Practice of International Trade

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Information about Practice of International Trade

Published on September 3, 2007

Author: Eagle


Practice ofInternational Trade Li Guo:  Practice of International Trade Li Guo Chapter One:Introduction to International Trade:  Chapter One:Introduction to International Trade I.What is International Trade? 1) Definition: International trade, also as world trade, foreign trade or overseas trade, is the fair and deliberate exchange of goods and services across national boundaries. It concerns trade operations of both import and export and includes the purchase and sale of both visible and invisible goods. Foreign trade:from the standpoint of a specific country World trade : the sum of each country’s foreign trade Overseas trade: some island countries (Japan ,UK etc.) 2)Characteristic of international trade The fundamental characteristic that makes international trade different from domestic trade is that international trade involves activities across national boundaries. Special problems may arise in international trade that are not normally experienced when trading at home. In particular: Slide3:  ▲Deals might have to be transacted in foreign languages and under foreign laws, customs (cultural shocks) and regulations. ▲Information on foreign countries needed by a particular firm may be difficult to obtain. ▲Foreign currency transaction will be necessary E.g USD,GBP,EURO JPY Exchange rate variations can be very wide and create many problems for international trade. ▲Risk level might be higher in foreign markets. The risks include political risks(of the imposition of restrictions on imports etc); commercial risks(market failure, products not appealing to foreign customers, etc); financial risks(of adverse movement in exchange rates, high rates of inflation reducing the real value of a company’s working capital,and so on);and transportation risks. ▲International managers need a broader range of management skills than do managers who are only concerned with domestic problems. ▲Large amount of important work might have to be left to intermediaries, consultants and advisers. Slide4:  ▲It is more difficult to observe and monitor trends and activities (including competitor’s activities in foreign countries. II.Theory of International Trade International trade volume has been expanding with the industrialization of the western countries. Figure 1.1 shows the development of world trade since the end of WWII Billions of USD 98.5 10,855 Slide5:  The trade volume increased over 100 times since 1947.But why do countries trade with each other. Briefly, countries trade for two reasons. First , counties trade because they are different from each other. Nations , like individuals , can benefit from their differences by reaching an arrangement in which each does the things it does relatively well. Second , countries trade to achieve economies of scale in production. That is, if each country produces only a limited range of goods, it can produce each of these goods at a larger scale and hence more efficiently than if it tried to produce everything. In this light, the theory of trade can be divided into two groups:traditional trade theory and new trade theory . . Slide6:  1)Traditional trade theory Assumptions: constant returns to scale/perfect competition ▲The theory of absolute advantage 2x2x1 This theory was developed by Adam Smith. He observed that when one nation is more efficient than (or has absolute advantage over )another in the production of one commodity but is less efficient than (or has an absolute disadvantage with respect to )the other nation in producing a second commodity, then both nations can gain by each specializing in the production of the commodity of its absolute advantage and exchanging part of its output with the other nation for the commodity of its absolute disadvantage. Slide7:  Absolute Advantage U.S U.K Wheat(bushels/man-hour) 6 1 Cloth(yards/man-hour) 4 5 ▲The law of Comparative Advantage:David Ricardo 2x2x1 According to the law of comparative advantage, even if one nation is less efficient than (has an absolute disadvantage with respect to )the other Nation in the production of both commodities, there is still a basis for mutually beneficial trade. The first nation should specialize in the production of and export The commodity in which is absolute disadvantage is smaller (this is the commodity Of its comparative advantage) and import the commodity in which its absolute disadvantage is greater (this is the commodity of its comparative disadvantage). Slide8:  Comparative Advantage ▲Heckscher– Ohlin theory (Factor—proportions theory), developed by two Swedish economists, Eli Hecksher and Bertil Ohlin (Ohlin received the Nobel Prize in economics in 1977). If labor were the only factor of production, comparative advantage could arise only because of international differences in labor productivity. In the real world , however, while trade is partly explained by differences in labor productivity, it also reflects differences in countries’ resources. Canada exports forest products to the U.S not because its lumberjacks are more productive relative to their U.S counterparts but because sparsely populated Canada has more forested land per capita than the U.S. A realistic view of trade must allow for the importance not just of labor , but of other factors of production such as land, capital, and mineral resources. Countries tend U.S U.K Wheat (bushels/man-hour) 6 1 Cloth(yards/man-hour) 4 2 Slide9:  To export goods that are intensive in the factors with which they are abundantly supplied. 2)New trade theory Assumptions:increasing returns to scale/imperfect competition Increasing returns to scale refers to the production situation where output grows proportionately more than the increase in inputs or factors of production. Many industries are characterized by increasing returns to scale, or economies of scale. Because of economies of scale , nether country is able to produce the full range of manufactured products by itself ; thus , although both countries may produce some manufactures , they will be producing different things. Trade in a world without Increasing Returns Home (capital abundant) manufactures food Foreign (labor abundant) Slide10:  In a world without economies of scale , there would be a simple exchange of manufactures for food. Trade with Increasing Returns and Monopolistic Competition Home (capital abundant) Foreign (labor abundant) manufactures food Intra-industry trade Inter-industry trade If manufactures is a monopolistically competitive industry, Home and Foreign Will produce differentiated products. As a result, even if Home is a net export Of manufactured goods , it will import as well as export manufactures, giving Rise to intra-industry trade. Intra-industry trade (manufactures for manufactures) does not reflect comparative Advantage. It is economies of scale that keep each country from producing the full Range of products for itself. The relative importance of inter-industry and intra-industry Trade depends on how similar countries are. If Home and Foreign are similar in their Slide11:  Capital– labor ratios, then there will be little inter-industry trade ,and intra-industry trade, based on economies of scale, will be dominant. On the other hand if the capital—labor ratios are different , so that , for example, Foreign specializes completely in food production, there will be no intra-industry trade based on economies of scale. All trade will be based on comparative advantage. III.The Instruments of Trade Policy 