Upload
rakshit-dandriyal
View
218
Download
0
Embed Size (px)
Citation preview
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 1/43
INTERNATIONALBUSINESS
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 2/43
World financial markets
The Composition of Trade
Between the 1960s and the 1990s 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 shif t of manufacturing to countries with emerging
economies.
There has been an increase in the area of services trade in recent years.
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 3/43
Contd..
F oreign exchange ( F x): money denominated inthe 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 Ov er-the-counter ( OTC) market through
commercial and investment banks ± T he Exchange-trade market specializes in securities,
futures and options
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 4/43
3-4
Tariff Barriers
Tariff
± Taxes on imported goods f or the purpose of raising their
price to reduce competition f or 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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 5/43
3-5
Tariff Barriers
Compound Duty
± A combination of specific and ad valorem duties
Official Prices Variable Levy
± An import duty set at the diff erence between
world market prices and local government-
supported prices
Lower Duty f or more local Input
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 6/43
3-6
Nontariff Barriers
Nontariff barriers (NTBs)
± All f orms 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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 7/43
3-7
Nontariff Barriers
Orderly Marketing Arrangements
± Formal agreements between exporting and importing countries that stipulate the import or
export quotas each nation will have f or a good Nonquantitative Nontariff Barriers
± Direct government participation in trade
± Customs and other administrative procedures
± Standards
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 8/43
8
World Trade Organization (WTO)
General Agreement on T ariffs and T rade ( G ATT) f ormed in1947 was replaced by WTO in 1995.
The goal of WTO is ± To facilitate the development of a f ree and open trading system in the
world ± To adjudicate trade disputes between or amongst member nations
WTO rulings are binding. If an off ending country fails to comply with a judgment, the rights to compensation and countervailing sanctions will f ollow.
Most-favored nation clause (MFN): is the fundamental principle of trade without discrimination.
WTO Rounds-Doha Round (2001)
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 9/43
9
Economic Integration
Economi c integration: is an agreement between or amongst nations within an economi c bloc to reduce and ultimately remove tariff and nontariff barriers. Factors favoringintegration are:
- Cultural similarity- Geographic proximity
- Political will
Approaches to economi c integration include:
± global integration via the World Trade Organization
± bilateral integration between two countries
± regional integration via an economi c bloc
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 10/43
10
Eff ects of Economic Integration
Stati c effects: the shif ting of resources f rom inefficient to efficient firms as trade barriers fall
T rade creation: production shif ts f rom less efficient domesticproducers to more efficient regional producers
T rade diversion: trade shif ts f rom more efficient external sources to less efficient suppliers within the bloc f ollowing the imposition of common external barriers
Dynami c effects: the gains f rom overall market growth, the expansion of production, the realization of greater economies
of scale and scope, and the increasingly competitive nature of the market
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 11/43
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 commonexternal 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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 12/43
Regional Economic Integration
Preferential trading
Agreement (tariff
concessions on
import of select items)
FTA
Common market
Economic union
Political union
Free Trade Among members
Common external trade policy
Harmonization of economic policies
Complete political & economic integration
I n c r e a s i n g
i n t e g r a t i o n
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 13/43
Contd..
Pref erential trading agreement (PTA): e.g.
south Asian PTA, grants tariff concessions to
member countries on select products.
FTA: remove all tariff s & non-tariff barriers
among themselves while maintain with non-
member countries e.g. NAFTA
Customs union: f ree trade among member
countries & impose a common tariff on the
non-member country.
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 14/43
Contd..
Common market: f ree trade among member
countries & have a common external trade policy. It
demands significant degree of harmony & co-
operation 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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 15/43
Contd..
Political union: a common parliament is
created with representatives of member
countries which works in synchronization with
individual countrys 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.
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 16/43
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 f orce and executive body)
Court of Justice (ensuring compliance with the law)
Court of Auditors (controlling sound and lawful
management of the EU budget)
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 17/43
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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 18/43
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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 19/43
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 f or Regional Cooperation (SAARC)
Economic Cooperation Organization (ECO)
Gulf Cooperation Council (GCC)
Af rica Southern Af rican Development Community (SADC)
Common Market f or Eastern and Southern Af rica (COMESA)
Economic Community of West Af rican States (ECOWAS)
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 20/43
MERCOSUR
Established in 1991
± Brazil
± Argentina
±
Paraguay ± Uruguay
Generates 80% of South Americas GNP
Signed f ree trade agreements with Bolivia and Chile
Negotiating with EU f or f ree trade agreements
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 21/43
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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 22/43
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 f or consumer satisfaction &
income.
Product decisions: important product decisions in intl. marketing are:
Market segmentation decision: or market
selection decision
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 23/43
Contd..
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
EthnicInfrastructure
Cultural
Trade practices
Determinants of market selection
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 24/43
Contd..
