International Marketing
Chapter 8
The Export Process
Motivations to Internationalize
Proactive Motives Profit advantage Unique products Technological advantage
Exclusive information Managerial urge Tax benefit Economies of scale
Reactive Motives
Competitive pressures Overproduction Declining domestic sales Excess capacity Saturated domestic markets Proximity to customers and ports
The Foreign Sales Corporation (FSC)
Change Agents
Internal change agents Enlightened management New management Significant internal event
External change agents Demand Other firms Distributors Banks Chambers of commerce Export agents Governmental activities
Key Managerial Characteristics Affecting Export Involvement
Education International Exposure Expertise International orientation Commitment
Internationalization Stages
Innate, or start-up, exporters Partially interested exporter Experimental exporter Export adaptation
Internationalization concerns
Stage 1: The completely uninterested firm Stage 2: The partially interested firm Stage 3: The exploring firm Stage 4: The experimental exporter Stage 5: The experienced small exporter Stage 6: The experienced larger exporter
Main Corporate Concerns for the Firm
Financing Information on business practices Communication Providing technical advice Sales effort Obtaining financial information Handling documentation Physical product Marketing information gathering
Corporate Strategy and Exporting
The impact on the perception of risks The impact on profits
Profit and Risk During Export
Initiation
Licensing: The licensor permits another firm to use its intellectual property for compensation designated as a royalty
Assessment of Licensing: Requires neither a capital investment nor knowledge and marketing in the target market
Issues in Licensing• Licensor
• Transfer costs to licensor• R&D cost• Opportunity cost (loss of direct exporting, foreign investment , etc.)
• Licensee and compliance to number of dimensions stipulated• Export Control Regulations• Confidentiality of the intellectual property• Record keeping and provisions for licensor audits
Trademark in Licensing
Franchising: A form of licensing in which a parent company grants another independent entity the right to do business in a prescribed manner.
Export Management Companies: Domestic firms that specialize in performing international marketing services as commission representatives or a distributors for several firms.• As distributors: purchases the goods form domestic firms and
assumes trade risks. Greater risk , greater profit• As agents: Developing the foreign market , sales strategies, and
establishing contacts abroad. It charges High commission on potential high sales volume.
Power conflict between EMC and clients Export trading companies (ETC)
Stages in Setting of Prices
S tag e 5S e lec tin g th e S p ec ific P rice
S tag e 4P ric in g P o licy D e te rm in a tion
S tag e 3P ric in g P o licy S e lec tion
S tag e 2M arke t M ix C om p os it ion
S tag e 1Targ e t M arke t A n a lys is
Price Dynamics
Skimming: Highest possible contribution in a short period of time
Market Pricing: When similar products exist
Penetration Pricing: Product is offered at a low price to generate volume sales and achieve market share
Export Pricing Strategy
Standard Worldwide Price Dual Price: Domestic and Export prices are
differentiated
Cost-Plus Method: True cost, fully allocating domestic and foreign costs….too expensive?
Marginal Cost Method: Considering the cost of making the product without fixed costs, overhead, marketing, administrative, etc.)….allows lower price
Market-Differentiated Pricing: Market dependent
Export-related Costs The cost of modifying a product for a foreign
market Operational costs of exporting (market
research, communications, promotions, etc. Cost incurred in entering the foreign market:
tariffs, buyer related risks, exchange risks, etc.)
Price Escalation Clear cut costs Hidden costs
Terms of Sale Incoterms are the internationally accepted
standard definitions for terms of sale set by the International Chamber of Commerce since 1936.
Incoterms: exworks (EXW) free carrier (FCA) free alongside ship
(FAS)
free on board (FOB) cost and freight (CFR) delivered duty paid (DDP) delivered duty unpaid
(DDU)
Considerations for Negotiating Terms of Payment
The amount of payment and the need for protection
Terms offered by competitors Practices in the industry Capacity for financing international
transactions Relative strength of the parties involved
The Risk Triangle
Most Advantageous Consignment
Open Account Documents against Acceptance
Letter of Credit
Confirmed Letter of Credit
Cash in Advance
Least Advantageous
High Risk/High Trust
Low Risk/Low Trust
The Letter of Credit
Irrevocable versus revocable
Confirmed versus unconfirmed
Revolving versus nonrevolving
Draft: Most drafts are documentary which means that the buyer must have shipping documents first before cashing
the check
Documentary Collection: Bank is acting a the seller’s agent
Banker’s Acceptance Discounting
Open Account Consignment Selling
Adjusting to Foreign Currency Fluctuations
Forward Exchange Market
Price ManipulationPrice Negotiations
Leasing
Leasing
Dumping
Remedies for Dumping Antidumping duty
Countervailing duties
Ranges of DumpingPredatory dumping
Unintentional dumping