, has been making

several attempts to integrate. However, in the pursuit of this, one of the greatest hurdles

encountered by Caribbean leaders was the refusal of nation states to relinquish their national

interest, for that of the regional interest. In other words, rather than truly integrate, nations still

aimed to remain separate because they refused to take on any venture that may have had adverse

effects on the nation, even if it led to an overall improvement for the rest of the member states.

This was due to several reasons, such as, the uneven distribution of resources, competition

amongst nation states for the same market of similar goods, and the refusal of the more

developed Caribbean countries to carry the economic burdens of the less developed Caribbean

countries. This kind of separation, and somewhat selfishness, has hindered CARICOM and

caused some countries to pick and choose what terms they wish to apply from the Treaty of

Chaguaramas, rather than apply the entire treaty as it is meant to be applied. The end result is

confusion, and constant disagreements between Caribbean leaders.

The issue of ease and safety of movement of people came to light after articles like

Bajan Cops Questioned in Re ported Rap e of Jamaican Woman (Jamaica Observer, 2011, April

5) gained spotlight in the media. This article in specific, spoke of the case in which Barbadian


48/60

officials were accused of sexually harassing a Jamaican woman who had travelled to their island.

The article states that:

Last month, Shanique Myrie, a Jamaican woman who travelled to the eastern Caribbean island,

complained that she was finger raped and subjected to humiliating treatment by Barbadian officialsbefore being booted out of the country. Days later three men who went to the island to promote an

artiste and to negotiate Reggae singer Junior Reid's appearance on the Reggae on the Hill concert, also

claimed they were beaten, locked up and booted out of the country even though had satisfied all of the

island's entry requirements. The Myrie incident drew cries of condemnation from a wide cross-section

of society and prompted government to government dialogue between the two countries.

This incident has yet to be resolved and has been the on-and-off interest of the media

since it was first mentioned. However, despite the gruesome implications of such an accusation,

there is a greater problem at hand, and this has much to do with how one nation state treats the

citizens of another. The stereotypes and dislike for Jamaicans that are held amongst some

Caribbean people of other nations, have therefore inhibited the ease and safety with which

Jamaicans can travel. This, as the article stated, prompted government to government dialogue

between the two countries (Jamaica Observer, 2011, April 5). This situation, then, has led to

another hurdle that the Caribbean leaders must negotiate in order to promote true integration

between the countries.

The third identified hurdle that Caribbean leaders must negotiate in order for integration

to materialise is the undue pressure of the United States, and their embargo against Cuba. In spite

of Cubas embracing of Communist a nd Socialist socio-economic and political policies, the

country is still ranked ahead of Jamaica, and other CARICOM countries, in terms of Gross

National Income per capita, according to the 2010 figures (GNIPC, 2010). However, despite

their close proximity to other large CARICOM nation states, such as, Haiti and Barbados, Cuba

has not been able to truly integrate with the rest of CARICOM states due to the embargo placedon them by the United States. This embargo not only restricts trade between Cuba and the United

States, but also has sanctions for other member states that may begin to form close bonds and ties

with Cuba. The United States utter distaste for Caribbean countries having any close ties to


49/60

Cuba and their ideals, and their response to this, can be shown in their invasion of Grenada in

1983 (http://news.bbc.co.uk, 1983, October 25). According to this source:

United States marines and army rangers have invaded the Caribbean island of Grenada, seized the

country's two airports and taken Cuban and Soviet prisoners. The action, which has shocked theworld, was ordered by President Ronald Reagan following a bloody coup by Cuban-trained military...

The invasion of this former British colony has angered British Prime Minister Margaret Thatcher who

spoke with President Reagan last night to try to dissuade him from military action... The US Secretary

of Defense, Caspar Weinberger, said three US soldiers were killed as they fought members of a Cuban

work force building a runway at Point Salinas Airport. Other US officials said 30 Soviet advisers and

600 Cubans had been arrested. The Caribbean Broadcasting Corp owned by the Barbados government

reported four Cubans dead.

While we would like to think that this kind of a reaction is no longer likely in this day

and age, most Caribbean countries have continued to refrain from developing ties with Cuba in

an effort to remain in good stands with the United States. This fear and hindrance to fully

incorporating Cuba into CARICOM will continue for as long as the embargo persists; thereby

inhibiting the rest of the Caribbeans ability to reap the benefits of Cubas highly skilled and

highly educated labour force. While this is not necessarily something that Caribbean leaders can

negotiate amongst themselves, it is a matter that CARICOM should begin to negotiate with the

United Nations, and the United States, if possible.

