Internationafl Marketing

7/29/2019 Internationafl Marketing

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PART-A

Ques: 2

The International Monetary Fund (IMF) is an internationalorganization that was created on July 22, 1944It originally had 45

members. The IMF's stated goal was to stabilize exchange rates and assist

the reconstruction of the worlds international payment system post-

World War II

IMF describes itself as an organization of 188 countries, workingto foster global monetary cooperation, secure financial stability,facilitate international trade, promote high employment andsustainable economic growth, and reduce poverty around the

world.

[3]

The organization's stated objectives are to promoteinternational economic cooperation, international trade,employment, and exchange rate stability, including by makingfinancial resources available to member countries to meet balanceof paymentsneeds.[4]Its headquarters are in Washington,D.C.,United States..Now go to page no 19 in book

Part-cQues:5

1.1 Documents related to goods

Export invoice: Export invoice is a sellers' bill for merchandise and

contains information about goods such as quantity, total value, number

of packages, marks on packing, port of destination, name of ship, bill of

lading number, terms of delivery and payments, etc.

Packing list: A packing list is a statement of the number of cases or

packs and the details of the goods contained in these packs. It givesdetails of the nature of goods which are being exported and the form in

which these are being sent.

Certificate of origin: This is a certificate which specifies the country in

which the goods are being produced. This certificate entitles the

importer to claim tariff concessions or other exemptions such as non-

applicability of quota restrictions on goods originating from certain pre-

specified countries. This certificate is also required when there is a ban

on imports of certain goods from select countries. The goods are
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allowed to be brought into the importing country if these are not

originating from the banned countries.

Certificate of inspection: For ensuring quality, the government has

made it compulsory for certain products that these be inspected by

some authorised agency. Export Inspection Council of India (EICI) is

one such agency which carries out such inspections and issues the

certificate that the consignment has been inspected as required under

the Export (Quality Control and Inspection) Act, 1963, and satisfies the

conditions relating to quality control and inspection as applicable to it,

and is export worthy. Some countries have made this certificate

mandatory for the goods being imported to their countries.

1.2 Documents related to shipment

Mate's receipt: This receipt is given by the commanding officer of the

ship to the exporter after the cargo is loaded on the ship. The mate's

receipt indicates the name of the vessel, berth, date of shipment,

description of packages, marks and numbers, condition of the cargo at

the time of receipt on board the ship, etc. The shipping company does

not issue the bill of lading unless it receives the mate's receipt.

Shipping Bill: The shipping bill is the main document on the basis of

which customs office grants permission for the export. The shipping bill

contains particulars of the goods being exported, the name of the

vessel, the port at which goods are to be discharged, country of final

destination, exporter's name and address, etc.

Bill of lading: Bill of lading is a document wherein a shipping company

gives its official receipt of the goods put on board its vessel and at thesame time gives an undertaking to carry them to the port of destination.

It is also a document of title to the goods and as such is freely

transferable by the endorsement and delivery.

Airway Bill: Like a bill of lading, an airway bill is a document wherein

an airline company gives its official receipt of the goods on board its

aircraft and at the same time gives an undertaking to carry them to the

port of destination. It is also a document of title to the goods and as

such is freely transferable by the endorsement and delivery.


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Marine insurance policy: It is a certificate of insurance contract

whereby the insurance company agrees in consideration of a payment

called premium to indemnify the insured against loss incurred by the

latter in respect of goods exposed to perils of the sea.

Cart ticket: A cart ticket is also known as a cart chit, vehicle or gate

pass. It is prepared by the exporter and includes details of the export

cargo in terms of the shipper's name, number of packages, shipping bill

number, port of destination and the number of the vehicle carrying the

cargo.

1.3 Documents related to payment

Letter of credit: A letter of credit is a guarantee issued by the

importer's bank that it will honour up to a certain amount the payment of

export bills to the bank of the exporter. Letter of credit is the most

appropriate and secure method of payment adopted to settle

international transactions

Bill of exchange: It is a written instrument whereby the person issuing

the instrument directs the other party to pay a specified amount to a

certain person or the bearer of the instrument. In the context of anexport-import transaction, bill of exchange is drawn by exporter on the

importer asking the latter to pay a certain amount to a certain person or

the bearer of the bill of exchange. The documents giving title to the

export consignment are passed on to the importer only when the

importer accepts the order contained in the bill of exchange.

