Final Flashcards
Impact of the oil crisis of the 1970s
- Industrialized economies relied on crude oil and OPEC was their supplier
- Dramatic inflation due to increase oil prices -> suppressed economic activities
Protectionism
The use by nations of legal barriers, exchange barriers, and psychological barriers to restrain entry of goods from other countries
Protectionism around the world
Protects a country’s markets from intrusion by foreign companies
Reasons for protectionism
- No imports = more job opportunities for citizens
- Increase national security
- Infant Industry Argument
- Power of special interest groups
- Tax revenue
- Trade Deficits
Infant Industry Argument
New industry won’t survive with competition
Trade deficits
The amount by which the cost of a country’s imports exceeds the value of its exports
3 Types of Trade Barriers
- Tariffs
- Dumping
- Nontariff Barriers
Tariffs
- Taxes imposed by a government on goods entering at its borders
- Imported goods become so expensive that people switch to buying domestic
- Impacts lower class more than upper class
Specific tariff
Everyone pays a specific tax amount, regardless of status
Ad Valorem tariff
- A tariff assessed as a percentage of the value of an import
- Protects cheap products from being unreasonably expensive
Dumping
Occurs when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production and is illegal.
Nontariff Barriers
a form of restrictive trade where barriers to trade are set up and take a form other than a tariff
Nontariff Barriers specific limitations on trade
- Quotas
- Import Licenses
- Proportion Restrictions of foreign to domestic goods
- Minimum import price limits
- Embargo
Quotas
- Specific units or dollar limits applied to a particular type of good
- Most effective limitation on trade
Import Licenses
Limits quantities on a case-by-case basis
Embargo
An official ban of trade or other commercial activity with a particular country
Customs and Administrative Entry Procedures
- Valuation
- Antidumping Practices
- Tariff Classifications
- Documentation Requirements
- Fees
- Unfinished products always run cheaper to import
Valuation
An estimation of something’s worth
Antidumping Practices
Designed to prevent foreign producers from “predatory pricing”, a practice whereby a foreign producer intentionally sells its products in the US for less than the cost of production to undermine the competition and take control of the market
Types of Standards
- Health/Safety Regulations
- Intergovernmental acceptances of testing methods and standards
- Packaging/ Labeling/ Marketing
Standards
Countries usually impose standards on classification, labeling and testing of products in order to be able to sell domestic products, but also block sales of products of foreign manufacture
Types of Nontariff Barriers
- Specific Limitations on Trade
- Customs and Administrative Entry Procedures
- Standards
- Government Participation in Trade
- Charging on imports
- Others
Government Participation in Trade
- Government procurement procedure/policies
- Export subsidiaries
- Countervailing duties
Charging on Imports
- Prior import deposit subsidies
- Administrative fees
- Special supplementary duties
- Variable levies
- Border taxes
Variable levies
- Tariffs that change in such a way that the domestic price of an imported good always remains the same
Other Nontariff Barriers
- Voluntary Export Restraints
- Orderly Marketing Agreements
Voluntary Export Restraints
Trade restrictions on the quantity of goods that an exporting country is allowed to export to another country
GATT
a forum for member countries to negotiate a reduction of tariffs and other barriers to trade (General Agreements on Tariffs and Trade)
Balance of Payments
- Current Account
- Capital Account
- Reserves Account
Current Account
A record of all merchandise exports, imports and services plus unilateral transfers of funds
Capital Account
A record of direct investment, portfolio investment and short-term capital movements to and from countries
Reserves Account
record of exports and imports of gold, changes in foreign exchange and in liabilities to foreign central banks
Balance of Trade
- Exports/Imports
- Want this to be positive
- Declining since 1971
Monetary Barriers
- Blocked Currency
- Differential Exchange Rates
- Government Approval
Blocked Currency
Refusing to allow importers to exchange its national currency for the sellers’ currency
Differential Exchange Rates
Encourages the importation of goods the government deems desirable and discourages importation of goods the government does not want by adjusting the exchange ratesexchange rate for importation of a desirable product is favorable and vice versa
Government Approval
