MGT 313 Introduction to International Business

Semester 8/Year 4

Bishnu Prasad Timilsina

Course Facilitator
06 August, 2019
Unit V: Functional Areas of International Business 12 Hours

–Global Production, Outsourcing and Logistics-

•Managing Global Supply Chain;
–Global Marketing Strategy-
•Global Branding,
•Product Development,
•Pricing,
•Communications and
•Distribution Strategies;
•Global E-marketing Strategy;
– Financial Management –
•Sources of Funds for International Operations;
•Investment Decisions;
•Tax Practices;
•Currency Risk Management;
–International Human Resource Management-
•Staffing Policy,
•Diversity Management,
•Labour Relations,
•Preparing Employees for Repatriation
 Global
Production, Outsourcing and Logistics
Global Production-Operations Management
– Production and operations management is the function that
concerns with the transformation of material resource inputs
into outputs of goods (finished goods) and services.
– It is normally associated with manufacturing; but it might
equally involve other components of the function such as
transportation, warehousing and logistics.
– The main components of global production-operations
management:
• Global Production/Manufacturing
• Global Sourcing and Logistics, and
• Supply Chain Management
 Global
Production, Outsourcing and Logistics
Global Production and Manufacturing
• It is concerned with where to produce.
• While choosing the location of production, consider factors
like;
– Country Factors
– Technological Factors
– Product Factors
• Global Manufacturing Strategy (Key Factors):
– Compatibility
– Configuration
– Coordination and
– Control
 Global
Production, Outsourcing and Logistics
Outsourcing:
– Outsourcing is a “make or buy” decision
– Outsourcing is a function to outsource a firm’s production and operations
activities from foreign countries.
– It is a firm’s process of having inputs like raw materials and parts supplied to
it for the production process.
– Global sourcing is the first step in the process of materials management or
logistics, which includes sourcing, inventory management and transportation
between suppliers, manufacturers (even fabricators),and customers.
• Key Arrangements for Global Sourcing:
– Wholly Owned Manufacturing Subsidiary
– Joint Venture Overseas
– Contract Manufacturing
– Independent Overseas Manufacturer
 Global
Production, Outsourcing and Logistics
Benefits of Outsourcing/Global Sourcing
– Cost Efficiency
– Higher-tech Products
– Better Product Quality
– Better Delivery Service
Risks (Challenges) of Outsourcing/Global Sourcing
– Cost Lower-than-expected Cost Savings
– Environmental Factors –currency fluctuations
– Weak Legal Environment –intellectual property rights
– Inadequate or low-skilled workers
– Overreliance on suppliers
– Risk of creating competitors
– Erosion of morale and commitment
 Global
Production, Outsourcing and Logistics
Logistics
• It is that part of the supply chain process that plans, implements, and
controls the efficient, effective flow and storage of goods, services and
related information from the point of origin to the point of consumption,
to meet customer’s needs.
• It covers all the activities that move materials to a production facility like
factory, through the production process, and out through a distribution
system to the end user.
• Logistics physically moves goods through the supply chain.
• It incorporates information, transportation, inventory, warehousing,
materials handling, and similar activities associated with the delivery of
raw materials, parts, components, and finished products.
• IB managers try to reduce moving and storage costs by using Just-In-Time
(JIT) inventory systems.
 Global
Production, Outsourcing and Logistics
• The Logistics Function is complicated due to:
– Wide Geographic Distance
– Time
– Exchange Rates
– Customs and trade barriers
– Multiple legal environments
– Costly nature of distribution infrastructure
• The more the diverse the firm’s global supply
chain, the greater the cost of logistics.
 Global
Production, Outsourcing and Logistics
Managing Global Supply Chain
– Global supply chain refers to the firm’s integrated network of sourcing,
production, and distribution, organized on a world scale and located in
countries where competitive advantage can be maximized.
– The concept of supply chain and value chain are related but distinct.
– The Value Chain is the collection of activities intended to design,
produce, market, deliver, and support a product or service.
– The Supply Chain is the collection of logistics specialists and activities
that provides inputs to manufacturers or retailers.
– Supply-chain management involve a series of value adding activities
that connect a company’s supply side with its demand side.