The final hurdle that must be negotiated by Caribbean leaders in order for integration to

materialise is that of economic obligations. As far as CARICOM is concerned, the economic

burden has not been equal. There are countries that have been able to grow their economy as a

result of their relationship with CARICOM, but often this is at the disadvantage of other

countries. For example, Jamaica has allowed free movement of goods, services and people into

the country, with virtually no limitations. However, this has not been the case in other countries,

as can be seen in the case of the sexual harassment of the Jamaican woman (Jamaica Observer,

2011, April 5), as well as Trinidads refusal to accept a shipment of Jamaican patties in 2010

(Richardson, 2010, November 28). Also, according to Johnston, (2011, June 24):

CSME is not good for our economy and cannot take us to Ma nley's "economic independence". We

cannot sacrifice our prosperity to mollify the bruised egos of great men... Other Caricom nations are
http://news.bbc.co.uk/http://news.bbc.co.uk/


50/60

prosperous, so let's get ours and move on... CSME is good for other members. Why? [Jamaica is] a

big desirable market to them in a single market. Caricom nations have done well and we should learn

from them. They manage their economies and enjoy prosperity [but] we are no economic example...

Currency value is a marker of success. Caricom currencies range from $1 to $6 for US$1, the

Jamaican dollar is near $90. It tells us how badly we have managed our country for 49 years... Thepause means we must examine CSME from our selfish national standpoint. Our prosperity matters. It's

not linked to CSME but to the 30m near-by in the Greater Antilles. We do not need CSME's

permission to bond with our closest neighbours.

This quotation sums up not just the negative effects that CARICOM has had on the

Jamaican economy, but also illustrates the refusal to relinquish our national interest for regional

interest, as well as, our need to make political and economic ties with our closer neighbours, as

well.

Conclusion

In an attempt to address the question proposed, regional and national economic development

benefits have been discussed, as well as, the hurdles that Caribbean leaders must overcome in

order for these benefits of integration to be achieved. Special attention has also been given to the

CARICOM experience, as well as, Jamaicas individual experience amidst the other nation states of the CARICOM agreement. It has therefore been illustrated that though there are many benefits

to be accrued from regional and national economic development, there are many hindrances

inhibiting their attainment in the Caribbean, and it will take the effort of our leaders, and

negotiations carried out in good faith, in order to achieve the goals and key elements that have

been proposed not just for CARICOM, but the future goals of CSME.


51/60

Chapter 9: Global Market Entry Modes

The Right Strategy Depends On:

Vision

Attitude towards risk

How much investment capital is available

How much control is desired

Three Main Market Entry Strategies

1. Licensing

2. Investment

3. Strategic partnerships

Licensing

Advantages of Licensing

Provides additional profitability with little initial investment

Provides method of circumventing tariffs, quotas, and other export barriers

Attractive ROI

Low costs to implement

Disadvantages of Licensing

Limited participation

Returns may be lost

Lack of control


52/60

Licensee may become competitor

Licensee may exploit company resources

Special Licensing Agreements

Contract manufacturing

Company provides technical specifications to a subcontractor or local

manufacturer

Allows company to specialize in product design while contractors accept

responsibility for manufacturing facilities

Franchising

Contract between a parent company-franchisor and a franchisee that allows the

franchisee to operate a business developed by the franchisor in return for a fee and

adherence to franchise-wide policies

Investment

Partial or full ownership of operations outside of home country

Foreign Direct Investment

Forms

Joint ventures

Entry strategy for a single target country in which the partners share

ownership of a newly-created business entity

Minority or majority equity stakes

Outright acquisition


53/60


54/60

Advantages of Ownership Access to markets

Avoidance of tariffs or quota barriers

Technology experience transfers

Access to new manufacturing techniques

Strategic Partnerships

Collaborative agreements


55/60

Strategic alliances

Strategic international alliances

Global strategic partnerships

Characteristics & Attributes

CHARACTERTICS:

Participants remain independent following formation of the alliance

Participants share benefits of alliance as well as control over performance of

assigned tasks

Participants make ongoing contributions in technology, products, and other

key strategic areas

ATTRIBUTES:

Two or more companies develop a joint long-term strategy

Relationship is reciprocal

Partners vision and efforts are global

Relationship is organized along horizontal lines (not vertical)

When competing in markets not covered by alliance, participants retain

national and ideological identities

Disadvantages

Must share control over assigned tasks

Risk of strengthening a competitor

Conflict between participants


56/60

Advantages

Enables firms to share high costs for a project

Accommodates a lack of skills, resources within a company by forming an alliance

with company with those resources

Provides access to national and regional markets

Provides learning opportunities

Success Factors

Mission Strategy Governance Culture Organisation Management

Principles to Follow

While partners in some areas, partners are still competitors in other areas

Harmony is not the most important measure of success

Everyone must understand where cooperation ends and competitive compromise

begins

Learning from each other is critically important


57/60

Value Chain Concept

What is a value chain?