in countries where there is an extreme shortage of foreign exchange, an exchange permit to import the foreign goods is required from the government
Countervailing Duty
Tariffs levied on imported goods to offset subsidies made to producers of these goods in the exporting country
WTO
Permanent international organization; new legal and institutional foundation that deals with trade disputes
IMF
- International Monetary Fund
- Established to overcome inadequate monetary reserves and unstable currencies
- Stabilize foreign exchange rates
- Influence economic policies of members
World Bank
- Lend money to governments
- Support developmental projects
- Provide investment guarantees for “non-commercial” risks
- Lend money to private sector
- Reduce poverty and improve living standards
General Goals of the Market Agreements
- Larger markets for members
- Larger markets for nonmembers
- Economies of scale
- Specialization
- Mergers/competitiveness
- Higher standard of living
- ECONOMIC GAIN FOR ALL
Conditions for success of the market agreements
- Geographic proximity
- Similar economic system and strength
- Similar political systems
- Members with diverse products and raw materials
- Need complementary economies
Parts of the European Integration Process
- European Coal and Steel Community (1952)
- “European Common Market” (1957; Treaty of Rome)
European Coal and Steel Community
- Very successful; common market in coal and steel
- Six members: Germany Italy, France, the Netherlands, Belgium, and Luxembourg
European Common Market
- Same countries as Euro Steel & Coal
- Established a customs union first
- Name changes through time
- Language/cultural differences/separatism
- Enlargement Process
Marketing mix implications of market integration such as the EU
- Adjust market mix to reflect anticipated market changes
- Price standardization among countries
- Reduce number of brands to focus on promotion effort
- Distribution can be centralized at most cost-effective point
What are the problems that the EU is facing?
- Loss of national sovereignty
- Rich vs. poor members
- Cost of agricultural subsidies
- Nationalism and political leadership
- Expansion issues
- Political/economic problems with the United States
What are some of the provisions of NAFTA?
- Market Access
- Rules of Origin
- Nontariff Barriers
- Intellectual Property
- Government Procurement
GDP
monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though it is usually calculated on an annual basis
GDP per capita
a measure of the total output of a country that takes the gross domestic product and divides it by the number of people in the country; the per capita GDP is especially useful when comparing one country to another because it shows the relative performance of the countries
Free Trade Area
a type of regional cooperation that involves an agreement between two or more countries to reduce or eliminate customs duties and nontariff trade barriers among partner countries while members maintain individual tariff schedules for external countries; requires more cooperation than regional cooperation for development
Customs Union
a stage in economic cooperation that benefits from a FTA’s reduced or eliminated internal tariffs and adds a common external tariff on products imported from countries outside the union
Common Market
an agreement that eliminates all tariffs and other restrictions on internal trade, adopts a set of common external tariffs, and removes all restrictions on free flow of capital and labor among member nations
Political Union
a fully integrated form of regional co-operation that involves complete political and economic integration, either voluntary or enforced
EU Institutions
- European Commission
- Council of Ministers
- European Parliament
- European Court of Justice
European Commission
Initiates Policy and supervises its observance
Council of Ministers
Decision-making body
European Parliament
- Amends and adopts legislation
- Extensive powers in budgetary issues
European Court of Justice
Act as the European Supreme Court
Single European Act (1987)
An agreement designed to remove all barriers to trade and to make the European Community a single internal market
Economic and Monetary Union (EMU)
- The EMU, a provision of the Maastricht Treaty, established the parameters of the creation of a common currency for the EU, the euro
- Established a timetable for its implementation
- In 2002, a central bank was established, conversion rates were fixed, circulation of euro banknotes and coins was completed
- The 12 member states employed the euro beginning in January 1, 2001, some did not join voluntarily
Commonwealth of Independent States
- US-Canada FTA
- NAFTA - US, Canada, Mexico
- Mercosur
- ASEAN
NAFTA
