Part II Flashcards
What is the home country environment?
Environment where the country originates from
Promotional activities:
Direct government attempts to make country’s products more competitive in world market
Government export promotion programs and programs for global marketing activities in general are designed to deal with the following barriers (3):
- Lack of motivation
- Lack of adequate information
- Operational/resource-based limitations
Financial activities:
Through the membership of international financial organizations such as IMF and World Bank, the national government can assume its role as an international banker.
Information services (e.g.: CBS)
For smaller firms that cannot do own research or hire outside researchers, the national government is the major source of basic marketing information.
Export-facilitating activities:
Activities that stimulate export
Name a few examples of export-facilitating activities (3):
- Trade development offices (also abroad)
- Government-sponsored trade fairs and exhibitions
- Sponsoring trade missions of business people who go abroad for the purpose of making sales
Promotion by private organizations:
Various non-governmental organizations that play a role in the promotion of global marketing
Name a few examples of promotion by private organizations (3)
- Chambers of commerce: local, national, international
- Other organizations concerned with trade promotion
- Export service organizations, banks, transport and trading companies, freight forwarders
State trading:
Many of former communist countries are not allowing some private trading activities, either through joint ventures or as a result of privatization of state-owned enterprises
What are the three types of political risks?
- Ownership risk
- Operating risk
- Transfer risk
What is ownership risk?
Exposes property and life
What is operating risk?
Refers to interference with the ongoing operations of a firm
What is transfer risk?
Is mainly encountered when companies want to transfer capital between countries
What are the types of government action (10):
- Import restrictions
- Local-content laws
- Exchange controls
- Market control
- Price control
- Tax controls
- Labor restrictions
- Change of government party
- Nationalization
- Domestication
Explain import restrictions
Selective restrictions on the import of materials, machines and parts
Explain local-content laws:
Countries require a portion of product sold to have a local content
Explain exchange controls:
Shortage of foreign exchange -> controls to conserve the supply
Explain market control:
Controls to prevent foreign companies from competing in certain markets
Explain price controls:
Price control over products that command considerable public interest
Explain tax controls:
Used as a means of controlling foreign investments
Explain labor restrictions:
Labor unions persuade government to pass laws that support labor
Explain the change of government parties:
New government may not continue agreement of previous
Explain nationalization:
Takeover of foreign companies by the host government
Domestication:
Continual restriction placed on foreign firms gradually over time
What are trade barriers:
Trade laws (often tariffs) that favor local firms and discriminate against foreign ones
What are the two main reason why countries levy tariffs?
- To protect domestic producers (import tariffs raise cost of imported good, making domestic products more attractive)
- To generate revenue
Trade distortion can be grouped into two basic categories, what are these called?
Tariffs and non-tariff barriers
What are tariffs?
A tool used by government to protect local companies from outside competition. The most common forms are specific, ad valorem and discriminatory.
What are non-tariff barriers?
Non-monetary barriers to foreign products, such as biases against a foreign company’s bids, or product standards that go against a foreign company’s product features
What are the most common forms of tariffs (3)?
- Specific
- Ad valorem
- Discriminatory
What is the meaning of specific (tariffs)?
Charges are imposed on particular products, by weight and volume, in local currency
What is the meaning of ad valorem (tariffs)?
Straight percentage of the value of goods
What is the meaning of discriminatory (tariffs)?
Tariff charged against goods coming from a particular country
What are examples of non-tariff barriers (4)?
- Quotas
- Embargoes
- Administrative delay
- Local-content requirements
What are quotas?
A restriction on the amount (units of weight) of a good that can enter or leave a country during a certain period of time
What are embargoes?
A complete ban on trade (imports and exports) in one or more products with a particular country. It is the most restrictive non-tariff barrier, usually to accomplish political goals
What is administrative delay?
Regulatory controls or bureaucratic rules designed to impair the rapid flow of imports into a country. Requires inspections, understaff customs office, etc.
What are the two reasons why a government imposes import quotas?