1)Tariff: the simplest form of trade policy, is a tax levied when a good is imported. Specific tariffs are levied as a fixed charge for each unit of goods imported(for example, $3 per barrel of oil) Ad valorem tariffs are taxes that are levied as a fraction of the value of the imported goods . Compound Tariff :specific tariff+ad valorem tariff (but only one is the main part , the other is a plus) Alternative Tariff : select the higher one Slide12:  Costs and Benefits of a Tariff for the Importing country P Q PT PW P*T a b c d e S1 S2 D1 D2 Consumer loss:a+b+c+d Producer gain:a Government revenue gain :c+e The net welfare of a tariff is: (a+b+c+d)—a—(c+e)=b+d—e D S Slide13:  2)Other Instruments of trade policy Export Subsidies:a payment to a firm or individual that ships a good abroad. Like tariff, an export subsidy can be either specific( a fixed sum per unit) or ad valorem ( a proportion of the value exported). Import Quota: a direct restriction on the quantity of some good that may be imported . The restriction is usually enforced by issuing to some group or individuals or firms. An import quota always raise the domestic price of the imported good. The difference between a quota and a tariff is that with a quota the government receives no revenue. When a quota instead of a tariff is used to restrict imports, the sum of money that would appear as government revenue with a tariff is collected by whomever receives the import license. License holders are able to buy imports and resell them at a higher price in the domestic market. The profits received by the holders of import license are also known as quota rents. Voluntary Export Restrains(VER) VER are generally imposed at the request of the importer and are agreed by the exporter to forestall other trade restrictions. Slide14:  Case Study: A Voluntary Export Restraint in Practice: Japan Autos For much of the 1960’s and 1970’s the US auto industry was largely insulated from import competition by the difference in the kinds of cars bought by US and foreign consumers. US buyers, living in a large country with low gasoline taxes, preferred much larger cars than Europeans and Japanese, and , by and large, foreign firms have chosen not to challenge the US in the large car market. In 1979, sharp oil price increases and temporary gasoline shortage caused the US market shift abruptly to ward smaller cars. Japanese producers , whose costs had been falling relative to their US competitors in any case, move to fill the new demand.As the Japanese market share soared and US output fell, strong political forces in the US demanded protection for the US industry. Rather than act unilaterally and risk creating a trade war, the US government asked the Japanese government to limit its exports. The Japanese , fearing unilateral US protectionist measures if they did not do so, agreed to limit their sales. The first agreement , in 1981, limited Japanese exports to the US to 1.68 million autos. Slide15:  Local Content Requirements is a regulation that requires that some specific fraction of a final good be produced domestically. From the point of view of the domestic producers of parts ,a local content regulation provides protection in the same way an import quota does. From the point of view of the firms that must buy locally, however, the effects are somewhat different. Local content does not place a strict limit on imports. It allows firms to import more, provided that they also buy more domestically. Export credit subsidies. This is like an export subsidy except that it takes the form of a subsidized loan to the buyer. The US , like the most countries, has a government institution, the Export-Import Bank, that is devoted to providing subsidized loans to aid exports. National procurement. Purchases by the government or strongly regulated firms can be directed toward domestically produced goods when these goods are more expensive than imports. Red-tape barriers.Sometimes a government wants to restrict imports without doing so formally.e.g in 1982 French government ordered that all Japanese videocassette recorders must pass through the tiny customs house at a small town----effectively limiting the actual imports to a handful. Slide16:  Ⅳ.General Procedure of Trade Practice 1) Preparation before the negotiation Target country:economic and natural resources, infrastructure, climate and geography,cultural background, political climate etc. Business partner:credit reference, background information, business range, business culture etc. Qualified Negotiators:specialized skills ,communication ability, team spirit, etc. Proper plans:define the specific negotiating objective, state the minimum acceptable level for each of the major items, set time schedules for implementation, etc. Slide17:  2)Trade Negotiation Invitation to offer The offer The counter offer Acceptance 3)Signing Business Contract 4)Implementation of the contract Major Reference Books: Warren J.Keegan, Global Marketing Management, by Prentice Hall,1999 吴百福等, 〈进出口贸易实务教程〉, 上海人民出版社,2001 黄维梁,〈国际经济贸易实务〉,高等教育出版社,2002 黎孝先,〈国际贸易实务〉,对外经济贸易大学出版社,2000 Chapter Two:Preparation Before Negotiation (Export Marketing I):  Chapter Two:Preparation Before Negotiation (Export Marketing I) Export marketing is the integrated marketing of goods and services that are destined for customers in international markets. Export marketing requires: 1.An understanding of the target market environment 2.The use of marketing research and the identification of market potential 3.Decision concerning product design, pricing, distribution and channels, advertising and communication—the marketing mix. The purpose of this chapter is to provide an overview of the target market environment and the general principles of marketing research.( The first two issues) Slide19:  I. The Target Market Environment The macro dimensions of the environment are economic, social and cultural, political and legal. 1).The Economic Environment of the Target Market Economic System: Market Allocation:one that relies on consumers to allocate resources.The U.S., most Western European countries, and Japan, the triad countries that account for three quarters of gross world product, are examples of predominantly market economies. Command Allocation:the state has broad powers to serve the public interests, which include deciding what products to make and how to make them. Cuba stands as one of the last few command allocation economies. Slide20:  Mixed System:There are ,in reality , no pure market or command systems among the world’s economy. All market systems have a command sector, and all command systems have a market sector; in other words , they are 'mixed'. Table 2-1 Index of Economic Freedom Free Mostly Free Mostly Unfree Repressed Numbers 7 Hong Kong Singapore Bahrain United States Japan Chinese Taiwan United Kingdom Canada Germany Austria Bahamas South Korea Malaysia Australia France Italy Sweden etc 36 S.Africa Turkey Mexico India Zambia Indonesia Russia Israel Ghana Philippines etc 50 Moldova Haiti Sudan Anglo Mozambique Vietnam Cuba N.Korea 8 Slide21:  Stages of Market Development Low-income Countries Low-income countries ,also known as pre-industrial countries, are those with incomes of less than $766 per capita.The following characteristics are shared by countries at this income level: ▲Limited industrialization and a high percentage of the population engaged in agriculture and subsistence farming. ▲ High birth rates. ▲ Low literacy rates. ▲ Heavy reliance on foreign aid ▲ Political instability and unrest ▲ Concentration in Africa , south of Sahara Low-Middle-Income countries Slide22:  Also