- Required the three countries to remove all tariffs and barriers
- Generate income and employment gains
- Enhance global competitiveness
Mercosur
- Argentina, Brazil, Chile, Bolivia, Paraguay, Uruguay
- Market of 220 million
ASEAN
Brunei, Philippines, Indonesia, Singapore, Laos, Thailand, Malaysia, Vietnam, Myanmar
Country-of-origin Effect
Psychological effect describing how consumers’ attitudes, perceptions and purchasing decisions are influenced by products’ country of origin labeling
Examples of Country-of-origin effect
French wine, German cars, Japanese robots, Columbian coffee, Italian fashion, Singaporean efficiency, Belgian chocolate`
Major Components of a Product
- Core Component
- Packaging Component
- Support Services Component
Core Component
Consists of the physical product—the platform that contains the essential technology—and all its design and functional features
Packaging Component
Includes style features, packaging, labeling, trademarks, brand name, quality, price, and all other aspects of a product’s packaging
Support Services Component
Includes repair and maintenance, instructions, installation, warranties, deliveries, and availability of spare parts
Factors that might speed up the adoption process
- Relative Advantage
- Compatibility
- Complexity
- Trialability
- Observability
Relative Advantage
Degree to which a new product is superior to an existing one
Compatibility
Existence with acceptable behavior, norms, values
Complexity
state or quality of being intricate or complicated
Trialability
Offer products to customers just for try and if not at expectation, they can send it back (degree of economic/social risk associated with product use)
Observability
Ease with which product benefits can be communicated
Diffusion of Innovation
Innovation -> communicated through certain channels -> over time -> among members of a social system
Trickle-down
Initially a product may be so expensive that only the wealthy can afford it, but over time the price will fall until it is inexpensive enough for the general public to purchase
Trickle-up
Theory that products directed toward small businesses and the poor will gradually pass up to big businesses and the rich
Importance of Spokesperson
helps publics put a face to the event and also
disseminates information to stakeholders in an effort to make sense of a crisis
Individual Branding Strategy
Marketing policy under which each product has its own brand, different from every other product in the same product family or from the same firm
Advantages of an Individual Branding Strategy
Don’t lose customers if they switch to different brand in product family; if something goes wrong only one brand suffers
Disadvantages of Individual Branding Strategy
Costly to advertise all separately
Family Branding Strategy
Main brand under which several new products are introduced to take advantage of its credibility, identity, and name-recognition
Advantages of a Family Branding Strategy
Less expensive to advertise; easy to recognize
Disadvantages of a Family Branding Strategy
If something goes wrong with one product, whole brand gets tarnished
National manufacturer
Brand marketed throughout a national market (usually owned and promoted by large manufacturers)
Advantage of a National Manufacturer
product recognition; gives people choices; represent consistent quality; help promote sales within stores
Disadvantage of a National Manufacturer
“auction sale” effect (buyers go to store with lowest prices for same brand); lose exclusivity
Private manufacturer
brand owned not by a manufacturer or producer but by a retailer or supplier who gets its goods made by a contract manufacturer under its own label
Advantages of a Private Manufacturer
gives you control over your product; save money in production costs; no competition for brand; brand equity is yours
Disadvantages of a Private Manufacturer
takes time to develop; longer lead time from when you order to delivery
Characteristics of Services
- Intangible
- Creation inseparable from consumption
- Individually produced so virtually unique
- Perishable: once it’s created it can’t be stored
Service Industries that the US has comparative advantage
- Tourism
- Telecommunications
- Transportation
- Entertainment
- Financial Services
- Information
- Education
- Health Care
Quality
Essential character of something, defined in 2 dimensions: Market-perceived quality and performance quality
Market-perceived quality
customer’s perception of the overall quality or superiority of a product or service with respect to its intended purpose, relative to alternatives
Performance quality
quality of firm and product’s performance
Green Marketing
consideration and concern for the environmental consequences of product formulation, marketing, manufacturing, and packaging