– Skillful supply-chain management serves to optimize value-chain
activities.
 Global
Production, Outsourcing and Logistics
• Sourcing from numerous suppliers scattered around the world
is neither economical nor feasible without an efficient supply-
chain system.
– Eg. Dell Laptop Computer
• Supply chain management differs from materials
management in terms of the degree.
• Materials management focuses more on the transportation
and storage of materials and final goods, whereas supply
chain management extends beyond that, and includes the
management of suppliers and customer relations too.
 Global
Production, Outsourcing and Logistics
Global Supply Chain Management Strategy Elements:
– Customer service requirements
– Plant and distribution centre network design
– Inventory Management
– Outsourcing and third party logistics relationships
– Key customer and supplier relationships
– Business Processes
– Information Systems
– Organizational design and training requirements
– Performance Metrics
– Performance Goals
• However, a key to making the global supply chain work is a good
information system.
 Global
Production, Outsourcing and Logistics
• Total Quality Management
– A process that aims at eliminating all defects in production and
stresses three principles:
• Customer Satisfaction
• Employment Involvement
• Continuous improvements in quality
• Six Sigma??, Quality Circles??
• Inventory Management
– Production efficiency and productivity can be achieved without
affecting uninterrupted flow of production.
– But in international operations, the distance, time and uncertainty in
foreign environments cause sourcing too complicated
– In regard to managing inventories effectively, the Just-in-time (JIT)
technique has been much popular
 Global
Production, Outsourcing and Logistics
• JIT is the sourcing raw materials and other parts just as they are needed in
the manufacturing process.
• This system gets raw materials, parts and components to the industrial
(organizational) buyer just in time for use, it saves storing inventories costs.
• Foreign Trade Zones (FTZs) are special locations for storing domestic and
imported inventory and avoiding paying duties until the inventory is used in
production or sold.
• Similar to FTZ the operation of Export Processing Zones (EPZs) being
envisaged in Nepal to boost its competitiveness in international trade.
Transportation Management:
– Key elements of a logistics system; links suppliers-manufacturers-companies-
customers
– Involves decisions on selecting and using the most suitable and efficient
means of transportation.
– Most of the international trade takes place by ships. Other modes are air,
pipes, ropeways and roads.
 Global Marketing Strategy
Global Marketing Strategy-
•Global Branding,
•Product Development,
•Pricing,
•Communications and
•Distribution Strategies;
•Global E-marketing Strategy;
 Global Marketing Strategy
• “Global marketing refers to marketing activities
coordinated and integrated across multiple country
market”
• Global Marketing is the multinational process of
planning and executing the conception, pricing,
promotion, and distribution of ideas, goods and
services to create exchanges that satisfy individual and
organizational objectives.
• “Global marketing is a process of focusing the
resources and objectives of a company on global
marketing opportunities”
 Global Marketing Strategy
• Goals of international Marketing
– To take advantage of opportunities for growth and
expansion
– To survive in the competitive market
 Global Marketing Strategy
• After assessing market opportunities and estimating market
potential through market research
• Select a country and then develop and design an appropriate
marketing mix that consists product, price, promotion and
distribution.
• Global marketing strategy is a plan of action the firms develops
for foreign markets that guides its decision-making on:
– How to position itself and its offerings,
– Which customer segments to target, and
– To what degree it should standardize or adapt its marketing program
elements.