known as less developed countries or LDCs, are those with a GNP per capita of more than $766 and less than $3,036.These countries are at the early stages of industrialization. Upper-Middle-Income Countries Also known as industrializing countries, are those with GNP per capita between $3,035 and$9,386. High-Income Countries High-income countries, also known as advanced , industrialized, postindustrial , or First World countries, are those with GNP per capita above $9,386. With the exception of a few oil-rich nations. Product and market opportunities in a postindustrial societies are more heavily dependent on new products and innovation than industrial societies. Slide23:  Table 2-2 Stages of Market Development Income Group by Per Capita GNP 1997 GNP per capita %of World GNP High Income Countries Upper-Middle-Income Countries Lower-Middle-Income Countries Low-Income Countries 24,754 3,946 1,385 463 81 8 5 6 1997 Population (Million) 914 540 1,088 3,318 Sources:Warren J. Keegan, Global Income and Population:1997 and Projections to 2000and 2010. Slide24:  2).Social and Cultural Environment Anthropologists and sociologists define culture as 'ways of living', built up by a group of human beings, that are transmitted from one generation to another.' A culture acts out its ways of living in the context of social institutions, including family, educational, religious, governmental and business institutions. Culture includes both conscious and unconscious values, ideas , attitudes ,and symbols that shapes behavior and that are transmitted from one generation to the next. Export marketers must recognize and deal with the differences in the social and cultural environment of world markets. Theoretically, culture can be divided into two groups: High-Context cultures and Low-Context cultures.In a low-context culture, messages are explicit; words carry most of the information in communication. In a high-context culture, less information is contained in the Slide25:  Verbal part of a message. Much more information resides in the context of communication, including the background, associations,and basic values of the communications. In general, high-context cultures function with much less legal paperwork than is deemed essential; in low-context cultures. Japan, Saudi Arabia, and other high-context cultures place a great deal of emphasis on a person’s values and position or place in society. Table 2-3 High-and Low-Context Cultures Factors/Dimensions High Context Low Context Lawyers Less important Very important A person’s word Is his or her bond is not to be relied on 'get it in writing' Space People breathe on each other private and resent intrusions Time Poly-chronic ---everything Mono-chronic—time is money in life must be dealt with in its Linear—one thing a time. own time. Slide26:  Negotiations Are lengthy—major Proceed quickly purpose is to allow the parties to get to know each other. Competitive bidding Infrequent Common Country/regional Examples Japan , Middle East United States, Northern Europe Slide27:  Marketing an Industrial Product in Latin America A Latin American republic had decided to modernize one of its communication networks at a cost of several million dollars. Because of its reputation of quality, the government approached American company 'Y'. Company management, having been sounded out informally, considered the size of the order and decided to bypass its regular Latin American representative and send its sales manager instead. The next day, the commercial attache introduced the sales manager to the Minister of Communications. First, there was a long wait in the outer office while people went in and out. The sales looked at his watch, fidgeted , and finally asked whether the minister was really Slide28:  Expecting him. The reply he received was really reassuring. 'Oh yes, he is expecting you, but several things have come up that require his attention. Besides, one gets used to waiting down here.' The sales manager irritably replied: ' But doesn’t he know I flew all the way down here from the United States to see him, and I have already spent over a week of my valuable time trying to find him?' ' Yes, I know,' was the answer, 'but things just move much more slowly here.' At the end of about 30 minutes, the minister emerged from the office, greeted the commercial attache with a double abrazo, throwing his arms around him and patting him on the back as though they were long-lost brothers. Now, turning and smiling, the minister extended his hand to the sales manager, who, by this time , was feeling rather miffed because he had been kept in the outer office so long. Slide29:  After what seemed to be an all too short chat, the minister rose, suggesting a well-known cafe where they might meet for dinner the next evening. The sales manager expected, of course, that, considering the nature of their business and the size of the order, he might be taken to the minister’s home, not realizing that the Latin home is reserved for family and very close friends. Until now, nothing at all had been said about the reason for the sales manager’s visit, a fact that bothered him somewhat. The whole setup seemed wrong. He did not like the idea of wasting another day in town. He had told the home office before he left that he would be gone for a week or 10 days at most, and made a mental note that he would clean his order in 3 days and enjoy a few day s in Acapulco or Mexico City. Now, the week was already gone and he would be lucky if he made Slide30:  It home in 10 days. Voicing his misgivings to the commercial attache, he wanted to know if the minister really meant business, and if he did, why could they not get together and talk about it? The commercial attache by now was beginning to show the strain o f constantly having to reassure the sales manager. Nevertheless, he tried again: ' What you don’t realize is that part of the time we were waiting, the minister was rearranging a very tight schedule so that he could spend tomorrow night with you. You see, down here, they don’t delegate responsibility the way we do in the States. They exercise much tighter control than we do. As a consequence, this man spends up to 15 hours a day at his desk. It may not look like it to you, but I assure you he really means business. Slide31:  He wants to give your company the order; if you play your cards right, you will get it.' The next evening was more of the same: much conversation about food and music, and about many people the sales manager had never heard of. They went to a nightclub, where the sales manager brightened up and began to think that perhaps he and the minister might have something in common after all. It bothered him, however, that the principal reason for his visit was not even alluded to tangentially. Every time he started to talk about electronics, the commercial attache would nudge him and proceed to change the subject. The next meeting was to be held over morning coffee at a cafe. By now, the sales manager was having difficulty hiding his impatience Slide32:  To make matters worse, the minister had a mannerism that he did not like. When they talked, he was likely to put his hand on him; he would take hold of his arm and get so close that he nearly spit in his face. Consequently, the sales manager kept trying to dodge and put more distance between himself and the minister. Following coffee, they walked in a nearby park. The minister expounded on the shrubs, the birds, and the beauties of nature; at one spot, he stopped to point at a statue and said: ' There is a statue of the world’s greatest hero, the liberator of mankind!' At this point, the worst happened. The sales manager asked who the statue was of and , when told the name of a famous Latin American patriot, said, ' I never heard of him,' and walked on. After this meeting, the American sales manager was never able to see the minister again. The order went to Slide33:  A Swedish concern. Discussion Questions. 