Product adaptation
Changing physical or psychological aspects of a product to make it culturally appropriate and improve quality
Innovation
Needs to be adapted for different markets
Global brand
The name of a product or service that is known and sold in all parts of the world by a particular company
Domestic Market Extension
“Whatever we are selling at home”
Multidomestic Market Orientation
Develop different products to fit each country market
Global market orientation
Adapt some products, sell some as is, create new products; create quality products at affordable prices
Product Positioning
marketing technique intended to present products in the best possible light to different target audiences
Distinguishing features of the Japanese distribution system
- Structure dominated by many small middlemen dealing with many small retailers
- Channel control by manufacturers
- Business philosophy shaped by a unique culture
- Laws that protect the foundation of the system—the small retailer
How globalization affects retail distribution
- American type of retailing emerging in many parts of world
- Expansion of retailers
- European Retail Margins are decreasing
- Click-and-Mortar Strategies
Large-Scale Retail Store Law
In Japan: required that any store larger than 5,382 square feet must have approval from the prefecture government to be “built, expanded, stay open later in the evening, or change the days of the month it must remain closed”
Click-and-Mortar Strategies
buy product online and have them ship to physical store (don’t have to pay postage, just have to pick it up, already paid for)
Export Management Company
important middleman for firms with relatively small international volume or those unwilling to involve their own personnel in the international function. Becomes very important to marketing operations
Manufacturer’s Export Agent
individual agent middleman firm providing a selling service for manufacturers. Short-term relationship
5 Major home-country middlemen
- IKEA
- Costco
- Disney
- Sears
- Walmart
Factors affecting the choice of channel members
- Cost
- Capital
- Control
- Coverage
- Character
- Continuity
Issues in internet marketing
- Culture
- Translation
- Local Contact
- Payment
- Delivery
- Promotion
Agent middlemen
work on a commission and arrange for sales in the foreign country but do not take title to the merchandise (ex: Expedia)
Merchant middlemen
actually take title to the manufacturer’s goods and assume the trading risks, so they tend to be less controllable than agent middlemen
Trading companies
accumulate, transport, and distribute goods from many countries
Webb-Pomerene Export Association
- allow American business firms to join forces in export activities without being subject to the Sherman Antitrust Act
- Offer reduction of export costs, demand expansion through promotion, trade barrier reductions, and improvement of trade terms through bilateral bargaining
Complementary marketers (piggybackers)
companies with marketing facilities or contacts in different countries with excess distribution capacity or desire for a broader product line sometimes take on additional lines for international distribution
Import-oriented distribution structure
an importer controls a fixed supply of goods, and the marketing system develops around the philosophy of selling a limited supply of goods at high prices to a small number of affluent customers
IMC
APPARENTLY:
- Advertising
- Sales promotion
- Trade shows
- Personal selling
- Direct selling
- Public relations
Major problems confronting an international advertiser
- Language
- Legal constraints
- Cultural Diversity
- Media limitations
- Production costs
Basic areas of advertising regulation
- Advertising aimed at children
- Deceptive advertising
- Decency and sex
- Tobacco
- Liquor
- Comparison ads banned in Germany
How advertisers overcome problems of low literacy
TV instead of print. Very visual
Types of advertising media
- Newspapers
- Magazines
- Radio & TV
- Satellite and Cable
- Direct Mail
- Internet
- Social media
- Mobile apps
- Other media (cinema, sound trucks, FREE PAY PHONES OMG)
Communications process
- Sender
- Encode
- Message
- Decode
- Receiver
- Feedback
Noise throughout
How can a company use social media for promotion?
Consumer generated content
Impact of advertising agencies in international promotion
Gives international marketers options to employ local domestic agency, company owned agency, or multinational agency with local branches
Sales promotion
marketing activities that stimulate consumer purchases and improve retailer or middlemen effectiveness and cooperation (ex: coupons, in-store demos, samples, gifts, etc.)
