chapter five export expansion mkt568 global marketing management dr. fred miller 3-1

Chapter Five Export Expansion

Chapter Five Export Expansion

MKT568

Global Marketing Management

Dr. Fred Miller

3-1

Schmidt’s is a regional brewer in the United States which wishes to expand to international markets. Though profitable, the firm has limited production capacity, modest financial resources and no experience in international marketing. Which entry method would be most appropriate for Schmidt’s in:

Vietnam Chile Portugal

Describe each unique method briefly and explain how it balances the following factors: 1) financial resources required, 2) investment risk, 3) control of marketing strategy, and 4) protection of intellectual property.

Nestle’s Nescafe brand has a firmly established reputation for quality around the world. The keys to this success are consistently high production standards and tightly focused promotional efforts in all host countries. Which entry method would be most appropriate for Nestle’s in:

Pakistan Thailand Australia


Sample Essay Questions

Daimler-Chrysler has perfected new engine technology which allows its new Renewal car to get 40 mpg by cleanly burning fuels ranging from animal and vegetable oils to gas, ethanol and biodiesel. No competitor is close to matching this achievement. Which entry method would be most appropriate for Daimler-Chrysler in:

Nigeria Brazil Canada


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 barriersTariffsQuotas

Nontariff barriersGovernment regulation

Product/safety/environmental restrictionsFinancial/operating/business restrictions

Natural barriers – strong competitorsDistribution in mature marketsPromotion budgeting in USA




Exporting


Methods of Entry

Entry methodexporting - 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 Jobshipping, documentation, legal issues, shipping terms

securing local distributors, process and agreement terms

getting paid, letter of credit cycle, Trade Card

Export Expansion Strategycultural distance, international learning curve/sequence

sprinkler (diversification) and waterfall (focus) strategies

Principal Documents Used in Exporting

required by

Principal Documents Used in Exporting

required by

Exhibit 5.3

Foreign Customer

1. Pro forma invoice

2. Acceptance of purchase orders

3. Ocean (airway) bill of lading

4. Certificate (or policy) of insurance

5. Packing list

Exporting manufacturer

1. Purchase order

2. Letter of credit or draft (trade) acceptance

Freight forwarder

1. Shipper’s letter of instructions

2. Domestic (inland) bill of lading

3. Packing list

4. Commercial invoice

5. Letter of credit (original copy)

U.S. Government

1. Export Declaration

2. Export license (strategic goods and shipments to designated unfriendly nations)

Foreign Governments

1. Certificate of origin

2. Customs invoice

3. Consular invoice

Exporter’s bank

1. Exporter’s draft

2. Commercial invoice

3. Consular invoice

4. Insurance certificate

5. Ocean (airway) bill of lading

Source: Adapted from Root, 1987, p.71. ©1987 by Jossey-Bass, Inc., Publishers. First published by Lexington Books. All rights reserved

Criteria for Choosing DistributorsCriteria 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 ChecklistMaster Foreign Distributorship Agreement Checklist

Source: Adapted from Hall, 1993, pp.65-66. Courtesy of Unz & Co.

Confidential InformationSales literatureAdvertis ing literatureQuantitiesMailing lis ts

T rademarks and Copyr ights

No warranty agains t infringement

No Consequential damages-indemnity

P roduct warranty

Relationship between parties

Effective date and durationE ffective date and termE arly termination

BreachInsolvencyProspective breachChange in ownership or management

Rights and obligations upon terminationNo liability for principalReturn of promotional materialsRepurchase of stockAccrued rights and obligations

Noncompetition

No assignment

Government regulationForeign lawU. S. LawForeign Corrupt Practices Act

Force majeure

Separability

Waiver

NoticesWritten noticeOral notice

ArbitrationICC rulesJurisdiction

Article titles

Entire agreement andmodificationE ntire agreementModifications

Master Foreign Agency Appointment Checklist Master Foreign Agency Appointment Checklist

Source: Adapted from Hall, 1993, pp67-68. Courtesy of Unz & Co.

Appointments

T erritory-P roducts

Sales ActivitiesPromotional EffortsIntroductions (optional)PricesAcceptanceAgent RepresentationsMinimum Orders (optional)Increase Orders (optional)Agent Facilities

Competitive Products

Confidential InformationReportsOperations ReportCredit Information

Visits to Agent Premises byRepresentatives of Pr incipal

Sales Literature

T rademarks and Copyr ight

Acceptance of Orders and ShipmentsAcceptanceNo Violation of U. S. LawsCommiss ionsCommiss ion PercentageAccrualRefund

Discontinuation of Products

Repair and Rework

Relationship Between Parties

Sub-Agent

No Warranty Agains t Infringement

P roduct Warranty

Effective Date and DurationE ffective Date and Term

BreachInsolvencyProspective BreachChange in Ownership or ManagementForeign Protective Act