Bank certificate of payment: Bank certificate of payment is a

certificate that the necessary documents (including bill of exchange)relating to the particular export consignment has been negotiated (i.e.,

presented to the importer for payment) and the payment has been

received in a

Case Study Answer


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It is hardly surprising that Gautam Niyogi, the CEO of Indo-Nichita, is facingseveral dilemmas. Underlying them are 2 fundamental factors: the absence ofa holistic approach to the company's vendor-development initiatives, and aninadequate appreciation of the operational linkages that should reinforcethem.

In all fairness, the introduction of the Vendor Improvement Team (VIT) waswell-intentioned. This programme had the clear objective of initiatingimprovements in the vendors' processes and, thereby, bringing them at parwith global standards; was structured; and was successful on severalparameters. Not only did it serve as a catalyst in improving some customer-supplier relationships, Indo-Nichita also credits it for part of the improvementin its vendors' ratings from 35 to 60 over a 3-year period. Thus, the benefitsjustify not only the continuation of the programme, but also the expansion ofits coverage to a wider spectrum of vendors.

However, being a one-off intervention, the VIT suffers from severe limitations.At the vendor's end, only the members of a cross-functional team wereexposed to the process. Neither was it institutionalised nor was it assignedhigh priority. There is, therefore, no reason to believe that the vendor willcontinuously progress up the learning curve, or that he will commit substantialresources to it. While a few improvement projects will be implemented insome isolated areas, by themselves, they cannot be expected to usher in aculture of continuous improvement. Unless it is an integral part of Indo-Nichita's vendor-development programme, such an intervention cannot raisethe standards of its vendors to global levels.

All the evidence cited by Niyogi suggests that wherever the process hasdelivered results on a sustained basis, it was primarily due to anorganisational commitment, as manifested by its institutionalisation. Arguably,the simultaneous introduction of process innovations in vendor firms withoutwhat may be termed a vendor capability improvement strategy is close toimpossible. Such a strategy should be based on:

The vendor's role in the buyer's supply chain.Performance and capability benchmarks and gaps.Resource needs and availability.

The buyer's position in a competitive environment.

One of the objectives of such a strategy would be to progressively developvendor-capabilities through certain well-defined stages. One way ofclassifying them would be:

STAGE I. Approved Supplier status.STAGE II. Preferred Supplier status.STAGE III. Supplier Partnership status.STAGE IV. Design Partnership status.

As the supplier moves through these 4 stages, his capability portfolio willintensify in terms of depth, continuously driving him through the learning


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curve. He will acquire a greater understanding of the buyer's componentstrategies, his supplier-measurement and -improvement programmes, and thebuyer's expectations of supplier performance. What Indo-Nichita needs to do,therefore, is to define the capability-levels required to qualify vendors at eachstage of such a system, and map their present levels onto them.

This will help Niyogi define the capability improvement goals and targets ateach stage for each vendor. Further, Indo-Nichita should articulate theparameters it uses for capability assessment. They could includetechnological status, process capability and control, cost competency,flexibility, dependability, locational logistics, perceived risks, suppliercommitment, financial stability, experience and expertise, and product andprocess quality.

Then, Indo-Nichita should negotiate the acceptance of this strategy by eachvendor, clarifying the assistance it will provide at each stage. Only its

acceptance will guide the Plan of Action to be followed by each vendor toachieve his specific objectives. The company must also set the time-periodsfor the vendors to reach the minimum targeted levels at different stages forpurposes of monitoring and evaluation. Of course, there is need to evaluatethe benefits and the costs involved, both for the vendor as well as Indo-Nichita, and a willingness to support the vendor.