1. What impression do you think the sales manager made on the minister? 2. Is a high-context culture or a low-context culture at work in this case? Explain your answer. Slide34:  3). The Political and Legal Environment of Export Marketing The Political Environment Export marketing activities take place within the political environment of government institutions , political parties, and organizations through which a country’s people and rulers exercise power. Any company doing business outside its home country should carefully study the government structure in the target country and analyze issues arising from the political environment. Political Risk Political risk, or the risk of a change in government policy that would adversely impact a company’s ability to operate effectively and profitably. The difficulty of assessing political risk is inversely proportional to a country’s stage of economic development: All other things being equal, the less developed a country, the more difficult to predict political risk. Slide35:  The recent rapid changes in Central and Eastern Europe and the dissolution of the Soviet Union clearly demonstrate the risks resulting from political upheavals Legal Environment Common versus Code Law Private international law is the body of law that applies to interpretations of commercial transactions between companies of different nations. Code law uses codified , written norms , which are complemented by court decisions.(China, Japan,Korea,etc.) Common law, on the other hand, is established by tradition and precedents, which are rulings from previous cases.(U.S, and other former English colonies) Slide36:  International Trade Practice Incoterms 《国际贸易术语解释通则》 UCPDC 'Uniform Customs and Practice for Documentary Credits' 《跟单信用证统一惯例》 URC 'Uniform Rules for Collections' 《托收统一规则》 International Treaties CISG 'United Nations Convention on Contracts for the International Sale of Goods' 《联合国国际货物销售合同公约》 'The Uniform Law on International Sale of Goods'《国际货物买卖统一法》 法律适用原则: 国际法优先原则\当事人选择原则\密切联系 原则 Slide37:  II.Choosing Export Markets 1). Creating a Product-Market Profile The first steps in choosing export market is to establish the key factors influencing sales and profitability of the product in question. If a company is getting started for the first time in exporting, its product-market profile will have to be based on its experience in the home market. The basic questions to be answered can be summarized as the nine Ws: Who buys our product? Who does not buy our product? What need or function does our product serve? What problem does our product solve? Slide38:  What are customers currently buying to satisfy the need and /or solve the problem for which our product is targeted? What price are they paying for the products they are currently buying? When is our product purchased? Why is our product purchased? 2). Market Selection Criteria Once a company has created a product-market profile, the next step in choosing an export market is to appraise possible markets. Five criteria should be assessed: Market Potential The market potential can be obtained generally from some organizations in our country( such as MOFTEC and its provincial committees, foreign trade corporations, etc) or some organizations overseas (such as Chinese Embassy, local banks, the agent, the local newspaper, etc.). Whatever Slide39:  source of information is used , the ultimate goal is to determine the major factors affecting demand for a product. Market Access Considerations for Importers This aspect of market selection concerns the entire set of national controls that applies to imported merchandise. It Includes such items as import duties , import restrictions or quotas, foreign exchange regulations etc. Shipping Cost Export preparation and shipping costs can affect the market potential for a product. If a similar product is already being manufactured in the target market , shipping costs may render the imported products uncompetitive. It is important to investigate alternative modes of shipping as well as ways to differentiate a product to offset the price disadvantage. Slide40:  Appraising the Level and Quality of Competition in the Potential Market At this stage , contacting a country’s representative abroad can be very valuable. The representative could always provide useful reports based on the comparison of the company’s product with market needs and offerings. Product Fit In general, a product fits a market if it satisfies the following criteria(1)the product is likely to appeal to customers in the potential market;(2) the product will not require more adaptation than is economically justifiable by the expected sales volume; (3) import restrictions and /or high tariffs do not exclude or make the product so expensive in the target market as to effectively eliminate demand; (4)Shipping costs to the target market are in line Slide41:  with the requirements for competitive price; and (5) the cost of assembling sales literature , catalogs ,and technical bulletins is feasible in view of the market potential. The last factor is particularly important in selling highly technical products. 3)Visiting the Potential Market After the research effort has been done on potential markets, there is no substitution for a personal visit to size up the market firsthand and begin the development of an actual export marketing program. A market visit should do several things. First , it should confirm or contradict assumptions regarding market potential. A second major purpose is to gather additional data necessary to reach the final decision. One way to visit a potential market is through a trade show . By attending trade shows and missions, company Slide42:  representatives can conduct market assessment, develop or expand markets, find distributors or agents. Perhaps most important , by attending a trade show, it is possible to learn a great deal about competitor’s technology, pricing , and the depth of their market penetration. Slide43:  III.Sourcing Decision Criteria There are no single rules to guide sourcing decisions. Six factors must be taken into account in the sourcing decision. 1).Factor costs and conditions Factor costs are land ,labor ,and capital costs. 2).Logistics In general, the greater the distance between the product source and the target market, the greater and the higher the transportation cost. However , innovation and new transportation technologies are cutting both time and costs. 3).Country Infrastructure The required infrastructure will minimally include power,transportation and roads , communications, service and component suppliers, a labor pool, civil order ,and effective governance. In addition, a country must offer Slide44:  Reliable access to foreign exchange .One of the challenges of doing business in Russian market is an infrastructure that is woefully inadequate to handle the increased volume of shipments. The Mexican government, anticipating much heavier trade volume because of the North American Free Trade Agreement , has committed $14billion for infrastructure. 