The value chain describes the full range of activities that firms and workers do to bring a product from

its conception to its end use and beyond. This includes activities such as design, production, marketing,distribution and support to the final consumer. The activities that comprise a value chain can be

contained within a single firm or divided among different firms. Value chain activities can produce goods

or services, and can be contained within a single geographical location or spread over wider areas.

Why are we interested in global value chains?

Studies from a range of disciplines show that global value chains have become much more prevalent and

elaborate in the past 10 to 15 years. While many firms have had international operations and trading

relationships for decades and a few for more than a century, global value chains now contain activities

that are tightly integrated and often managed on a day-to-day basis. This means that firms and workers in

widely separated locations affect one another more than they have in the past. Some of these effects are

quite straightforward, as when a firm from one country establishes a new factory or engineering center in

another country, and some are more complex, as when a firm in one country contracts with a firm in

another country to coordinate production in plants owned by yet another firm in a third country, and so

on.

Tracing the shifting patterns of global production, understanding how GVCs work or are governed,

and determining the roles they play in rich and poor countries alike, is what the study of global value

chains is all about. GVC research consists of learning the details of jobs, technologies, standards,

regulations, products, processes, and markets in specific industries and places.

Are all global value chains the same?

No. Research has also shown that GVCs exhibit a variety of characteristics and impact communities in a


58/60

variety of ways. In a paper that emerged from the deliberations of the GVC Initiative (Gary Gereffi, John

Humphrey, and Timothy Sturgeon, The governance of global value chains, Review of International Politic

Economy , vol. 12, no. 1, 2005), five different GVC governance patterns were identified:

1. Markets. Markets are the simplest form of GVC governance. GVCs governed by markets contain

firms and individuals that buy and sell products to one another with little interaction beyond exchanging

goods and services for money. The central governance mechanism is price. The linkages between value

chain activities are not very "thick" because the information that needs to be exchanged and knowledge

that needs to be shared is relatively straightforward.

2. Modular value chains. This is the most market-like of three network-style GVC governance

patterns. Typically, suppliers in modular value chains make products or provide services to a customer's

specifications. Suppliers in modular value chains tend to take full responsibility for process technology

and often use generic machinery that spreads investments across a wide customer base. This keeps

switching costs low and limits transaction-specific investments, even though buyer-supplier interactions

can be very complex. Linkages are necessarily thicker than in simple markets because of the high volume

of information flowing across the inter-firm link, but at the same time codification schemes and the

internalization of coherent realms of knowledge in value chain "modules," such as design or production,

can keep interactions between value chain partners from becoming highly dense and idiosyncratic.

3. Relational value chains. In this network-style GVC governance pattern we see mutual dependence

regulated through reputation, social and spatial proximity, family and ethnic ties, and the like. The most

obvious examples of such networks are in specific commun ities, or industrial districts. Dense

interactions and knowledge sharing are supported by the deep understanding value chain partners have

of one another, but unlike the codification schemes that enable modular networks, these "short-cuts"

tend to be idiosyncratic and thus difficult and time-consuming to re-establish with new value chain

partners.

4. Captive value chains. In this network-style GVC governance pattern, small suppliers tend to be

dependent on larger, dominant buyers. Depending on a dominant lead firm raises switching costs for

suppliers, which are "captive." Such networks are frequently characterized by a high degree of monitoring

and control by the lead firm.


59/60

5. Hierarchy. This governance pattern is characterized by vertical integration (i.e."transactions" take

place inside a single firm). The dominant form of governance is managerial control.

Much of the literature that seeks to categorize cross-border economic activity emphasizes only two

options: market or hierarchy. Firms either invest offshore directly or buy goods and services from foreign

firms. A smaller body of literature has noted the prevalence of network forms of organization where

there is some form of "explicit coordination" beyond simple market transactions but which fall short of

vertical integration. While this is a useful insight, there is convincing evidence that not all networks are

the same. The GVC framework specifies three types of network governance (modular, relational, and

captive) along with the two traditional modes of economic governance (markets and hierarchies).

What makes GVCs different?

1. The complexity of transactions.

2. The codifiability of transactions. In some industries schemes have been worked out to codify

complex information in a manner in which data can be handed off between GVC partners with relativeease, often using advanced information technologies.

3. The competence of suppliers. The ability to receive and act upon complex information or

instructions from lead firms requires a high degree of competence on the part of suppliers. Only then can

the transfer of complex but codified information be achieved (as in modular networks) or intense

interaction be worthwhile (as in relational networks). Where competent suppliers do not exist, lead firms

either must internalize the function (hierarchy) or outsource it to suppliers that they tightly monitor and

control (captive suppliers).


60/60

In order to generate improvements in the supply or quality of any product, one needs

to consider all aspects of the range of steps in the chain o

Documents

GM Notes Compilation for Finals