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Business-Finance

Published on January 13, 2009

Author: aSGuest10337

Source: authorstream.com

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Competing in the Global Arena : Competing in the Global Arena Dr. A. Sybrandy RITI 2005 X Theories Explaining FDI : Theories Explaining FDI No single theory explains all. Too many factors are involved. International Product Cycle. Competitive Advantage (proprietary assets). Comparative Cost (delivered costs!). “Exploitation” theory from political science. Imperfect capital markets limit portfolio diversification. Dunning’s Eclectic View. Dunning’s Eclectic Theory : Dunning’s Eclectic Theory Three factors are at the basis of the Foreign Direct Investment Decision: Firm-specific Advantages. Must have a potential competitive strength to offset cost of doing business abroad. Internalization Advantages. There must be a reason to internalize the advantage rather than licensing it. Location (country-specific) Advantages. There must be a reason to produce abroad rather than exporting to the foreign market. Firm-Specific Advantages : Firm-Specific Advantages Proprietary technology. Specific skills (Management, marketing). Product differentiation, trademarks, brand names. Large size, reflecting scale economies: Production Purchasing Financing Distribution Advertising Firm-Specific Advantages : Firm-Specific Advantages Government protection. Human resource management (Japanese). Large capital requirements for plants of minimum efficient size. Internalization Advantages : Internalization Advantages High cost of making and enforcing contracts Knowledge tends to be a public good Other transaction costs, vertical integration. Buyer uncertainty about value of technology being sold cheaper to internalize customer’s costs. A need to control the re-sale of the product. Advantages to using price discrimination or cross-subsidization. Country-Specific Advantages : Country-Specific Advantages Natural resources. Efficient and skilled low-cost labor force. Trade barriers restricting imports. MNEs OvercomeMarket Imperfections : MNEs OvercomeMarket Imperfections FREE TRADECompetitive Int’lMarkets MNEsEfficientInternal “Markets” Natural MarketImperfections Tariff , non-tariff and other gov’tbarriers to trade MNE as a Monopolist : MNE as a Monopolist P Q AverageRevenue MarginalRevenue MarginalCost AverageCost P* Q* Excess Profits[Rent] Cost/Unit MNE as a Monopolist : MNE as a Monopolist Empirical studies show that MNEs do not make excess profit (ROI, ROE, etc.). Additional revenue [rents] are eaten by: Costs of exporting Costs of licensing Costs of investment The costs of doing business across borders compensates for the “monopoly” profits. Effects of FDI : Effects of FDI Look at: Host country Home country Different affected groups Short term Long term Correlation is not Causation! Balance of Payments : Balance of Payments B = (md – ms) + (xs – xr) + (ci – co) B = BoP effect md = Import displacement/substitution ms = Import stimulus/creation xs = Export stimulus/creation xr = Export reduction/displacement ci = Capital inflow (not trade payments) co = Capital outflow (not trade payments) Net import, export, and capital flow effects Official reserves account effects Long Term : Long Term Controversial, is it a zero-sum game? Home: Inflow of return on investment Loss of jobs; import back? Lower wages? Host: Stimulate economy; employment/upgrading of resources Negative or positive effects on entrepreneurship? Political/Legal Issues : Political/Legal Issues Potential conflicts home and host laws U.S. ‘Trading with the Enemy Act’ Antitrust laws General ‘extraterritoriality’ issues Political sensitivity to MNE influence Key sector arguments MNE plays countries against each other or becomes a home government tool MNE influencing home government for benefit of foreign operations Bribery (Foreign Corrupt Practices Act of 1977) General Results : General Results FDI in LDC doesn’t substitute for local investment ? more growth Highly differentiated products/processes unlikely to be made/implemented locally ? positive technology transfer Access to capital, markets, and other resources ? unlikely available to firms in LDC More technology transfer to more developed of the LDCs ? better ‘fit’ Marketing in International Business : Marketing in International Business Global Marketing Strategy (1) : Global Marketing Strategy (1) What to sell, to Whom, and How, on a World level. Global Marketing Strategy (2) : Global Marketing Strategy (2) Matching Marketing Mix and Target Customers (in more than one nation) in an Uncontrollable Environment to reach Objectives. Reasons to Penetrate Markets : Reasons to Penetrate Markets Country’s size Growth potential Proximity to home operations Stability of currency Political stability Orientations Production (1) Sales (2) Customer (3) Strategic marketing (1,2,3) Societal marketing Going International : Going International No direct foreign marketing. Infrequent foreign marketing. Regular foreign marketing. International marketing. Global marketing. International Marketing Concepts : International Marketing Concepts Philosophical orientation that is often associated with the successive stages in the evolution of international operations: Domestic market extension concept. Multidomestic market concept. Global marketing concept. Domestic Market Extension : Domestic Market Extension International operations secondary to and an extension of domestic operations. Primary motive is disposition of excess domestic production. “If it sells in Kuwait City it will sell anywhere else in the world.” Ethnocentric. Product Orientation : Product Orientation Product policy focus primarily on production Little analysis of customer needs Assumes customers want lower prices or higher quality Used for commodity sales, little product differentiation Passive exports, reducing surpluses within domestic market Foreign-market segments that resemble the market at which the product is aimed Multidomestic Market Concept : Multidomestic Market Concept Recognition of