 Global Marketing Strategy
International Market Positioning
• The global strategy to occupy the customer’s minds
with the company’s offerings, image and other
marketing programs including distribution network
• Example:
– Nano- the cheapest car
– BMW- the luxurious car
– Lux- the beauty soap
– Synsodyne- relief from tooth sensitivity
 Global Marketing Strategy
• Elements of Positioning
– Pricing e.g. nano-the cheapest
– Quality eg. German cement- not cheap, but best
– Service eg. Hero motor: 5 year warranty
– Distribution
– Packaging
• Positioning Strategies
– Positioning in relation to competitors
– Positioning in Relation to a products class or attribute
– Positioning by price and Quality
– Positioning in Relation to a Target Market
 Global Marketing Strategy
International Market Positioning Process
• Global Market Segmentation
– Define the market-Served, un-served market
– Segment the market measurability-estimate the size of
market,
– Accessibility-communicate with international target market,
profitability,
– Actionability-responsive to marketing strategy
• Global Market Evaluation
• Global Target Market Selection
• Global Market Positioning
 Global Marketing Strategy
Target Market Decisions
• Differentiated Targeting Strategy
– It identify, or even create, market segments that want different
benefits from a product and target them with different brands, using
different marketing strategies. Eg. Procter & Gamble with different
laundry detergents
• Concentrated Targeting Strategy
– Companies select only one market segment and target it with a
single brand. Companies that cannot afford to compete in a mature
market with an oligopoly may choose to pursue a small segment- a
niche Example: Mont Blanc pens
• Undifferentiated Targeting Strategies
– The product is aimed at all markets using a single strategy, regardless
of the number of markets and countries targeted. Eg. Coca Cola
 Global Marketing Strategy
Product Strategies:
– Whether products of home country should be adapted or standardized in
approaching global markets is the central issue
– IB managers have three options for their product strategies:
• Exporting the home market product (standardized products) to foreign
markets
• Adapting the home market product to meet foreign customer’s needs more
closely
• Developing new products to meet the specific needs of those buyers.
– Swiss watch-makers Swatch, Omega and Rolex use a Standardized Product
Strategy.
– McDonald’s offered modified product-lines to Indian market sucsh as
Maharaja Mac (made of mutton), McAloo and McTikki Burger (made of
chicken) as an Adaptation Strategy (Customization).
– Due to modern communications and transport technologies, customer tastes
and preferences are becoming global which is creating global markets for
“Standardized” consumer products.
 Global Marketing Strategy
Global Marketing Strategy (Choice between Standardization
and Adaptation)
• Benefits of Adaptation:
– Meeting the local customer needs more precisely,
– Creating unique appeal for the product
– Complying (matching) with local or national laws, and
– Achieving greater success in competing with local and global rival
companies
• Benefits of Standardization Strategy
– Cost Reduction
– Improved planning and control, and
– Ability to develop a consistent image and build global brands
 Global Marketing Strategy
Global Branding:
• When firms enters and positions itself in global markets, it results into
development of a global brand.
• Examples:
– Barbie (toys), Visa and Master Card (Credit cards), Gillette Sensor
(personal care products), Cadbury (Chocolate/food), iPod, Nokia and
Samsung (consumer electronics), Heineken (beverages), and IKEA
(furniture)
• Global Brands are that reach the world’s mega-markets and are
perceived as the same brand by consumers and internal constituents
• Consumers prefer globally branded products because branding provides
a sense of trust and confidence in the purchase decision
• Strong brands allows firms to charge premium prices, stimulates brand
loyalty, enhance competitive advantage in global markets.
 Global Marketing Strategy
• The firm can reduce its marketing and advertising costs by
concentrating on a single global brand instead of a number of
national brands.
• The strength of a global brand is best measured by its brand
equity-the market value of a brand.
• Things need to consider while developing global branding
strategies:
– Choosing between a global brand and a localized brand in a given
foreign market
– Cultural meanings of brand names
– Protection of the brand against piracy (intellectual property) and
counterfeit (fake) product brands
– Government regulations and practices on brands and trademarks
 Global Marketing Strategy
New Product Development:
• It is to develop a new product for the new foreign
market.
• For Example:
– Switzerland-based company Nestle has offered Maggi Ataa
noodles in India to suit to the typical Indian market needs,
whereas it does not sell this particular variety of noodles in its
home country market Switzerland and elsewhere in Europe.
– Golcha Group’s Hulas Biscuits & Confectionery has developed
a range of new biscuit-products for its market in Maharashtra
and other States in India.
 Global Marketing Strategy
New Product Development Process:
• Steps:
– Idea Generation
– Idea Screening
– Concept Development & Testing
– Marketing Strategy Development
– Business Analysis
– Product development & Testing
– Test Marketing
– Commercializing
• Why Product Innovation?