However, the capability-improvement process is not the same asperformance-evaluation. Considerably more up-front commitment ofresources, support, and involvement on the part of Indo-Nichita will berequired for the former, which will pay for itself through sustained highperformance in the long run. As such, Project VIT need not be pursued as aone-time, somewhat stand-alone, low-intensity initiative. It should be pursuedvigorously as the cornerstone of the company's vendor-development processon an on-going basis, but backed by a well-articulated strategy. And this willenable Indo-Nichita to manage the risks involved in the process effectively.

The VIT initiative at Indo-Nichita is, in my view, a step inthe right direction. It is rooted in the company's long-termobjective of ensuring a vibrant vendor-base in order toachieve the government-stipulated levels of indigenisation

over a period of time. In that sense, the link with Indo-Nichita's strategic compulsions is strong. But the risk of theVIT becoming a stand-alone activity--a problem that,interestingly, the company did foresee in the beginning--isnow real.

The reason: the VIT has been structured essentially as a one-off initiative,without any provisions for a monitoring mechanism. This is a serious limitationthat could undo not only all the good work that has gone into planning andexecuting the programme, but also the positive spin-offs that have becomeapparent. The benefits of the VIT are hardly likely to be enduring when it is

perceived by everyone--both at the manufacturer and at the vendor--as atemporary event, whose momentum ceases after 10 weeks. It is just like any


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other Flavour Of The Week programme (Safety Week, for instance), which isgood only as long as it lasts. And once the week is over, its flavour dissipateswithout a trace. Sustainability is important for any improvement process, andNiyogi should rectify this aspect of the VIT immediately to realise its fullimpact.

How can this be done? In 2 ways. First, by relaxing the rigidity of thecomposition. The membership-mix of the VIT should be changed at regularintervals of, say, 2 months. A permanent composition, however cross-functional, will not do. You need to rotate the membership depending on thedemands that are specific to each vendor. Such an approach would not onlybring about the much-needed flexibility in the working of the VIT, but alsomake its usefulness more relevant.

Secondly, the activities of the VIT must be integrated with Indo-Nichita's othervendor-development initiatives. This would, to some extent, happen

automatically when the concept of rotating membership is put into place. Itcan be reinforced by ensuring that monitoring becomes part of theresponsibilities of Indo-Nichita's vendor-development team. Once the 10-weeksession is over, a team from the company should visit its vendors at intervalsof 10 weeks for a review of the initiatives taken. Gradually, the VIT shouldbecome a high-intensity cell within the broader framework of vendor-development instead of the stand-alone resource that it is becoming today. Itis only then that the benefits of the programme can be sustained. Otherwise,there will be loose ends hanging at every stage at every vendor.

In fact, there are several problems in the structure of the VIT programme.Making participation optional, for example. It is true that there arepsychological barriers in vendor-supplier relationships, some of which areunique to the Indian mindset. Which is why the OEM's approach should beless threatening. But making vendor-participation mandatory will drive homethe sense of Indo-Nichita's commitment to the initiative. One way of doing sois by restricting the programme only to the company's accredited suppliers,and making participation compulsory. In fact, continued commitment to theVIT's objectives should, over a period of time, become an integral part ofvendor evaluation at Indo-Nichita.

In future, the country's car industry is likely to become more competitive, andoutsourcing will become a strategic weapon in the armoury of every player.And the VIT offers an excellent opportunity for Indo-Nichita to move towardssingle sourcing, which is the trend in the global automotive industry today.Apart from being cost-effective, single sourcing will also take care of theproblem, as seen by Niyogi, of the lack of fit between the goals of the VIT andthe strategic goals of the vendor. When an OEM has a dedicated supplier, thelatter's internal operations become a seamless extension of his ownoperations. In such a setting, the supplier will have little reservations aboutsharing business information that would otherwise be considered asclassified.


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No doubt, the VIT has become a success. One piece of evidence: thecompetencies that the company has built in developing training-modules formanagers and supervisors. It is not easy to build such competencies, and it isa measure of the drive and enthusiasm of the members of the VIT that theyhave built such skills over time. They are valuable given the competitive times

that Indo-Nichita will face in future. So, they should be strengthened, notfrittered away.