Product mix decisions: it pertains to the type of
products & product variants to be off ered to the
target market (list of all the products off ered f or sale)
Products specifications: it includes factors like styling, shape, size & other attributes & factors like
packaging & labeling
Positioning & communication decisions: positioning
is the image projected f or the product e.g. beef eater is a low priced gin in (UK) home market but in US
beef eater was positioned as a high priced gin & was
successful.
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 25/43
Price
Pricing f or export market, however is more
complex & difficult than f or the new domestic
market. Export pricing will have to
accommodate into itself the trade practices ®ulations 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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 26/43
Contd..
Types of costs in export marketing: Production costs fixed, variable
Selling & delivery costs holding stocks, packing,
transport, documentation, pre-shipment inspection,
insurance.
Pricing ob jectives: a firms pricing policy may be
guarded by any one or more of the f ollowing
ob jectives: 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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 27/43
Factors aff ecting pricing
Intl. marketing ob jectives: the ob jective of marketing
is a very imp. Factor determining the price e.g. if
ob jective 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 f or price.
Costs: the pricing decision is inf luenced by the fixed
& variable costs of production & the transportation& marketing costs.
Competition: a monopolist normally has high degree
of f reedom in pricing
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 28/43
Contd..
Product diff erentiation: if the companys product is
highly diff erentiated than those of the competitors,
the company will have more f reedom 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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 29/43
Contd..
Image: it may be easier f or a well reputed firm
to change a higher price than others.
Govt. factor: export pricing is inf luenced by govt. policies & regulations. E.g. tax
concessions, intl. agreements & other
incentives & assistance like cheap credit,
supply of remittances etc., at regulated prices.
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 30/43
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
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 31/43
Contd.. 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
f oreign buyer specifies the price at which he is
prepared to buy the product.
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 32/43
Contd..
Break-even price: it is the price f or a given
level of o/p there is neither any loss nor profit.
Marginal cost pricing: means taking advantage
of the f lexibility b/w the lower limit of break even price & the upper limit of the
competitors price f or similar product.
Transf er pricing: or intracompany pricingref ers to the pricing of goods transf erred f rom
operations or sales units in one country to the
companys unit elsewhere.
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 33/43
Methods of intl. payments
The terms of payment describe how & when the money should be transf erred to the seller. Various
factors aff ecting the terms of payment include the
risk associated, speed, security, cost & the market
competition. The ma jor term of payment used in intl.markets are:
Advance payment: the payment is remitted by the
buyer in advance either by a draf t mail or TT
(telegraphic transf er). Generally, such payments are made on the basis of sample receipt & its approval
by the buyer. The clean remittance is made af ter
accepting the order but bef ore the shipment through
banking channels.
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 34/43
Contd..
Open account: the exporter & the importer
agree upon the sales terms without
documents calling f or 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 saf eguard
measures against non payment.
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 35/43
Contd..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 f rom 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.
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 36/43
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 f ollowing criteria:
Intl. marketing ob jectives, financial resources, firms marketing image, speed of market entry,
specific product need
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 37/43
Contd..Intl. marketing channel
Indirect Direct
Agents Merchant intermediaries
Broker
/commissionagent
Importer¶s buying
agent
Country controlled
buying agent
Buying office
Export/ trading
house
Intl. trading co¶sMerchant exporter
E-channel
Intl. border
Merchant
intermediaries
Agents
Broker
/commission
agent Manufacturer Agent/Sales rep.
Buying
agent Export/ tradinghouseIntl. tradingco¶sMerchantexporter
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 38/43
Dumping
It means selling in the f oreign market at a price
below the cost of production or selling in the f oreign
market at a price below the home market price. If
the f oreign price is above the home market price it is ref erred 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).
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 39/43
contd..
Steps in pricing:
Defining pricing ob jectives Analyzing market characteristics
Calculating costs
Calculating value of incentives Determining export price
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 40/43
Promotion mix
Diff erence in the marketing environment necessitate valuations in the communication mix because a
channel or medium that is very eff ective in one
market may not be eff ective in another market.
Some channels which are eff ective in certain markets may not be available or underdeveloped in some
other markets.
Identifyingtarget audience
Determining
Communication
objectives
Determining
the msg. Budget decisions
Communication
mix decisions
Steps in developing marketing communication
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 41/43
Communication mix
It is also called as promotion mix, has 4 ma jor
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 companys ob jectives & resources.
Advertising: is any paid f orm 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 & gif ts).
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 42/43
Contd..
Sales promotion: are short term incentives to
encourage purchase or sale of a product or
service. E.g. trade fairs, exhibitions, sample
gif ts, lotteries etc. Personal selling: is defined as oral
presentation, pref erable when the product is
technical in nature. Public relations: variety of programmes
designed to improve, maintain or project a
company or product image
8/3/2019 International Business4
http://slidepdf.com/reader/full/international-business4 43/43
Contd..
Product
invention
Develop new product
Intl. product-promotion strategies
PRODUCT
P R O M O T I O N
Don¶t change
promotion
Adapt
promotion
Change product Adapt product
Straight extension Product adaptation
Promotion adaptation Dual adaptation