– Innovative products carry significant export potential in the foreign market
– The marketer whose products face declining sales in one foreign market may find
another foreign market with encouraging demand for his product, and
– Innovative products improve the ‘staying power’ of the international firm in the
market
 Global Marketing Strategy
Pricing and Strategies:
– Pricing is complex in IB. Why??
– Fair Price??
– Price Discrimination??
– Price Escalation??
– Gray market activity??
• Components of Price in IB:
– General Costs
• Fixed Costs
• Variable Costs
– Tariffs and International Trade Costs
• Tariffs, Compliance Costs, Charges
– Profits
 Global Marketing Strategy
• Pricing policy and strategies are important since it makes effects
on following:
– Product Positioning, Market Segmentation, Demand Management ,
Market Share Dynamics
• Pricing is a ‘Competitive Weapon or Strategy’
• The key pricing strategies in international marketing are as
follows:
– Standard Pricing and Local Pricing
– Cost based Pricing
– Aggressive Export Pricing
– Penetration Pricing and Skimming Pricing
– Transfer Pricing
 Global Marketing Strategy
Factors Affecting International Pricing
– Demand and supply of the product
– Cost of Production
– Exchange rate
– Market Share and Nature of the product
– Tariffs and Distributing Costs
– Promotion Costs
– Cultural Factors
– Location of production locations
– Type of distribution system used
– Economic climate of the foreign market
 Pricing Strategies to Manage varying currency conditions ???
When home country currency When home country currency is APPRECIATING
WEAKENING
Stress the benefits of the firm’s low Make more noticeable competitive strengths in non-
prices to foreign customers price elements of its marketing program, such as
product quality, delivery, and after-sales service
Maintain normal price levels, Consider lowering prices by improving productivity,
expand the product line, or add reducing production costs, or redesigning the
more costly features product to eliminate costly features
Exploit greater export opportunities Concentrate exporting to those countries whose
in markets where this favorable currencies have not weakened in relation to the
exchange rate exists exporter
Speed up repatriation of foreign- Maintain foreign-earned income in the customer’s
earned income and collections currency and delay collection of foreign accounts
receivable (if there is an expectation that the
customer’s currency will regain strength over a
reasonable time period)
Minimize expenditures in the Maximize expenditures in the customer’s currency
customer’s currency (for advertising
and local transportation).
 Global Marketing Strategy
• Communication and Strategies:
– Companies use marketing communications to
provide information to; and communicate with,
existing and potential customers, with the ultimate
aim of creating demand.
– It is important because geographical and
psychological distances separate a firm from its
intermediaries and customers.
– International communication strategy concentrates
more particularly on Advertising, since Personal
selling is not much possible in international
markets.
 Global Marketing Strategy
• International promotion and advertising strategies
relate to the following decisions:
– Choosing standardization or adaptation of promotion
• Aishwory Rai in Ad of Philips and Coke Ad Campaign in South Asia
– Selecting media and methods of communication
(advertising)
• Print media, Audio media, Audio-visual media, Mural & display
media, Internet, mobile-phone based media
– Selective Creative Strategy
• Language Factors
• Legal Factors
• Socio-cultural Factors
• Production and Cost Factors
 Global Marketing Strategy
Distribution and Strategies
– Distribution has crucial place when the business goes international
– International distribution system and channels link manufacturers
and final international consumers.
– Complex structure of international distribution channels may
become a barrier to the MNC’s entry in an international market.
–The distribution cost include
• The channel costs such as, commission, discount and
incentives paid to the channel members and
• Physical distribution costs like cost of transportation,
storage, order processing, inventory control and product
handling
• To do business internationally, the company should find two
alternatives:
– Using Established Channels
– Building Company’s Own Channels
 Global Marketing Strategy
• Types of International Distribution Channels:
– Home-country Channels/Middlemen,
– Foreign-country Channels/Middlemen,
– Alternative International Distribution Structures
Types of Channels in International Distribution
1. Home Country Channels
They provide all marketing services for the firms that do not wish to enter
the foreign market, or do have the capability to do so.