Finally, the VIT programme can be further strengthened through company-wide education, and the sharing of information on the successes achievedthrough it with the employees of both the company and its suppliers.Encouraging its employees to visit vendors, and vice-versa will go a long wayin consolidating the gains of Indo-Nichita's VIT programme.

Every vendor's strategy, irrespective of the products itmakes, must be linked to its own mission. And that cannot

be other than one that emphasises customer satisfactionthrough quality-upgradation, cost-reduction, and delivery-performance. It is, therefore, unlikely that a vendor'sstrategy can ever be in conflict with that of the VendorImprovement Team (VIT) programme.

If Indo-Nichita's efforts do not synergise with the plans of aparticular vendor, that only means that the company hasfailed to secure the latter's commitment to the programme. It should thenreview its procedure for vendor-selection by studying such cases, andconcentrate on developing suppliers whose top management lend their fullsupport to the quality, technology, and customer satisfaction that Indo-Nichitaexpects from its vendors.

Of course, the success of the VIT approach is quite evident. In a little under 3years, the programme has become something that every vendor wants toparticipate in. Although ratings have also doubled in this period, we mustremember that such programmes yield dividends only in the long run. If theimprovements in the vendors' plants are sustained, the benefits that willaccrue by way of improvements in quality and cost-reductions will help Indo-Nichita.

It will also help forge a stronger customer-supplier partnership between Indo-Nichita and its vendors. But the results of all this will be visible only after 6years. The key to success is, therefore, sustenance. How can the momentumgenerated during the 10 weeks of the VIT programme be sustained? Indo-Nichita's tactic of enlarging the VIT's scope by developing customisedtraining-modules is not going to result in sustaining it. At best, they can beused as aids in improving the VIT's performance, to secure the greaterinvolvement of the employees of the vendor, and to consolidate the gains ofthe VIT. But these modules, by themselves, cannot ensure the continuation ofthe improvement activities.


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If Indo-Nichita's team were to consolidate its experience for developing suchpackages, there is no doubt about the fact that it will take its focus away fromthe VIT's objective of "shopfloor improvement projects leading to cost-reduction" and "quality improvement." Preparing the modules will beworthwhile because it will standardise the learnings for future programmes.

This will also be useful were the VIT to be replicated in Nichita's plantsworldwide later. However, even though evolving training-packs based on theexpertise acquired is a good idea, it cannot ensure that the momentum of theVIT is sustained.

Instead, Indo-Nichita, being part of a global auto giant, should take advantageof that, and announce a stated plan of exporting components from its well-performing vendors to Nichita's plants across the world. And the VITprogramme can then be integrated into this strategy. For vendors to qualify forexports through Indo-Nichita, sustaining the VIT's improvement-generatingactivities will become an obvious requirement.

Moreover, the VIT programme will be sustained at the vendor's end only ifthere is a monitoring mechanism. While there are good reasons for Indo-Nichita to withdraw after 10 weeks, the programme should continue to get thecompany's support. In fact, improvements are relatively easy to achieve in theshort run; it is their continued achievement in the long run that is difficult. Indo-Nichita, in its own interest, should support its vendors so that the benefits ofthe first improvements are fully realised. Once the VIT completes its schedule,Indo-Nichita's vendor-development team should take over this responsibility.

Anything free loses its value. Suppliers should see rewards in implementingand sustaining the VIT's activities. For this, Indo-Nichita should form clustersof its vendors, each consisting of firms involved in manufacturing differentproducts. The members of each cluster should meet regularly as per anannual plan drawn up by Indo-Nichita's vendor development team. Eachmember should make a presentation to the group on its achievements andshare the learnings. This will foster competition among vendors to do better,apply peer pressure in continuing the activities, and help Indo-Nichita monitorprogress even after the VIT has been withdrawn.

