Export Expansion Chapter Five MKT568 Global Marketing Management
3-1 Chapter Five Export Expansion MKT568 Global Marketing Management Dr. Fred Miller Sample Essay Questions Daimler-Chrysler has perfected new engine which Nestle’s Nescafe brand has a firmly reputation for Schmidt’s is a regional brewer in theestablished Unitedtechnology States which wishes allows itsaround new Renewal carThe to get 40 to mpg cleanly burning quality the world. keys thisbysuccess are to expand to international markets. Though profitable, the firm fuels rangingproduction fromproduction animal andstandards vegetable oilstightly to gas,resources ethanol and has limited capacity, modestand financial and consistently high focused biodiesel. No competitor closecountries. to matching this achievement. no experience in international marketing. Which entrymethod method promotional efforts in allishost Which entry Which entry method would be most appropriate for Daimlerwould be most appropriate for Schmidt’s in: would bein: most appropriate for Nestle’s in: Chrysler Vietnam Pakistan Nigeria Chile Thailand Brazil Portugal Australia Canada Describe each unique unique method method briefly briefly and explain how it it Describeeach each andexplain explainhow how Describe unique method briefly and it balances the following factors: 1) financial resources required, balances the following factors: 1) financial resources required, balances the following factors: 1) financial resources required, 2) investment risk, 3) control of marketing strategy, and 4) 2)investment investmentrisk, risk,3) 3)control controlof ofmarketing marketing strategy, strategy,and and4) 4) 2) protection of intellectual property. protection of intellectual property. protection of intellectual property. Global Marketing Decisions in this Chapter What types of entry barriers do global marketers encounter? How do they affect market entry decisions? What are the advantages and disadvantages of each market entry option? How should marketers match market entry methods with competitive strategies and countries? Entry Barriers Tariff barriers Tariffs Quotas Nontariff barriers Government regulation Product/safety/environmental restrictions Financial/operating/business restrictions Natural barriers – strong competitors Distribution in mature markets Promotion budgeting in USA Global Marketing Decisions in this Chapter What types of entry barriers do global marketers encounter? How do they affect market entry decisions? What are the advantages and disadvantages of each market entry option? Exporting How should marketers match market entry methods with competitive strategies and countries? Methods of Entry Entry method exporting - direct , indirect licensing, franchising, contract manufacture/management strategic alliances (activities), joint ventures (equity) foreign direct investment, sales, production, greenfield, acquisition Exporting Activities Direct and indirect exporting The Exporting Job shipping, documentation, legal issues, shipping terms securing local distributors, process and agreement terms getting paid, letter of credit cycle, Trade Card Export Expansion Strategy cultural distance, international learning curve/sequence sprinkler (diversification) and waterfall (focus) strategies Principal Documents Used in Exporting required by Foreign Customer U.S. Government 1. Pro forma invoice 1. Export Declaration 2. Acceptance of purchase orders 2. Export license (strategic goods and shipments to designated unfriendly nations) 3. Ocean (airway) bill of lading 4. Certificate (or policy) of insurance 5. Packing list Foreign Governments 1. Certificate of origin Exporting manufacturer 2. Customs invoice 1. Purchase order 3. Consular invoice 2. Letter of credit or draft (trade) acceptance Exporter’s bank Freight forwarder 1. Exporter’s draft 1. Shipper’s letter of instructions 2. Commercial invoice 2. Domestic (inland) bill of lading 3. Consular invoice 3. Packing list 4. Insurance certificate 4. Commercial invoice 5. Ocean (airway) bill of lading 5. Letter of credit (original copy) Exhibit 5.3 Source: Adapted from Root, 1987, p.71. ©1987 by Jossey-Bass, Inc., Publishers. First published by Lexington Books. All rights reserved Criteria for Choosing Distributors Previous experience (products handled, area covered, size) Services offered (inventory, repairs, after-sales service) Marketing support (advertising and promotional support) Financial strength Relations with government Cooperativeness Whether or not handling competing products Master Foreign Distributorship Agreement Checklist Confidential Information Sales liter atur e Advertis ing literature Quantities M ailing lis ts T rademarks and Copyr ights No warr anty agains t infringement No Cons equential damages -indemnity P roduct war ranty Relationship between parties Effective date and dur ation E ffective date and term E arly termination Breach Insolvency Prospective breach Change in owners hip or management Rights and obligations upon termination No liability for principal Return of promotional materials Repurchas e of stock Accrued rights and obligations Noncompetition No as signment Gover nment regulation Foreign law U. S. Law Foreign Corrupt Practices Act Force majeur e Separability W aiver Notices W ritten notice Oral notice Arbitration ICC rules J urisdiction Article titles Entir e agreement and modification E ntire agreement M odifications Source: Adapted from Hall, 1993, pp.65-66. Courtesy of Unz & Co. Master Foreign Agency Appointment Checklist Appointments T er ritory-P roducts Sales Activities Promotional Efforts Introductions (optional) Prices Acceptance Agent Representations M inimum Orders (optional) Increase Orders (optional) Agent Facilities Competitive Products Confidential Information Reports Operations Report Credit Information Visits to Agent Pr emises by Representatives of Pr incipal Sales Literatur e T rademarks and Copyr ight Acceptance of Order s and Shipments Acceptance No Violation of U. S. Laws Commiss ions Commiss ion Percentage Accrual Refund Dis continuation of Products Repair and Rework Relationship Between Parties Sub-Agent No Warr anty Agains t Infringement P roduct W ar ranty Effective Date and Dur ation E ffective Date and Term Breach Insolvency Prospective Breach Change in Owners hip or Management Foreign Protective Act Source: Adapted from Hall, 1993, pp67-68. Courtesy of Unz & Co. Letter of