4). Political Risk 5). Market Access Slide45:  A key factor in locating production facilities is market access. If a country or a region limits market access because of local content laws, balance of payments problems , or any other reasons, it may be necessary to establish a production facility within the country itself. The Japanese automobile companies invested in U.S. plant capacity because of concerns about market access. By producing cars in the United States , they have a source of supply that is not exposed to the threat of tariff and non-tariff barriers. 6).Foreign Exchange Exchange rates are so volatile today that many companies pursue global sourcing strategies as a way to limit exchange-related risks. Such volatility argues for a sourcing strategy that provides country options for supplying markets. Slide46:  Ⅳ.Information System and Research 1). Formal Marketing Research Information is a critical ingredient in formulating a successful marketing strategy. Marketing research is the project-specific , systematic gathering of data. The process of collecting data and converting it into useful information can be divided into five basic steps: Step One: Identify the Research Problem The research problem often involves assessing the nature of the nature of the market opportunity. A second research objective in existing markets may be assessment of the company’s overall competitiveness in terms of product appeal, price, distribution, and promotional coverage and effectiveness. Slide47:  Step Two:Developing a Research Plan After defining the problem to be studied or the question to be answered , the marketer must address a new set of questions. In any event, during the planning step methodologies, budgets,and time parameters should be all spelled out. Step Three:Collecting Data Using readily available data saves both time and time. Secondary Data A low-cost approach to marketing research and data collection is using the secondary data already existing, such as personal files , company or public libraries, on-line databases, government census records,and trade associations. Primary Data and Survey Research Slide48:  When data are not available through published statistics or studies, direct collection is necessary. Survey research often involves obtaining data from customers by means of questionnaire. A good questionnaire has three main characteristics:simple/easy to answer/to the point. Sampling Sampling is the selection of a subset or group from a population that is representative of the entire population. Step Four: Analyzing Data Demand Pattern Analysis Income Elasticity Measurements Market Estimation by Analogy Comparative Analysis Cluster Analysis Slide49:  Step Five :Presenting the Findings Results should be clearly stated and provide basis for managerial action. Chapter Three: Preparation Before Negotiations( Export Marketing II):  Chapter Three: Preparation Before Negotiations( Export Marketing II) 1.Product Decisions 1).Products:Definition A product can be defined in terms of its tangible, physical attributes—such things as weight, dimensions, and materials. However , marketer cannot ignore status , mystique ,and other intangible product attributes that a particular product may provide. A product ,then , can be defined as a collection of physical, psychological, service, and symbolic attributes that collectively yield satisfaction, or benefits , to a buyer or user. Slide51:  2).Product Positioning Positioning refers to the act of locating a brand in customers’over and against other products in terms of product attributes and benefits that the brand does or does not offer. Several general strategies have been suggested for positioning products: positioning by attribute or benefit , quality/price, use or application, use/user, high-tech and high-touch. Attribute or benefit Volvo automobiles: solid construction Quality/Price This strategy can be thought of in terms of a continuum from high fashion/quality and high price to good value(rather than low quality )at a low price. Slide52:  Use/User Positioning can also be achieved by describing how a product is used or associating a product with a user or class of users the same way in every market. For example, Marlboro’s extraordinary success as a global brand is due in part to the product’s association with cowboys—the archetypal symbol of rugged independence , freedom, space and Americana . Smoking Marlboro is a way getting in touch with a powerful urge to be free and independent. High—Tech Positioning Personal computers, video and stereo equipment, and automobiles are product categories for which high—tech positioning has proven effective. Such product are frequently purchased on the basis of physical product features, although image may also be important. Slide53:  Hi-touch Positioning Marketing of high-touch products requires less emphasis on specialized information and more emphasis on image. Buyers of high-touch products also share a common language and a set of symbols relating to themes of wealth , materialism , and romance. There are three categories of high—touch products: Products that solve a common problem, global village products and products with a universal theme. Ads that show friends talking over a cop of coffee in a cafe or quenching thirst with a soft drink during a day at the beach put the product at the center of everyday life and communicate the benefit offered in a way that is understood worldwide.(products that solve a common problem). In global markets, products may have a global appeal by virtue of their country of origin, they are called global village products(Marlboro, Sony, Mercedes, etc.) Slide54:  3). Geographic Expansion –Strategic Alternatives Companies can grow in three different ways. The traditional methods of market expansion—further penetration of existing markets to increase market share and extension of product line into new product market areas in a single national market –are both available in domestic operations. In addition ,a company can expand by extending its existing operations into new countries and areas in the world. Strategy 1: Dual Extension Example: Applications software Strategy 2: Product Extension, Communications Adaptation Example: Bicycles and motorcycles Strategy 4: Dual Adaptation Example: Greeting cards Strategy 3: Product Adaptation, Communication Extension Example: Electrical products Product Communications Same Same Different Different Slide55:  Strategy one: Product/Communication Extension( Dual Extension)(communications include advertising, public relations, sales promotion, personal selling , etc) Companies pursuing this strategy sell exactly the same product , with the same advertising and promotional appeals as used in the home country. The product/communication extension strategy has an enormous appeal to global companies because of the cost savings associated with this approach. The two most obvious sources of savings are manufacturing economies of scale and elimination of duplicate product Randamp;D costs. Strategy Two:Product Extension/ Communication Adaptation When a product fills a different need, appeals to a different segment, or serve s a different function under conditions of use that are the same or similar to those in the domestic market, the only adjustment that may be required is in marketing communications. Slide56:  Bicycles and motor scooters are examples of products that have been marketed with this approach. They satisfy recreation needs in the United States but serve as a basic or urban transportation in many other countries. The appeal of the product extension/communications adaptation strategy is its relatively low cost of implementation. Because the product in this strategy is unchanged, Randamp;D , tooling , manufacturing setup, and inventory costs associated with additions to the product line are avoided. The only costs of this approach are in identifying different product functions and revising marketing communications( including advertising , sales promotion, and point-of –sale material) around the newly identified function. Strategy Three : Product Adaptation/ Communication Extension Exxon adheres to this third strategy: It adapts its gasoline formulations to meet the weather conditions prevailing in different markets while extending the basic Slide57:  communications appeal, 'put a tiger in your tank', without change. Strategy Four: Dual Adaptation Sometimes, when comparing a new geographic market to the home market, marketers discover that environmental conditions or consumer preferences differ; the same may be true of the function a product serves or consumer receptivity to advertising appeals. In essence, this is a combination of the market conditions of strategies 2 and 3. In such a condition , a stage four/five company will utilize the strategy of product and communications adaptation. Hallmark, American Greetings , and other U.S.