Based on the performance of each vendor--calculated by a Factory

Assessment Score--Indo-Nichita can offer the opportunity of exporting toNichita's plants. Then, the company could also hold an annual competition--such as a Quality Circles competition--among its vendors. And the employeesof the best-performing companies could be sent to Japan for training orpresenting their success-stories to relevant fora. In other words, manymotivational packages that will ensure the continuation of the improvementsprocess can be designed, which will make Indo-Nichita's partnerships morerewarding.

It is relatively easy to score quick hits in improvementinitiatives on the shopfloor. This is particularly true in the

case of a medium-sized company which is deploying time-tested efficiency techniques for the first time. In fact, most


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component-manufacturers in the domestic automotive industry, who are notused to such tools, manage to secure gains in costs and quality during thefirst flush of any change-initiative. And they are bound to be considerable ifthe initiative is backed by professional support from an established OEM.

It is during the second phase of change, when the gains already made needto be sustained, that the real mettle of both the vendor and the OEM is put totest. Institutionalising the improvement framework becomes an area ofconcern, and the organisation faces a hurdle in terms of mindset. Forinstance, it becomes difficult to pursue the concept of collective working andteam-spirit, which is ingrained among Japanese workers and managers, in theIndian context. That is when the disillusionment sets in. If this phase is to beseen through, it may require even-greater involvement from Indo-Nichita.

Indo-Nichita appears to be entering that crucial phase. No doubt the VIT is awell thought-out programme. There are 2 factors which are unique about it. It

covers a wide canvas of initiatives within a core of shopfloor activities and,unlike routine vendor-development activities, which usually run on a singletrack, it puts the vendor's own involvement centrestage. It is hardly surprisingthat the vendors' ratings have improved over the years, but the law ofdiminishing returns is beginning to set in. In the absence of a monitoringmechanism which can ensure that the momentum of change is kept up, theVIT programme, clearly, faces an uncertain future.

It is time Indo-Nichita reviewed the programme. There are two reasons why Isay so. First, the context of India's automobile industry has changed. Whenthe company introduced the VIT in 1994, it had no option but to rapidlyupgrade its vendor's capabilities to match Nichita's global standards. Even ifthis entailed significant involvement by Indo-Nichita, it was necessary andworthwhile. Five years down the road, the industry is truly global. Thanks tothe new tariffs regime, OEMs are no longer under pressure to indigenise. Insuch a scenario, is it worth its while for Indo-Nichita to devote so much timeand effort on vendor-development at the local level?

That is the crucial question that Niyogi and his team must address. Which is,of course, linked to Indo-Nichita's understanding of its sources of competitiveadvantage. Which brings me to the second issue: where does a programme

like the VIT fit into Indo-Nichita's strategy? This is something that Niyogishould re-examine. If the VIT were to succeed in developing local vendorswhose performance can match the best in the world, there is every merit inpursuing it to its logical end. If it is merely meant to supplement the company'sroutine vendor-development activities, the VIT may not be worthwhilecontinuing with.

When Indo-Nichita can source its components from anywhere in the world atcompetitive prices, there is no reason why it should pursue vendor-development programmes of any kind at the local level. Why should itconsider vendor-development from scratch to be part of its mainstream

business activities at all? It is only if single sourcing is part of its corporatestrategy, and if a local vendor can, given some support, measure up to the


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stringent requirements of cost, quality, and delivery-schedules expected ofsuch a vendor that Indo-Nichita should continue with the VIT initiative. I myselfdo not set much score by single sourcing because it does not provide a frameof reference for benchmarking, which is important in becoming competitive.

Therefore, it is in the context of Indo-Nichita's growth strategy that Niyogishould decide whether or not to continue with the VIT. It is true that theprogramme has enabled Indo-Nichita to develop competencies in severalareas. But they are in the nature of by-products, which do not add value to itscore business. Even if it decides to continue with the VIT, Indo-Nichita shouldnot enlarge its scope beyond a point because that could take its focus awayfrom the main business.

However, there are other ways of ensuring that the competencies built upover the years are consolidated. For instance, Indo-Nichita could encourageits component-manufacturers to enter into tie-ups and joint ventures with

Nichita's suppliers in Japan. That would be a faster way of upgrading localskills than Indo-Nichita's direct involvement in the process