- Protect domestic producers by placing a limit on the amount of goods allowed to enter the country -> domestic producers maintain their market share and prices.
- Force companies of other nations to compete against one another for the limited amount of imports allowed.
What are the two reasons why a government imposes export quotas?
- Maintain adequate supplies of a product in the home market (natural resources)
- Limit supply on world markets -> increasing the international price of the good
What are local-content requirements?
Law stipulating that a specified amount of a good or service be supplied by producers in the domestic market. Certain portion or cost of product must have domestic sources.
What are the three steps of the political risk analysis?
- Issues of relevance to the firm -> determine critical economic/business issues relevant to the firm
- Potential political events -> determine the relevant political events, determine their probability of occurring, determine the cause and effect relationship and determine the government’s ability and willingness to respond
- Probable impact and responses -> determine the initial impact of probable scenarios, determine possible responses to initial impacts, determine initial and ultimate political risk
The economic environment consists of (3)?
Primary, secondary and tertiary activities
What are primary activities?
Concerned with agriculture and extractie processes (fishing, iron, gold, etc.)
What are secondary activities?
Manufacturing activities
What are tertiary activities?
Activities based upon services
Exchange rates affect the activities of both domestic and International companies, what are the two names for this?
- Devaluation
2. Revaluation
What is devaluation:
International lowering of the value of a currency by the nation’s government -> lowers the price of a county’s exports, increases price of the imports
What is revaluation:
International rising of the value of a currency by the nation’s government -> increased the price of exports, reduces the price of imports.
What is the “law of one price”?
Stipulates that an identical product must have an identical price in all countries when price is expressed in a common-denominator currency
What is the ‘Law of one price’ good for?
- To help us determine whether a currency is overvalued or undervalued
- Big MacCurrencies/Big Max Index -> Based on theory of purchasing power parity (PPP), $ should buy some amount everywhere
Where stands the abbreviation “GNP” for?
Gross National Product
What is GNP?
Is the value of all goods and services produced by the domestic economy over a one-year period, including income generated by the country’s international activities
Where stands the abbreviation ‘GDP’ for?
Gross Domestic Product
What is GDP?
The value of all goods and services produced by the domestic economy over a one-year period
What are LDC’s?
Less Develop countries -> have low GDP per capita, limited amount of manufacturing activity, poor infrastructure, etc.
What are NIC’s?
Newly Industrialized countries -> countries with an emerging industrial base, one that is capable of exporting
Examples: Singapore, South Korea, Taiwan, Brazil, Mexico
What are Advanced Industrialized Countries?
Countries that have considerable GDP per capita, wide industrial base, development in service sector and investment infrastructure
What are free trade areas?
All trade barriers among member countries are removed. Each member country maintains own trade barrier vis-à-vis non-members
What is a customs union?
Free trade area, but with a common trade policy to non-members (common external tariff for non-members)
What is common market?
Customs union, but factors of production (labor, capital, technology) are mobile among MS. Removal of barriers to the free movement of goods, services, capital and people.
What is economic union?
Common market, but with integration of economic policies. Member states harmonize monetary policies, taxation and government spending.
BRICS countries:
Brazil, Russia, India and China (and later South-Africa)
- These are emerging countries where we will see high growth
- From the 44% of the world’s population 25% of the worlds’s GDP
BRICS economies will face challenges from:
- Slow growing global economy
- Reversal of investor risk appetite moving capital from BRICS to safe havens
- A loss of confidence in the BRICS
What is culture?
The learned ways in which a society understands, decides and communicates
A culture must have three characteristics, which are these?
- It is learned -> culture is acquired over time through their membership of a group that transmits culture from generation to generation
- It is interrelated -> one part of culture is deeply connected with another part, such as religion and marriage, business and social trust
- It is shared -> tenets of a culture extend to other members of the group. Cultural values are passed on tp an individual by other members of the group
What are the different layers of culture (4):
- National culture
- Business/Industry culture
- Company culture (organizational culture)
- Individual behavior
Give an explanation of national culture:
Gives overall framework of cultural concepts and legislation for business activities
Give an explanation of Business/industry culture:
Every business is conducted within a certain competitive framework and within a specific industry. Is related to a branch of industry, and this culture of business behavior and ethics is similar across borders.