-based greeting card manufacturers have faced genuine market condition and preference differences in Europe, where the function of a greeting card is to provide a space for sender Slide58:  to write an individual message. In contrast , U.S. cards contain a prepared message, known in the greeting card industry as sentiment. American manufacturers have changed both their product and their marketing communications in response to this set of environmental differences. Strategy Five: Product Invention Adaptation strategies are effective approach to international marketing , but they may not respond to global market opportunities. They do not respond to the situation in markets where customers do not have the purchasing power to buy either the existing or adapted products. Colgate pursued this strategy in developing Total, a new brand whose formulation, imagery, and ultimate consumer appeal were designed from the ground up to translate across national boundaries. Slide59:  2. Pricing Decisions Global Pricing Objectives and Strategies A number of different pricing strategies are available to marketers. Generally speaking , they are as follows: Market Skimming The market skimming pricing strategy is a deliberate attempt to reach a market segment that is willing to pay a premium price for a product. This pricing strategy is often used in the introductory phase of the product life cycle, when both production capacity and competition are limited. By setting a deliberately high price , demand is limited to early adopters who are willing and able to pay the price. One goal of this pricing strategy is to maximize revenue on limited volume and to match demand to available supply. Another goal of market skimming pricing is to reinforce customers’perceptions of high product value. Slide60:  When Sony first began selling VCRs in the U.S in 1976, it used a skimming strategy. Harvey Schein, who was president of Sony of America at the time , recalled the response to the $1,295 price tag. ' It was fantastic, really. When you have a new product that is as jazzy as a videotape recorder, you really skim off the cream of the consuming public. The Betamax was selling for over a thousand dollars….But there were so many wealthy people who wanted to be the first in the neighborhood that it just went whoof—like a vacuum. It flew off the shelf.' Penetration Pricing Penetration pricing uses price as a competitive weapon to gain market position. Penetration pricing often means that the product may be sold at a loss for a certain length of time. When Sony developed the portable compact disc player in the mid-1980s, the cost per unit at initial sales volume was estimated to exceed $600. Since this was a Slide61:  'no-go' price in the U.S and other target markets, Akio Morita instructed management to price the unit in the range of $300 to achieve penetration. Market Holding The market holding strategy is frequently adopted by companies that want to maintain their share of market. In single-country marketing , this strategy often involves reacting to the prices adjustments by competitors. For example, when one airline announces special bargain fares, most competing carriers must match the offer or risk losing passengers. Cost Plus Cost-plus pricing requires adding up all the costs required to get the product to where it must go , plus shipping and ancillary charges, and profit percentage. The obvious advantage of using this method is its low threshold: It is Slide62:  Relatively easy to arrive at a quote. The disadvantage of using historical accounting costs to arrive at a price is that this approach completely ignores demand and competitive conditions in target markets. Therefore , historical accounting cost-plus prices frequently be either too high or too low in the light of market and competitive conditions. 3.Distribution Channels Distribution channels are systems that link manufacturers to consumers. Although channels for consumer products and industrial products are similar, there are also some distinct differences. Consumer channels are designed to put products in the hands of people for their own use; industrial channels deliver products to manufacturers or organizations that use them in the production process or in day-to-day operations. Slide63:  M M M M M M MSF Agents MSF MSF W W W R R R R R Customers Manufacturer-owned stores Door to Door Mail Order M=manufacturer MSF=Manufacturer salesforce W=wholesaler R=retailer Consumer Products Slide64:  Industrial Products M M M MSF D or A W W W Customers M=manufacturer MSF=manufacturer’s salesforce W=wholesaler D or A =distributor or agent Slide65:  Case Example: Japan Japan has presented an especially difficult distribution challenge to foreign companies. Japanese distribution is a highly developed system that evolved to satisfy the needs of the Japanese consumer. The total number of retail outlets in Japan – 1.6 million stores – represents about 5%more stores than in the United States for a population that is half the size. Japan has 132 retail stores per 10,000 people, compared to 65 stores per 10,000 people in USA. A correspondingly high number of intermediaries, including more than 400,000 wholesalers, is needed in Japan to service this fragmented system of outlets. The categories of wholesalers and retailers in Japan are very finely divided. For example, meat stores in Japan do about 80% of their business in meat items.Similar specialization exists in other Slide66:  specialty stores as well. This kind of concentration is also true at the wholesale level. This very high degree of specialization in Japan is made possible by the clustering of various types of stores at major street intersections or stops along commuter rail lines. There are, of course, many instances in which overseas firms have entered the Japanese market and have been able to overcome difficulties presented by the distribution system. Unfortunately, problems in coping with and adapting to Japanese distribution have also prevented a number of firms from achieving the success they might have had. Historically, foreign marketers in Japan make two basic mistakes. The first is their assumption that distribution problems can be solved the same way they would be in the West, that is, by going as directly as possible to the customer and thus cutting out Slide67:  the middleman. In Japan,because of the very fragmented nature of retailing, it is simply not cost effective to go direct. The second mistake often made is in treating the Japanese market at arm’s length by selling to a trading company may sell in low volumes to a very limited segment of the market, such as the luxury segment, with the result that there is usually limited interest on the part of the trading company. The experience is likely to be disappointing to all parties involved. Successful distribution in Japan(or any other market) requires adaptation to the realities of the marketplace. In Japan, this means first and foremost adaptation to reality of fragmented distribution. Second, it requires research into the market itself including customer needs and competitive products. Then a company must develop an overall marketing strategy that (1) positions the product vis-a-vis market Slide68:  Segment identified according to need, price, and other issues; (2) Positions the product against competitors; and (3) lays out a marketing plan– including a distribution plan– for achieving volume and share-of –market objectives. 