– Export Management Companies
• Specializing in the export function for client companies in a particular
industry; researching the international market, representing a company at
trade fairs and exhibitions, screening and selecting distributors abroad,
shipping the company’s product, handling all the necessary export
documentation
– Trading Companies
• Large firms that specialize in providing intermediary services, information
channels and financial assistance to manufacturing firms
 Global Marketing Strategy
– Home-country Brokers and Agents
• Middlemen who bring international buyers and sellers together,
they do not carry title to the product, but only arrange to pass
the product to buyers.
• Manufacturers’ Export Agent ??
• Buying Offices??
– Piggybacking or Mother Henning
– Webb-Pomerene Associations of Exporters
– Foreign Sales Corporation
• Sales Corporation set up overseas; it allows portion of home country’s tax-
paying firm’s foreign source of income to be exempt from home country
income tax; popular in USA
– Export Merchants
• Intermediaries who take title to, and possession of, the products they carry;
they are responsible for shipping an marketing the products to the target
market.
• Export Jobber??
 Global Marketing Strategy
2. Foreign Country Channels
Are the intermediaries who help distribute products in a target foreign
market.
A. Merchant Middlemen-
• Intermediaries who carry the manufacturers product line in a
particular country
• Import Jobber??
B. Agents and Brokers
• Manufacturer’sRepresentative-Company’s sales
representative in the foreign land; paid on a commission basis
• Management Agent (Comprador): paid as a percentage of sales
they manage
3. Alternative Distribution Structures
– Network Marketing or Multi-level Marketing is a variation on direct
selling
 Global Marketing Strategy
Factors Affecting International Distribution Strategy
• Retail Concentration
– Where buyers are concentrated in a few geographic areas,
direct distribution is practical
– Developed countries concentrated and developing countries
fragmented
• Channel Length
• The degree to which retail system is fragmented determines the
channel length
• Channel Exclusivity
– One using a specific channel exclusively for a given product that
is difficult for outsiders to access eg. Hotel industry in KTM…….
 Global Marketing Strategy
• Other Marketing Considerations
– Consumer/Market Considerations
• Types of Consumer/Market-
–Organization market -Whole seller, retailer market- consumer,
• Channel Coverage-
–Number of customers small manufacturers use own sales-force for
direct sales and vice-versa
• Order Size-
–If order size is big , directly sell to the consumers; since it is
economical to both eg. Boeing and Airbus; if customers is small and
heterogeneous use middlemen
– Company Considerations
• Desire of Control, Managerial Ability and Experience, Financial
Resources, Service Required- marketing policy providing before and after
sales service
– Product Considerations
• Nature of Product-perishable product required short channels,
Unit Value of the Product, Technical Products
 Global Marketing Strategy
– Competitive Environment
• More competition with homogeneous product use same channels
– Costs
• In shorter channel may reduce delivery and channel cost but may
suffer inventory holding cost
• Longer channels involve higher product delivery and channel cost
but suffer lower holding cost
– Intermediary Considerations
• Services Provided by Intermediaries, Availability of
Desired Intermediaries, Sales Volume possibilities,
Middlemen’s Attitude
 Global Marketing Strategy
Global E-marketing Strategy
– Global e-marketing is the marketing that uses
electronic means and methods to conduct marketing
activities such as buying, selling and distributing
goods and delivering services in the global market
places.
– Due to newer developments in ICT e-marketing has
transformed the marketing process from ‘physical
marketplace’ to ‘virtual market-space’
• Reverse Marketing??
 Global Marketing Strategy
Global E-marketing Strategies
• Strategies on e-business models or dimensions:
– B2B- conducting transactions electronically
– B2C- Online retailing or e-tailing
– C2B- Reverse auctions-announcing tenders by buyers
– C2C- Social media interactions, electronics auctions in E-bay
– B2G- E-tenders, ETDS ??
• Alternative E-business Strategies:
– Brick and Mortar –traditional model, website used , no facility to place orders
– Pure Click –entire marketing activities online only eg. E-bay, Kaymu
– Brick and Click –both offline and online, e-marketing are complementary not
competitive, Wal-Mart, Compaq
• Strategies on E-documentation of Trade:
– Using Electronic Data Interchange (EDI) in order placement, processing, and
distribution
 Home Assignment
• Solve the past Board Questions.
• Thank You!!