Public relations
creating good relationships with the popular press and other media to help companies communicate messages to their publics
Media limitations
- certain media not available in every market
- lack of national media (fragmented)
- blocks of advertising vs regular interruptions
- quality of magazines/ newspapers
- cost of advertising
- lack of market data
Standardized advertising
doesn’t work because of culture and language differences
Regional segmentation
- more common for markets to be exposed to multiple messages and brands of the same product
Causes of parallel imports
- Price differentials in different countries
- Ease of access through the internet
Paralell Imports
products that are exported into a third country and put in direct competition with the same product sold for higher prices by the same firm that legally imported the product
Parallel Market
Occurs whenever price differences are greater than the cost of transportation between two markets
Gray Market
Illegal parallel imports sold in a different country create a gray market
Exclusive Distribution
A practice used by companies to maintain high retail margins to encourage retailers to provide extra services to customers, to stock large assortments, or to maintain the exclusive-quality image of a product
Factors when settling price overseas
- Distribution of wealth
- Multiple income levels
- Distinct market segments
- Multiple price levels and price/quality perception
- Costs of exporting
- Taxes, Tariffs, and Administrative costs
- Inflation
- Deflation
- Exchange Rate Fluctuations
- Varying Currency Values
- Middleman and Transportation Costs
Price Escalation
The disproportionate difference in price between the exporting country and the importing country; specifically relates to situations in which ultimate prices are raised by shipping costs, insurance, packing, tariffs, longer distribution channels, larger middleman margins, special taxes, administrative costs, and exchange rate fluctuation
Ways companies fight price escalation
- Lower cost of goods
- Lower tariffs
- Lower distribution costs
- Use foreign trade zones
Lower cost of goods
- Lower Manufacturing Costs (overseas production)
- Maquiladoras
- Eliminate Functional Features
- Lower Quality
Maquiladoras
Produce main parts in factory near border and then ship to other side to have them put it all together
Lower Tariffs
- Tariff Reclassification
- Product Modification
- Partial Assembly
- Repackaging (liquor)
Lower Distribution Costs
- Shorten Channels of Distribution
- Lower Shipping Costs
Specific duty tariff
flat charge per physical unit imported
Ad Valorem duty
a percentage of the value of the goods imported
Compound duties
combination of specific and ad valorem
Transfer (intercompany) pricing
the pricing of goods transferred from a company’s operations or sales units in one country to its units elsewhere
Countertrade
a type of transaction in which goods are imported and sold by a company from a country in exchange for the right or ability to manufacture and/or sell goods in that country
Types of countertrading
- Barter
- Compensation deals
- Counterpurchase
How Foreign Trade Zones can be used to reduce price escalation
- Tariffs may be lower
- Savings through lower labor costs
Full Cost Pricing
insists that no unit of a similar product is different from any other unit in terms of cost and that each unit must bear its full share of the total fixed and variable cost
Variable Cost Pricing
firm is only concerned with the marginal or incremental cost of producing goods to be sold in overseas markets; regards foreign sales as bonus sales and assume return over variable cost contributes to net profit
Skimming Pricing
used when the objective is to reach a segment of the market that is rather price insensitive and thus willing to pay a premium price for the value received
Penetration pricing
used to stimulate the market and sales growth by deliberately offering products at a low price
Marginal cost
cost to produce one additional unit
Marginal Revenue
additional revenue that will be generated by increasing product sales by one unit
Profit maximization
Pricing objective
Dumping
when products are sold below their cost of production; selling goods in a foreign market below the price of the same goods in home market
Countervailing Duty
restricts the amount a country will import
Buy Back
repurchasing shares to reduce the amount available in the market
Cartel
an arrangement in which various companies producing similar products or services work together to control markets for the goods and services they produce
Government influenced pricing
governments may establish margins, set prices and floors or ceilings, restrict price changes, compete in the market, grant subsidies, and act as a purchasing monopsony or selling monopoly
Letter of credit
financing devices that, when opened by a buyer of goods, allow the seller to draw a draft against the bank issuing the credit and receive dollars by presenting proper shipping document
Open account
goods are delivered and the customer is billed on an end-of-the-month basis
Cash in advance
provides seller greatest degree of protection
Forfaiting
a financing technique that may be used in an international transaction in which the seller makes a one-time arrangement with a bank or other financial institution to take over responsibility for collecting the account receivable
Leasing
- Can ease problems of selling new, experimental equipment
- Helps guarantee better maintenance and service on overseas equipment
- Revenue tends to be more stable over a period of time than direct sales