4. Promotion Marketing communications– the promotion P of the marketing mix– refers to all forms of communication used by organizations to inform, remind, explain, persuade, and influence the attitudes and buying behavior of customers and other persons. The elements of of promotion mix are advertising , public relations, personal selling, and sales promotion. Slide69:  1. Export Advertising Advertising may be defined as any sponsored, paid message placed in a mass medium. Global advertising is the use of the same advertising appeals, messages, art, copy, photographs, stories, and video segments in multi-country markets. Cultural Consideration Knowledge of cultural diversity , especially the symbolism associated with cultural traits, is essential when creating advertising. For example, use of colors and man-woman relationships can often be stumbling blocks. White in Asia is associated with death. In Japan, intimate scenes between men and women are considered to be in bad taste; they are outlawed in Saudi Arabia. Advertising Agency Selection In selecting an advertising agency, the following issues should be considered: Slide70:  National responsiveness. Is the global agency familiar with the local culture and buying habits in a particular country, or should a local selection be made? Area coverage. Does the candidate agency cover all relevant markets? Buyer perception. If the product needs a strong local identification, it would be best to select a national agency. Media Considerations Although markets are becoming increasingly similar in industrial countries, media situations still vary to a great extent. The availability of television , newspapers, and other forms of electronic and print media varies around the world. Slide71:  2. Public Relations The basic tool of PR includes news releases, newsletters, press conference, tours of plants and other company facilities, articles in trade or professional journals,company publications and brochures, TV and radio talk show appearances by company personnel, special events, and home page on the Internet. Chapter Four:Terms of Commodities:  Chapter Four:Terms of Commodities I.Name of Commodities Should be clearly stipulated ways to name the commodities II.Quality of Commodities ways to show quality: 1)sale by sample Sample is a small quantity of a product, often taken out form a whole lot or specially designed and processed that is given to encourage prospective customers to buy the product. Slide73:  ▲ sale by seller’s sample sale by seller’s sample: representative sample(original sample\type sample) is usually sent by the seller to the buyer, and at the same time,duplicate samples are always kept by the seller for later reference.In case the quality of the goods delivered is not identical with the sample, the buyer is entitled to claim compensation for losses or reject the goods. 'Quality as per seller’s sample' ▲ sale by buyer’s sample When possible, the seller will do according to the buyer’s sample.If impossible,he may send to the buyer a sample of goods in similar quality, called return sample or counter sample, as a proposal for the buyer’s consideration. Slide74:  'Quality as per buyer’s sample' Whether the samples are presented by the buyer or seller, the quality of the commodities should be strictly same as sample. Otherwise, it should be stipulated specifically in the contract: Quality be similar to sample submitted by the seller on …(date) The goods to be delivered shall be about equal to seller’s sample No…. 2) Sale by Actual Quality 凭成交商品的实际 品质买卖 /看货买卖 Slide75:  3).Sale by Description ▲ Sale by specifications (凭规格买卖) ▲ Sale by grade (凭等级买卖) ▲ Sale by standard (凭标准买卖) FAQ(Fair Average Quality) '良好平均品质' GMQ(Good Merchantable Quality) '上好可销品质 ' F.A.Q denotes a quantity of a product that is offered not on a particular quality specification but on the basis that is equal to the average quality of the current group, recent shipment. While G.M.Q. refers to the sound quality that is free from defects and is sufficiently good to satisfy the purpose for which the buyer intends to use the goods or for which the seller intends that they should be used. Both terms are rather too general and sweeping. When in use, therefore, they are usually supplemented by some concrete specifications. Slide76:  ▲ Sale by brand or trade mark (平牌名或商标买卖) ▲ Sale by name of origin , or sale by geographical indication (凭产地名称或地理标志买卖) ▲ Sale by description and illustration 凭说明书和图样买卖 'Quality and technical data to be strictly in conformity with the description submitted by the seller' Slide77:  III.Quantity of Commodity In international trade,as different products have different characteristics and different countries may adopt different systems of weights and measures , units of weights and ways of quantity calculation are varied. Units of calculation include weight , length ,area, volume and capacity. The quantities of many commodities are calculated by weight. Gross Weight, Net Weight, Conditioned Weight, Theoretical Weight, Legal Weight and Net Net Weight are the commonly adopted ways of calculation. Sometimes , 'Gross for net' is used for weight calculation. Calculated by weight 1)Gross weight :net weight plus tare(the weight of packing), 'gross for net' indicates the goods of little values. 2) net weight:gross weight minus tare , there are ways to subtract tare, namely, to subtract the real tare,or actual tare, Slide78:  To subtract the average tare,the customary tare and the computed tare. 3) conditioned weight(公量) 4)theoretical weight 5)legal weight and net net weight Since quantity terms may be ambiguous, careful definition in sales contract is very important. The Metric System, U.S System and International System of Units are generally used in international trade nowadays. The implementation and popularization of International System of Units symbolizes the increasing internationalization and standardization of measurement system. But confusion and misunderstanding on quantity measures is still not uncommon. An American Pound, for instance, is different from a European pound; similarly, a ton has a different real weight depending on whether it is a short ton, a metric ton, or a long ton. Slide79:  Units of calculation Weight Units: kilogram\ton\metric ton\quintal\gram\pound\ounce\long ton\short ton Capacity Units:liter\gallon\bushel Number Units:piece\package\pair\set\dozen\gross\great gross\ream\roll\unit\head\case\bale\barrel\bag etc. Length Units: yard\meter\foot\centimeter etc. Area Units: square yard, square meter, square foot, square inch. Volume Units:cubic yards, cubic meter, cubic foot, cubic inch etc. More or less clause (plus or minus clause) For example, '5000m/t, with 5% more or less at seller’s option', usually 'at the seller’s option' is often used, but when shipment is organized by buyer, 'buyer’s option'is Slide80:  Preferred. 