new areas for freer trade (Textiles, Services & Agricultural products) China, Russia, India & the East European countries have embraced free market policies resulting in huge opening up of underserved populations. Domestic competition has increased especially from imports. Outsourcing in manufacturing and services has increased due to cost pressures & improvement in infrastructure.
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CHOOSING THE MARKET
Factors to be borne in mind while choosing markets:
Size of the market
Language & Culture of the market Competition in the market Proximity of the market Political and Financial stability of the country Ease of doing business
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CULTURE & INTERNATIONAL BUSINESS Culture influences everything from taste & preferences to consumption patterns and attitude to foreigners. Culture influences communication modes Culture influences dress and behavior Culture influences usage of a product Language is very important in international business to communicate effectively.
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LEGAL ASPECTS OF INTERNATIONAL BUSINESS Laws vary from country to country there is no international law Important to know the local laws to do business on investment, management, employment, marketing, pricing, royalties, profit repatriation, taxation etc Developed countries have stringent laws on safety, pollution, intellectual property rights etc. In times of disputes, which law will prevail this needs to be spelt out in contracts
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RISKS IN INTERNATIONAL BUSINESS
Two main risks in international business:
Political risks involve disruption of contracts
or payments due to sudden political changes, expropriation of businesses etc
Commercial & Financial risks failure of the
buyer to pay due to bankruptcy or sudden changes in the exchange availability or rate.
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RISKS IN INTERNATIONAL BUSINESS
Risks can be insured with agencies like the export
credit guarantee corporation(ECGC) for a premium based on the countrys risk.
Letters of credit may be guaranteed by international
banks located in major financial centers like London, New York, Singapore etc.
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TRADE BETWEEN COUNTRIES
Reasons for trade between countries include:
Non availability of a product or resource
Cost advantages in buying rather than making a product locally Differentiated products-Luxury products or better designed products in the same category may be available from different countries (cars, electronics, textiles and garments etc)
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INTERNATIONAL TRADE COMPANY PERSPECTIVE Companies may choose to sell internationally for the reasons given below: Limited growth in home market Overseas markets offer large profitable opportunities Excess capacity which cannot be absorbed locally Cost advantage over international competitors Mitigating risk of increased domestic competition
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ENTRY STRATEGIES
Exporting through local agent
Exporting through foreign agent Exporting to foreign importer / distributor Setting up local office / representative Licensing / Franchising Setting up Joint ventures for distribution / manufacture Setting up wholly owned manufacturing facilities
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ORGANIZING FOR INTERNATIONAL SALES Structure depends on volume of sales and nature of the product. In situations of low volumes, exporting through local or foreign agents is cost effective As volume grows and in complex products or large value deals, using own sales personnel is preferable. To be effective, it is preferable to have local personnel in the sales force
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DISTRIBUTION
Distribution is a vital aspect of marketing ensuring
availability of the product in the right quantity, at the right time and right place. More important in international markets due to distance and transportation time. Importers, manufacturers and retailers are increasingly asking for Just in Time deliveries. Distribution strategy varies from market to market depending on size and local conditions. Multiple channels may be used in countries. SDM-Ch 16 Tata McGraw Hill Publishing Ltd 12 DISTRIBUTION OPTIONS
Depends on the volume of the business
Positioning of the product Infrastructure of distribution in the country Local laws some countries insist on local companies in the distribution business Internet as a channel of sales and distribution
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ROLE OF LOGISTICS
Very important aspect of international selling
Logistics can make up over 15% of the cost of the product Involves multiple modes of transport land, sea and air Considerable paperwork and formalities to be completed in international trade Logistics providers now offer complete one stop solution including distribution, invoicing and collection of payment SDM-Ch 16 Tata McGraw Hill Publishing Ltd 14 PROFILE OF AN INTERNATIONAL SALES PERSON Pleasant and amiable personality Ability to adapt to foreign culture especially food, drink etc Conversant in one or more foreign languages Ability to act independently and decisively Ability to understand complexities of financing, foreign exchange etc Some local sales persons in the force will be useful to overcome some barriers and leverage local networks for business development SDM-Ch 16 Tata McGraw Hill Publishing Ltd 15 Incoterms International Commercial Terms (Incoterms) are internationally recognized standard trade terms used in sales contracts. Theyre used to make sure buyer and seller know: Who is responsible for the cost of transporting the goods, including insurance, taxes and duties. Where the goods should be picked up from and transported to. Who is responsible for the goods at each step during transportation. The current set of Incoterms is Incoterms 2010. A copy of the full terms is available from the International Chamber of Commerce.
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PRICING AND PAYMENT TERMS
Common pricing terms are:
Ex Works at the mfrs factory gate
FOT, FOR free on truck / rail loaded on truck/rail FAS free along side at port next to ship FOB free on board loaded on ship C&F cost and freight inclusive of to destination CIF cost, insurance and freight inclusive to destination
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PRICING AND PAYMENT TERMS
Payment terms can include:
Cash in advance Cash on delivery cash against documents Consignment basis payable after sale Usance payment days after acceptance of documents Letter of credit Long term credit financing for machinery / projects Each method has risks for the buyer or seller. The LC offers safety and comfort for both
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CURRENCY OF PRICING
The US Dollar is the most widely used currency for
pricing international sales Importers in some countries may prefer invoicing in local currencies like Japanese Yen or Euro or Pound Sterling, Singapore Dollars or UAE Dirhams Saudi riyals etc. This reduces the risk of exchange rate fluctuations for the buyer Exchange fluctuation is a major risk for sellers and can be managed by hedging the currency.
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PACKING AND SHIPPING
Packing is of two types:
Industrial packing bulk for protection during shipping & transport Consumer packing to enhance sales appeal Packing could makeup up to 5% of product costs Countries have laws or practices in packing which must be understood and adhered to. Packing depends on the product and must be suitable for containerized shipping and mechanical handling. SDM-Ch 16 Tata McGraw Hill Publishing Ltd 20 MARKET INTELLIGENCE
Secondary data is very easy to gather from various
publications, agencies like chambers of commerce, trade bodies, embassies, trade shows, internet, banks etc
Usually secondary data is sufficient to establish the
feasibility of the market.
Care must be taken to understand the data and the
measures used before drawing conclusions. SDM-Ch 16 Tata McGraw Hill Publishing Ltd 21 Key Learnings
Markets differ in culture, language, taste,
consumption patterns, economic strength, level of development of market and distribution infrastructure The main risks in international business are political and commercial and financial Currency fluctuation is major risk. Risks can be mitigated by hedging or insuring Legal aspects of a country must be understood well before venturing in
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Key Learnings
The organizing for international markets starts with
choosing the market, planning suitable entry strategies, staffing with salespersons of appropriate profile, pricing the products in an acceptable currency, distributing the products based on the market needs and infrastructure, in suitable packing for efficient handling and consumer appeal. Payment terms must be acceptable to buyer and seller with minimum risk to both. Secondary market data can be collected from various sources before venturing into the market.