Credit Model Exporter seller beneficiary 7. Remits payment Exporter’s bank 6. Presents documents 1. Purchase and agreement 5. Shipment of goods Importer buyer account party Exhibit 5.6 10. Sends documents 11. Pays bank or gets loan 9. Remits payment 2. L/C application 3. Opens L/C United States Overseas 8. Presents documents for negotiation 4. Advises of L/C Importer’s bank Letter of Credit Cycle It’s a deal!! Ordering a Letter of Credit You are Director of Procurement Services for Schmidt’s Brewing Company. You must order the letter of credit for a shipment of Czech hops for Schmidt’s new export brand. If you wish the purchase price to include shipping and insurance costs to New York, the port of entry, which shipping terms will you specify? Why is it important that your list of required documents be accurate and complete? What documents will you require your supplier to provide to receive payment? How will you confirm that you have included all the necessary documents? Exporting Activities Direct and indirect exporting The Exporting Job shipping, documentation, legal issues, shipping terms securing local distributors, process and agreement terms getting paid, letter of credit cycle, Trade Card Export Expansion Strategy cultural distance, international learning curve/sequence sprinkler (diversification) and waterfall (focus) strategies Price Escalation Causes tariffs, costs, intermediaries, taxes Cures lower quality/margins, different classification/channels, local assembly/manufacture (FTZ’s) Example International Price Escalation Effects (in U.S. Dollars) International marketing channel elements and cost factors + wholesaler’s margin (33 1/3% on cost) +V.A.T. (16% on margin) =Local foreign jobber’s cost (=wholesale prices) +jobber’s margin (33 1/3% on cost) +V.A.T. (16% on margin) =Retailer’s cost (=Wholesale or jobber price) +retailer’s margin (50% on cost) +V.A.T. (16% on margin) =Retail price (what consumer pays) Percent price escalation over: Domestic Case 1 (same as domestic Domestic with direct wholesal wholesale e-retail import channel c.i.f./tarrif) 2.00 2.00 2.00 3.40 3.40 3.40 Case 2 (same as Case 1 with foreign importer added to channel 4.25 4.25 4.25 2.00 2.00 8.00 3.40 2.00 13.60 4.25 4.25 17.00 4.00 4.00 $12.00 6.80 6.80 $20.40 70% 8.50 8.50 $25.50 113% 25% Case 1 Market Factors Affecting Choice of Expansion Path Factors Growth rate Demand stability Competitive lag Spillover Need to adapt product Need to adapt promo Marginal sales Need for control Entry barriers Exhibit 5.8 Sprinkler/ Diversify if Low Low Short High Low Low Diminishing Low Low Waterfall/ Focus if High High Long Low High High Increasing High High 3-1 Chapter Six Licensing, Strategic Alliances, FDI MKT568 Global Marketing Management Dr. Fred Miller Global Marketing Decisions in this Chapter What types of entry barriers do global marketers encounter? How do they affect market entry decisions? What are the advantages and disadvantages of each market entry option? Licensing and franchising How should marketers match market entry methods with competitive strategies and countries? Forms of Licensing Straight licensing royalty, fees, supply contract Franchising fee, royalty, promotion, supply contract Turnkey projects payment, management contract Original Equipment Manufacturing (OEM) technically an export method risk structure of licensing 6-4 Elements of a Licensing Contract Technology package Use conditions Field of use of licensed technology Territorial rights for manufacture and sale Sublicensing rights Know-how to be supplied and its Safeguarding trade secrets method of transfer Responsibility for defense/infringement action on patents and trademarks Supply of raw materials, equipment, Exclusion of competitive products and intermediate goods Exclusion of competitive technology Maintenance of product standards Performance requirements Rights of licensee to new products and technology Reporting requirements Auditing/inspection rights of licensor Reporting requirements of licensee Definition/description of t he licensed industrial property Global Marketing Decisions in this Chapter What types of entry barriers do global marketers encounter? How do they affect market entry decisions? What are the advantages and disadvantages of each market entry option? Alliances and JVs How should marketers match market entry methods with competitive strategies and countries? Strategic Alliances Non-equity alliances distribution Heineken’s June 2004 agreement with FEMSA to distribute Sol and Dos Equis throughout USA and, later, joint distribution in South America manufacturing research and development Equity alliances joint ventures Global Marketing Decisions in this Chapter What types of entry barriers do global marketers encounter? How do they affect market entry decisions? What are the advantages and disadvantages of each market entry option? Foreign direct investment How should marketers match market entry methods with competitive strategies and countries? Foreign Direct Investment Advantages lowers price escalation effects avoids tariffs establishes local presence, increases learning possibilities Additional risk elements degree of financial commitment political risk country-of-origin effects Greenfield vs acquisition Global Marketing Decisions in this Chapter What types of entry barriers do global marketers encounter? How do they affect market entry decisions? What are the advantages and disadvantages of each market entry option? Licensing and franchising How should marketers match market entry methods with competitive strategies and countries? Selecting an Entry Method Relative to competitive position and strategy incremental entry, with relatively few resources protected technology or expertise FSA control over production and marketing Relative to market type Emerging New growth Mature Decision matrix An Optimal Entry Mode Matrix Company strategic posture Emerging High-growth Mature Services Incremental Indirect exports Indirect exports Direct exports Licensing/ Alliance Protected Joint venture Indirect exports Alliance/ Licensing Licensing Wholly owned subsidiary Acquisition/ Alliance Wholly owned subsidiary Franchising/ Alliance/ Exporting Control Exhibit 6.3 Product/Market Situation 3-1 Chapter Six Licensing, Strategic Alliances, FDI MKT568 Global Marketing Management Dr. Fred Miller
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