Exam Flashcards
3 considerations when measuring the economic environment of foreign markets?
Income - measured by GNI, Aus high, Ethiopia low - affects consumers ability to purchase
Infrastructure - services necessary for the economy to function, port of Singapore established for the busy trade
Geography - barriers created by natural elements, Norway building tunnels through mountainous terrain to reduce travel time
6 dimensions of Hoftsede
Power distance - Aus low
Individualism vs collectivism - Aus high
Masculine vs feminine - Aus high
Uncertainty avoidance - Aus mid
Long term vs short term - Aus low
Indulgence vs restraint - Aus high
What is political risk and give 3 examples of how it impacts business
Risk of change in political environment that affects a company’s ability to operate.
Caused by war, social unrest, social inequity, crime
How it impacts business:
- deter a company from investing overseas (eg Ukraine due to war)
- consumer purchase decisions (not buying made in Russia products)
- impact right to import/export (Australia putting sanctions on Russia eg no exporting of arms to Russia)
Advantages of e-commerce as a viable export strategy
- speed to market
- ability to test market in low quantities
- direct sales, no intermediaries required
- use of digital media as a point of contact with customers
- easy to access data/analytics
- a level playing field for small businesses to go international
- 24/7 business environment
Letter of credit
A letter from a bank guaranteeing that a buyers payment to a seller will be received on time and for the correct amount. If unable, the bank will cover the purchase.
Types of foreign direct investments from a market entry perspective
Joint ventures:
- entry strategy in which partners share ownership of the joint venture company
- can gain local knowledge may ease navigation around political regulations etc.
- splits risk and control 50/50
Mergers and Aquisitions:
- mergers and acquisitions of an existing foreign company
- major commitment of resources
- greater control but higher risk
- combined company becomes worth more than the 2 originally
- usually a faster way for a company to achieve higher revenues
- enables companies to diversify and reduce market risk
Power distance
Willingness to accept an unequal distribution of power
High: accepts that a boss is “above” workers eg Japan
Low: see each other as equals eg Australia
Individualism vs collectivism
If societies are integrated into groups and if people are dependent on groups
Individualism: people take care of themselves eg Australia
Collectivism: people are loyal to groups, pursue common goals eg Korea
Uncertainty avoidance
How uncertainty is tolerated
Hugh: steer clear of conflict and competition eg Japan
Low: people are more willing to take risks eg Australia
Masculinity vs femininity
Societies preference for success, achievement
Masculine: focus on performance, ambition and material success eg America
Feminine: emphasis on quality of life, relationships eg Switzerland
Aus sits in the middle
Long term vs short term orientation
Societies view of time
Long term: focus on long term success eg China
Short term: focus on the present eg Australia
Indulgence vs restraint
Indulgence: society values human needs and desires eg Australia
Restraint: withholds pleasures, maintains order eg South Korea
Letter of credit process
Procedure:
1. Exporter and importer agree on contract for sale of X
2. Importer applies for LC from issuing bank
3. Issuing bank sends LC to advising bank
4. Advising bank forwards LC to exporter
- Exporter ships goods to importer and sends shipment documents to advising bank
- Advising bank forwards shipment documents to issuing bank
- Issuing bank verifies documents and sends to importer
- Importer makes payment to exporter against shipment of goods
Why is a letter of credit used
- legally binding
- safe
- offer clarify
- highly detailed/transparent
- risk reduction, guaranteed payment
- safe trading in unfamiliar markets with unfamiliar suppliers
- efficient- can be done electronically
Disadvantages of e-commerce as a viable export strategy
- payment options (exchange rates)
- marketing can be spam, risk of hackers
- logistic issues, delivery costs
- customer service has to be 24/7
- legal: privacy issues
- some products are not suitable eg. Luxury (no buying experience), products you need to try in store, services
How to create a successful JV
- split risk and control 50:50 so 1 partner doesn’t dominate the other
- be cautious of how much you share intellectual property to avoid creating a competitor with your JV
- create a shared dream and know how your JV partner will benefit
- utilise partner to gain local insights
How to create a successful merger/acquisition
- must be familiar with the foreign environment
- should be done in stages
- hostile takeovers by foreign companies may cause local employee resentment
Network to network competition
- porters 5 forces dont accomodate for the global market
- network to network competition involves competing with other manufacturers/distributors
- develop strategic alliances with key competitors
- juggling the power balance, keeping back up suppliers/distributors/manufacturers at arms length
Kaizen principles
Continuous improvement to gradually increase quality and efficiency in the business
4 approaches to creating competitive advantage (Kaizen)
- Building layers of advantage
- Searching for loose bricks
- Changing the rules of engagement
- Collaborating
International branding strategies
- Co-branding
- Brand licensing
- Leveraging COO effects
Co-branding
Marketing two or more brands together on the same promotion
Lean on trust/reputation of other brand
Leverage equity, reputation, audiences
Eg Yeezy adidas
Red bull go pro (leverage audiences shared love for extreme sport)
Brand licensing
Contractual agreement allowing one firm to use another’s brand logo, name etc in exchange for a fee
Allows you to tap into new markets, additional revenue streams
Eg Batman and Kylie cosmetics
Leveraging COO effects
Perceptions and attitudes about a country extend to products and brands
Eg Italian leather, Australian wine, Japanese technology
2 methods to determine pricing in a foreign market
Export price escalation
Target costing
Export price escalation
Increasing final selling price of goods traded overseas due to export costs
Such as shipping, exchange rate, fees, handling charges, documentation costs
Target costing
Set price first - working backwards to cost
Determine max cost to make the product
Design the product so you don’t exceed the cost
If you exceed you won’t get the desired profit
Building layers of advantage
A company faces less risk if it has a wide portfolio of competitive advantages.
Successful companies build portfolios by establishing layers of advantage on top of one another
Eg. Japanese TV industry
Became cost leader, CA: low labour costs
Built factories to serve global market, sold under many brand names, CA: quality and reliability
Invested in marketing channels and Japanese brand name recognition, CA: global branding and loyalty
Searching for loose bricks
Search for opportunities in the walls of competitors whose attention is narrowly focused and ignoring other segments or distracted by events (strikes, scandal)
Eg: Acer Taiwan
Used the flanking strategy (surrounding opponents) to build market share in countries overlooked by competitors. So by the time Acer was ready to enter the US, it was already the number 1 PC brand in Latin America, Southeast Asia and the Middle East
Changing the rules of engagement
Refuse to play by the rules set by industry leaders or your competitors
Change the way business is traditionally done to suit your business
Eg xerox and canon
Xerox employed a huge direct sales force, canon chose to use product dealers
Xerox buolt a wide range of copies, canon standardised machines and components
Xerox leased machines, canon sold machines
Collaborating
Licensing agreements, JVs or partnerships to be used strategically
Access to know how and processes developed by other companies
Eg yeezy and adidas, Toyota and Suzuki
Standardisation vs adaption
Keeping the product the same across all markets or changing the product to suit the market
Standardisation/adaption approaches in global markets
Laissez faire
Export advertising
Prototype standardisation
Regional approach
Pattern standardisation
Laissez faire
Each country develops their own ads with no central control
Export advertising
The ad creative and copy are developed in the home country without foreign input
Prototype standardisation
As guidelines are supplied to foreign offices- may include standardised options
Regional approach
Each region develops their own ads based on the commonalities between countries in the region
Pattern standardisation
Home country coordinates theme, message and global brand identity. Foreign offices responsible for execution with some modification