Letter of Credit ModelLetter of Credit Model

Exhibit 5.6

Exporter seller

beneficiary

Importer’s bank

Importer buyer

account party

Exporter’s bank

7. Remits payment

6. Presents documents

4. Advises of L/C

2. L/C application

10. Sends documents

11. Pays bank or gets loan

United StatesOverseas

5. S

hip

men

t of

goo

ds

1. P

urc

has

e an

d

agre

emen

t

9. Rem

its paym

ent

8. Presen

ts docu

men

ts for n

egotiation

3. Op

ens L

/C

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 Jobshipping, documentation, legal issues, shipping terms

securing local distributors, process and agreement terms

getting paid, letter of credit cycle, Trade Card

Export Expansion Strategycultural distance, international learning curve/sequence

sprinkler (diversification) and waterfall (focus) strategies

http://www.fedex.com/us/international

http://www.unzco.com/basicguide/c12.html#Letters

http://www.tradecard.com/

Price Escalation

Causestariffs, costs, intermediaries, taxes

Cureslower quality/margins, different classification/channels, local assembly/manufacture (FTZ’s)

Example

International Price Escalation Effects (in U.S. Dollars)

International Price Escalation Effects (in U.S. Dollars)

International marketing channel elementsand cost factors

Domesticwholesale-retailchannel

Case 1(same asdomesticwith directwholesaleimportc.i.f./tarrif)

Case 2(same asCase 1withforeignimporteradded tochannel

+ wholesaler’s margin (33 1/3% on cost) 2.00 3.40 4.25+V.A.T. (16% on margin) 2.00 3.40 4.25=Local foreign jobber’s cost

(=wholesale prices)2.00 3.40 4.25

+jobber’s margin (33 1/3% on cost) 2.00 3.40 4.25+V.A.T. (16% on margin) 2.00 2.00 4.25=Retailer’s cost (=Wholesale or jobber

price)8.00 13.60 17.00

+retailer’s margin (50% on cost) 4.00 6.80 8.50+V.A.T. (16% on margin) 4.00 6.80 8.50=Retail price (what consumer pays) $12.00 $20.40 $25.50Percent price escalation over: Domestic 70% 113%

Case 1 25%

Exhibit 5.8

Factors

Sprinkler/Diversify if

Waterfall/Focus if

Growth rate Low High Demand stability Low High Competitive lag Short Long Spillover High

Low Need to adapt product Low High Need to adapt promo Low High Marginal sales Diminishing Increasing Need for control Low High Entry barriers Low High

Market Factors Affecting Choice of Expansion Path

Market Factors Affecting Choice of Expansion Path

Chapter Six Licensing, Strategic Alliances, FDI


MKT568


Dr. Fred Miller

3-1




Licensing and franchising


Forms of Licensing

Straight licensingroyalty, fees, supply contract

Franchisingfee, royalty, promotion, supply contract

Turnkey projectspayment, management contract

Original Equipment Manufacturing (OEM)technically an export methodrisk structure of licensing

6-4

Elements of a Licensing ContractElements of a Licensing Contract

Technology packageDefinition/description of t helicensed industrial property

Know-how to be supplied and itsmethod of transfer

Supply of raw materials, equipment,and intermediate goods

Use conditionsField of use of licensed technologyTerritorial rights for manufacture and saleSublicensing rightsSafeguarding trade secretsResponsibility for defense/infringement action on patents and trademarksExclusion of competitive productsExclusion of competitive technologyMaintenance of product standardsPerformance requirementsRights of licensee to new products and technologyReporting requirementsAuditing/inspection rights of licensorReporting requirements of licensee




Alliances and JVs


Strategic Alliances

Non-equity alliancesdistribution

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 alliancesjoint ventures




Foreign direct investment


Foreign Direct Investment

Advantageslowers price escalation effectsavoids tariffsestablishes local presence, increases learning possibilities

Additional risk elementsdegree of financial commitmentpolitical riskcountry-of-origin effects

Greenfield vs acquisition




Licensing and franchising


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 MatrixAn Optimal Entry Mode Matrix

Exhibit 6.3

Companystrategicposture Emerging High-growth Mature Services

Incremental Indirectexports

Indirect exports Direct exports Licensing/Alliance

Protected Jointventure

Indirect exports Alliance/Licensing

Licensing

Control Whollyowned

subsidiary

Acquisition/Alliance

Wholly ownedsubsidiary

Franchising/Alliance/Exporting

Product/Market Situation



MKT568


Dr. Fred Miller

3-1

chapter five export expansion mkt568 global marketing management dr. fred miller 3-1

Documents

methods of entry entry

market entry decisions

types of entry barriers

market entry option

global marketing decisions

international marketing

unique method

control of marketing