Give an explanation of company culture (organizational culture):
Total organization often contains subcultures of various functions. Functional culture is expressed through shared beliefs and values.
Give an explanation of Individual Behavior:
Individual is affected by the other cultural levels. Individual becomes the core person who ‘interacts’ with the other actors. The learning process creates individuals due to different environments in learning and different individual characteristics.
An international market can be defined by (2)
- The international market as a country of a group of countries
- The international market as a group of customers with nearly the same characteristics
What are the international market segmentation steps (4):
- Selection of the relevant segmentation criteria
- Development of appropriate segments
- Screening of segments to narrow down the list of markets/countries. Choice of target markets/countries.
- Micro-segmentation: develop segments in each qualified country or across countries.
What are the criteria for effective segmentation (4):
- Measurability
- Accesibility
- Substantiality
- Actionability
What is measurability:
the degree to which the size and purchasing power of resulting segments can be measured
What is accessibility?
the degree to which the resulting segments can be effectively reached and served
Wat is substantiality?
the degree to which segments are sufficiently large and/or profitable
What is actionability?
the degree to which the organization has sufficient resources to formulate effective marketing programs and ‘make things happen’
Screening process can be divided into two stages, these are:
Preliminary screening and fine-grained screening
Give an explanation of Preliminary screening:
markets/countries are screened primarily according to external screening criteria (the state of the market) (macro-oriented)
Give an explanation of fine-grained screening:
the firm’s competitive power in the different markets can be taken into account -> identification of the ‘best opportunity’ done by applying the market attractiveness/competitive strength matrix
What is country responsiveness?
‘Income elasticity’ of specific product and industry consumer-related expenditures in a country. It reflects the tendency of consumers to spend, in a specific product or category, in response to a rise in their income
What are knock-out criteria?
Screening criteria that are used to exclude countries in advance as potential future markets
Where does BERI stand for?
Business Environment Risk Index
What does BERI mean?
A tool used in the coarse-grained, macro- oriented screening of international markets (focus on only political risk of entering)
What are A countries?
Primary markets, key markets which offer the best opportunities for long-term strategic development. Companies may want to establish a permanent presence
What are B countries?
Secondary markets, where opportunities are identified but political or economical risk is perceived as being too high to make long-term commitments.
What are C countries?
Tertiary or ‘catch what you can’ markets, perceived as high risk, and so the allocation of resources will be minimal. Objectives are short-term and no real commitment of companies
What is cluster analysis:
Can be used to identify meaningful cross-national segments
What is a transnational approach:
Is used when a company is trying to achieve a consistent and controlled marketing strategy across all its markets
What is micro-segmentation:
Process is to decide with which products or services the company wishes to become active in the individual countries
What two questions do firms have to answer before designing their strategy?
- Will they enter markets incrementally (the waterfall approach) or simultaneously (the shower approach)/
- Will entry be concentrated or diversified across international markets
What is the waterfall approach?
A product or a technology may be so new/ expensive, only advanced countries can use/afford it. Firms may decide to enter a single key market to build up experience and then subsequently entering other markets. May be preferred where a firm lacks experience in foreign markets or when firm enters international market late and faces local competition.
What is the shower approach?
Is used when companies prefer a rapid entry into world markets in order to seize an emerging opportunity. It facilitates an early market penetration and firms can build up experience quickly, achieving economies of scale. It is used when a product is innovative or has a technical advance. Entering multiple markets simultaneously requires high financial and management resources and entails higher operating risk
What is the global product/market portfolio?
The corporate portfolio analysis provided an important tool to assess how to allocate resources, to geographical areas and different product business.
At which four levels can the Global Corporate Portfolio be analyzed?
- Product categories by regions
- Product categories by countries
- Regions by brands
- Countries by brands