differences in overseas markets and the importance of these markets to the business. Market on a country-by-country basis, with a separate strategy for each country. Often, each subsidiary develops its own strategies and tactics. Polycentric. Global Marketing Concept : Global Marketing Concept Global company serving world markets. Strive for efficiencies by developing a more standardized product, of dependable quality, to be sold at a reasonable price to a global market. Assumes convergence/internationalization. Standardize the mix where feasible. Regiocentric or Geocentric. Marketing Research : Marketing Research The systematic gathering, recording, and analyzing of data to provide information useful in marketing decision making Breadth & Scope Int’l Marketing Research : Breadth & Scope Int’l Marketing Research General information about country, area, or market. Information required to forecast future marketing requirements [trends, etc.]. Specific information to make marketing mix decisions [incl. competition]. Broad Areas : Broad Areas Environment economic political/legal etc. Market size potential sales forecasts Competition at home international Approach:A Systematic Process : Approach:A Systematic Process Define research problem and set objectives. Hypotheses Determine sources to fulfill objectives. Gather relevant data. Secondary Primary Analyze, interpret, and present results. Look at COST v. BENEFIT! Multinational Marketing Information System : Multinational Marketing Information System An attempt to track important variables. Continuous basis rather than “single shot” research. Global environmental scanning is becoming more important. This is also true for “domestic” firms! “Single shot” findings can be added. Secondary Sources : Secondary Sources Availability Many countries don’t have the resources to collect much data. Accuracy and Reliability Many data are out of date. Data may be distorted by gov’t/respondents. Generally improves with level of development. Comparability Differing definitions. Differing collection methods. “Translation” problems. Validation Secondary Data : Validation Secondary Data Who collected the data? [Would there be any reason for purposely misrepresenting the facts?] For what purpose were the data collected? How were the data collected? [methodology] Are the data internally consistent and logical in light of known data sources or market factors? Types of Primary Research : Types of Primary Research Exploratory [qualitative] Used to better define the problem. Descriptive [quantitative] Establishes correlation among variables. Causal [quantitative] Establishes cause & effect relationship. Correlation Timing No other variables Comparability of Data : Comparability of Data Would like comparability across countries. More methodological issues then in domestic primary research. Two “philosophies:” EMIC school: Attitudes and Behavior are unique to each culture. ETIC school: There exist universal Attitudinal and Behavioral concepts. ETIC School : ETIC School EMIC v. ETIC are polar extremes. Marketers are most interested in ETIC side of the continuum. Comparisons across cultures. Economies of scale. Be careful of the Self Reference Criterion! It is easy to introduce EMIC concepts and treat them as “universal!” Five Rules forInternational Research : Five Rules forInternational Research Ask the following questions first: What information do I need? What will I do with it once obtained? Where can I get this information? Why do I need this information? When do I need this information? What is the information worth to me? ($, KD) What would be the cost of not getting the information Five Rules forInternational Research : Five Rules forInternational Research Start with desk research. Identify the type of information that is available from overseas resources. Know where to look. Do not assume that the information you get is comparable or accurate. Market Selection : Market Selection Usually a multi-step approach: Screen to select potential countries to enter: General market potential. General market related to product. Specific factors affecting product. Prioritize potential countries selected Match with corporate factors. Foreign Economy : Foreign Economy Measuring performance: level development structure Initial market size indicators: Population Income Forecasting Potential Demand : Forecasting Potential Demand Per capita consumption Additional variables Obsolescence and leapfrogging of products Costs Income elasticity Substitution Income inequality Forecasting Demand : Forecasting Demand Gap Analysis : Gap Analysis Method for estimating a company’s potential sales by identifying market segments it is not serving adequately When sales are lower than the estimated market potential for a product, the company has potential for increase sales Types of gaps Usage Competitive Product line Distribution Gap Analysis : Gap Analysis Geographic Expansion:Strategic Alternatives : Geographic Expansion:Strategic Alternatives Product ExtensionCommunications Extension(Dual Extension). Product ExtensionCommunication Adaptation. Product AdaptationCommunications Extension Dual Adaptation. Product Invention. Product Strategy : Product Strategy Standardization (local) Adaptation (International) World Product (Global) Product Standardization : Product Standardization Cost effective -- “Profit effective?” Economies of scale Distribution Sometimes appropriate International travel & communication (e.g., MacDonalds) Products associated with cultural universals (e.g., watches, diamonds). Product Adaptation : Product Adaptation Better “fit” with marketing concept. May increase cost if many models are needed. Two forms of adaptation: Mandatory Optional Reasons for alterations Legal Cultural Religious Economic World Product : World Product Designed specifically for the global market. Multi-standard television sets. Hand tools (e.g., Black & Decker). This is not the same as standardization! Generally try to find a “universal” segment. This is questionable! Packaging : Packaging Package: Functional ? Protect product at min. cost. Promotional ? “Advertises” the product. Many foreign consumers are more concerned with functional aspects (e.g., LDCs rather have glass bottles [v. plastic]: Labor to return. Sell -- recoup part of purchase price. Secondary functions -- store other materials). Package Adaptations : Package Adaptations Mandatory: Language (e.g., mandatory bilingual). Labeling related. Measurement systems. Gov’t rules/regulations (non-tariff protection!). Optional: Accident/History. Purchase behavior. Cultural variables. Product Lines : Product Lines The international marketer often deals with product line issues in addition to individual product issues: What product line(s) to which countries? How do these lines relate to each other? How do you go about dropping and adding products to the line(s). Line Offered in a Country : Line Offered in a Country Market Factors: Use conditions Consumer preferences culture history available income Government regulations Import restrictions Export restrictions “local” requirements (e.g., FDA, FCC, etc.) Line Offered in a Country : Line Offered in a Country Competition in the market. Firm specific factors: Resources available Internal growth v. acquisition Length of time in the market Type of involvement Interaction with lines offered in other countries (Int’l product life cycle, portfolio planning, etc.). Promotion : Promotion Standardize message, Adapt, or New? Translation issues Legal issues Message needs (culture!) Combinations are possible E.g., universal video with voice-overs for TV Push v. Pull Determining the Push/Pull Mix : Determining the Push/Pull Mix Type of distribution system Cost and availability of media to reach target markets Consumer attitudes toward sources of information Price of product compared to incomes International Branding Decisions : International Branding Decisions Brand versus no brand Manufacturer’s brand versus private brand One brand versus multiple brands Worldwide brand versus multiple brands Issues: Language differences Expansion by acquisition Nationality images Laws concerning generic names International Pricing Issues : International Pricing Issues Different degrees of governmental involvement Greater diversity of markets Price escalation for exports Changing values of currency Differences in fixed versus variable pricing practices Retailers’ strength with suppliers Price Escalation in Exporting : Price Escalation in Exporting Issues Between Fixed versus Variable Pricing Strategies : Issues Between Fixed versus Variable Pricing Strategies Discounts for quantity or repeat orders Deadlines that increase production or transportation costs Credit or payment terms Service Supply of promotional materials Training of sales personnel or customers Channel of Distribution : Channel of Distribution An organized network of agencies and institutions which, in combination, perform all the activities required to link producers with users to accomplish the marketing task. American Marketing Association, 1988. Channel Utility : Channel Utility Place [Physical Movement] Availability of product or service at a location that is convenient to a potential customer. Time [Storage] Availability of product or service when desired by a customer. Form [Sorting/Assorting] The product is processed, prepared and ready to use, and in proper condition. Information [Communication] Answers to questions and general communication about useful product features and benefits are available. Ownership [Title/Financial] Channels inForeign Markets : Channels inForeign Markets Integral to marketing program. Channel strategy has to fit product, price, and promotion elements. Very highly differentiated around the world. May be a major obstacle for small firms. For large firms channel strategy often resides at the subsidiary level. Channel Design Considerations : Channel Design Considerations Customer Characteristics Coverage Character/Nature of the product Culture/Existing structures Competition Company Objectives Capital requirements Costs Control Continuity Communication Trends in Global Distribution : Trends in Global Distribution Concentration Internationalization Direct Marketing Discounting Information Technology Global Logistics : Global Logistics “Designing and managing a system that controls the flow of materials into, through, and out of the international corporation.” Two Major Phases : Two Major Phases Materials Management Raw materials Parts Supplies 1b/2a Throughflow -- Corporate Logistics Physical Distribution Finished products Includes both movement and storage Three Major Concepts : Three Major Concepts Systems Concept Each part or division may have to work “suboptimally” to optimize the system. Total Cost Concept Minimize overall logistics cost by implementing the systems concept. Latest: Total after-tax profit concept Tradeoff Concept Recognizes the linkages within the logistics system as a result of interacting components. Domestic v. Int’l Logistics : Domestic v. Int’l Logistics Basic Differences: Distances involved. Currency variations. Border-crossing process. Modes of transportation. Country Specific Differences: Transportation & Communication systems. Intermediaries (quantity & quality). Reliability carriers. Method of computing freight rates. Packaging and labeling requirements. Three Major Issues : Three Major Issues Transportation Storage Packaging Transportation Issues : Transportation Issues Infrastructure varies by country. Inbound & outbound (sea/air ports). Internal systems (e.g., navigable rivers). Availability of modes Ocean shipping Air freight Storage (Inventory) Issues : Storage (Inventory) Issues Inventories tie up a major portion of corporate funds. Three factors to consider for determining level of inventory: Order Cycle Time. Customer Service Levels. Strategy issues. Packaging : Packaging International shipment presents additional problems due to differing environments: Breakage Moisture Weight Pilferage Trends : Trends Unitizing & Palletizing. Containerization. Movement towards greater centralization of logistics management.

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