'at carrier’s option' is sometimes used when charter transport is adopted, by this means, the capacity of the ship is fully utilized. Ⅳ.Packing Proper packing can be extremely important depending on the type of product and its destination. Ocean voyages may be most damaging to the goods that are not properly Slide81:  Packed. Goods subject to breakage have to be crated, and those subject to moisture wrapped in plastic. Others may require some special treatment or coating before shipment, Still others have to be refrigerated while in transit. Actually, packing not only serves as a form of protection, but also facilitates loading, unloading and stowage, and prevents pilferage(transport packing). Furthermore it can promote sales.(selling packing) There are different types of packing: Bale: a heap of material pressed together and tied with rope or metal wire, suitable for paper, wool, cotton, and carpets,etc. Bag: made of cotton, plastic, paper or jute, ideal for cement, fertilizer, flour, chemicals,etc. Barrel/Drum: made of wood, plastic or metal used for liquid or greasy cargoes. Slide82:  Box/Case: wooden in structure and various sizes, and some are airtight, providing strong protection for cargoes as equipment and car accessories. Glass container: used for dangerous liquid cargoes such as acids but needs careful handling. Carton: now a very common form of packing particularly for consumer-type of products. It also aids marketing as words can be printed on them. Crate/Skeleton case: wooden structure between a bale and a case used for light weight goods of large cubic as machinery. Factors influencing types of cargo packing for international consignments: ▲Packing should be designed according to the need of the cargo. Bulk cargoes require little packing. General merchandises require adequate packing of various types Slide83:  Such as fruits in cartons, chemicals in bags and electrical equipment in wooden cases. Besides, high value goods normally require more expensive packing. ▲Factors in relation to transport such as the nature of transit, loading and unloading facilities, and transport unit should be considered. When containers are used, packing can be less extensive. If cargoes are shipped by air, the packing should be stronger. In ocean transport, cargoes should be packed with even stronger means. The packing should fit the facilities that are to be used at terminals. The dimension and the weight limit may also influence the shape , size and weight of the cargo packing. ▲Packing should be in compliance with customs or statutory requirements. For example, in some countries, straw is an unacceptable form of packing due to the risk of insects. Wood should be suitably treated to kill any pests inside. Slide84:  ▲Packing must meet insurance acceptance conditions. Cargo that has a bad record in terms of damage or pilferage may subject to the prescribed packing specifications or the insurance company may refuse to cover them. ▲Packing should also be economical while being sufficient. ▲Packing should making the handling as easy as possible. Of equal importance is the marking of the packages themselves. This is vital in order to make possible speedy identification of the consignment and also to comply with any regulations in fore with regard to hazardous or dangerous cargo. Overseas territories also sometimes enforce certain regulations pertaining to marking of export cases. Equally, the marks should include wording or symbols that will enable the personnel handling the cargo to exercise any special care that may be required. Slide85:  Basically , the golden rule is to keep shipping as simple as possible as shown below: U.F.P 397 No.1/6 UP COPENHAGEN U.F.P—initials of the importing /exporting company 397—customer’s order/contract number 1/6 UP—case No.1 of a consignment of 6 cases COPENHAGEN—port of destination Slide86:  Such marking would enable the ship owners and dockers etc. to sort out the consignment and to link up the cases with the bill of lading, thus enabling the customer or the agent to effect prompt collection. Of course , it is not always possible to keep the marking simple. Sometimes , it is necessary to indicate the weight or measure of the packages, the name of the vessel or the origin of the goods. Where fragile goods are being transported, it is sound practice to indicate this by marking the cases 'Fragile' or for bags of raw materials to bear the notice 'Use No Hooks', or where appropriate for other materials, 'Keep Dry'.(indicative mark) On occasions, the warning signs for any dangerous , explosive or corrosive products should be given in the shipping marks.(warning mark) In international trade, packing is still an important component of the Description of Goods, and a main condition of the sales contract. In most cases, the parties Slide87:  To a contract should know beforehand what packing is needed. When drafting the stipulation of packing , the specifications should be clear. Phrases as 'Sea-Worthy Packing' or 'Customary Packing' should not be used as their meanings are ambiguous. Sometimes, the party who is to bear the packing charges should be specified. The quantity or weight for each package is sometimes also stipulated, for example, 'cartons, 24 tins per carton' Other Examples of Packing Δ In wooden cases of 50 kilos net each Δ In carton or crates of about 12kg net, each fruit wrapped with paper. Δ In cloth bales each containing 20 pcs. Of 42 yds. Δ Each set packed in one export carton, each 810 cartons transported in one 40ft container. Slide88:  Slide89:  Slide90:  卖方错交约定货物被拒收案: 中国某公司曾向科威特出售一批冻北京鸭200箱,合同要求屠宰鸭要按照伊斯兰教的用刀方法,其中具体规定:'需由伊斯兰协会出具证明,证实鸭是按伊斯兰教方法用刀屠宰'。合同订立后,卖方所交的北京冻鸭,在其颈部无任何刀口痕迹,这显然违反了伊斯兰教的用刀方法。由于中方误将普通冻鸭装运出去,违反了科威特买方的特定要求和说明,致使对方拒收货物,并要求退回货款。中方为避免进一步扩大不良影响,及时同意了对方的要求,以了结此事。 Slide91:  案情分析: 各国宗教信仰和消费者习惯不同,如伊斯兰教不吃猪肉,但吃牛、羊、鸡、鸭等家禽,而且要按伊斯兰教方法屠宰,才能食用。销往非伊斯兰教地区的冻鸭,一般要求完整、洁白、无毛,为此,一般从鸭的口内进刀,以保持外体美观、完整,但此法对伊斯兰教地区却不适用,他们传统的屠宰方法是在鸭的颈部动刀,而且要求要由伊斯兰教长老动刀,动刀前还要念一段可兰经。由于我们没有注意到这一点,发货时误将普通冻鸭装运出去,以至严重违反合同,不仅造成经济损失,且对外造成不良的影响。 Chapter Five:International Trade Terms:  Chapter Five:International Trade Terms I.Role of International Trade Terms Trade terms, also called price terms or delivery terms, are an important component of a unit price in international trade, standing for specific obligations of the buyer and seller. Every commercial transactions is based upon a sales contract, and the trades terms used in the contract have the important function of naming the exact point at which the ownership of the merchandise is transferred from the seller to the buyer. The trade terms also define the responsibilities and expenses of both the seller and the buyer . The use of the trade terms greatly simplifies the contract negotiations, and thus saves time and cost. Slide93:  It should be stressed that the scope of trade terms is limited to matters relating to rights and obligations of the parties to the contract of sale with respect to the delivery of goods sold( in the sense of 'tangibles', not including 'intangibles'such as computer software). II.International Practices Relating to Trade Terms: 1.Warsaw-Oxford Rules 1932 W.O. 1932 2.Revised American Foreign Trade Definitions 1941(the comparison with Incoterms will be made) 3.INCOTERMS 2000—International Rules for the Interpretation of Trade Terms Trade terms have been developed in practice over many years to fit particular circumstances. However, as different countries

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