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International Marketing Chapters 1&2 Chapter 1 • What is International marketing • Why should we study international marketing? • International Business Activities • Key players in International Business What is international marketing? • Defined and described as business transaction between party’s from two or more countries. • These parties maybe companies on their own, group of companies or organizations from both private and government sectors, or freelance traders. International business VS local business • International business is executed outside a county’s borders • Minimum one of the parties must use a foreign currency • different legal systems might be involved. Therefore parties should be open to adjust themselves to the other country’s legal system and procedures. • Two parties might feel cultural differences and should be firm and open to adjust their behavior accordingly. • Different access to natural resources, labor, level of proficiency, skills and knowledge. Reasons to study international marketing • In every organization or business entity there are a series of international activities, even small sized companies. Generally all social and economic organizations effect from the global economic system and affect this system at the same time. • You might be working for a company, which is owned by a larger corporation with its head quarters located outside the country, or might be working for company which is engaged in international markets or planning to enter international markets. Therefore, being familiar with international marketing and its concepts could help you to perform better. • Small business engagement in international markets is increasing on daily basis. • With developments in technology and use of internet and e-commerce many small businesses are entering international markets whereas in the past only large corporations who had enough resources for establishing offices warehouses and distribution network outside their country could do that. • As a student or a manager in a company, you need to know about international marketing, have knowledge of international business procedures and culture. You need to be familiar with international atmosphere and proper vision to gain competitive capability as a business owner or an employee. • Studying International marketing provides you with the opportunity to become familiar with the latest advancements and trends in methods, techniques and innovations in business environment. For example, personal and employee’s empowerment, new marketing strategies in emerging marketing, cross-functional teams, quality circles and etc. • With studying informational marketing, you are in a position to gain a cultural literacy and systematic approach toward international cultural and economic environment. Fast pace of globalization trend has resulted that different political, economic and cultural systems to work more closely together than ever before. • Knowing these differences and familiarities is treated as a new era of knowledge and literacy in international environment. International Business activities In past mostly import/ export and some investments activates where witting integrational business formwork, where as in today’s complex business environment there are many different methods for executing business activities, in some sources and references business activities are called entry modes to foreign markets. We categorize international business activities into three categories: • Import /export and counter trade • Investment • Contractual activities Import-Export and Counter Trade • Import: An import is a good or service bought in one country that was produced in another. • Export: Exports are goods and services that are produced in one country and sold to buyers in another. Import /Export is divided into two subcategories • Goods/Merchant trade which are tangibles such as products ( computers, clothing, etc.) • Services and Intangible's trade such as insurance, accounting opr banking services. Counter Trade • Another form of trade which is counter trade or as also known as barter trader where there is no exchange of money (currency) and only Products are exchanged together based on their values. International Investments • International Investment: Defined as raising capital by both people and companies in one country for people or companies in another country. Types of International Investments: • Direct foreign investment: investments with the aim of controlling ownership of capital and properties or comprise in the hasting country. for example, purchasing majority of shares in a company and having investor’s management team in charge and in control of () and managing the company in the host country. • Foreign portfolio investments: defined as buying financial properties of a company such as stocks, bonds, deposit certificates by the foreign investor with the aim of investment and not necessarily the ownership. Other forms of International business activities International business activities may be conducted in variety of forms such as franchising, management contracts and licensing. • International licensing: Defined as coordinating and contractual arrangements in which a company in a foreign country grants permission and license to a company in another company to use its intellectual properties. These intellectual properties may include patents, trade marks, brand names, copy rights or trade secrets, in return for royalty payment by the licensee. Key Players in International Markets Multinational corporations • Are companies who are heavily engaged in executing international business activities. • A definition that clearly explains scope of these companies, defines them as corporations that have direct or portfolio investments in more than one foreign country. • These corporations source their inquiries from multiple countries, manufacture products and provide services in difference countries and sell these products or services in many different countries. Usually multinational corporations coordinate them activates trough their head office. some of multinational enterprises provide more freedom and authority to their local offices, so these branches could adjust better to local business environment. • Some of the multinational corporations are not considered as large corporations. For example, corporations that provide accounting services • Also some of the non-profit organizations are considered as multinational organizations. • Red cross / red cresent. Key Players in International Markets Entrepreneurs and SMEs • Nowadays, Due to development in technology and IT industry and automation, many of the entrepreneurs tend to focus on SMEs. • There for entrepreneurship, specially in SMEs considered to be one of kay factors in international business activities. Key players in International International enterprises • International Enterprises fits in the gap between multinational corporations and active entrepreneurs and SMEs . • These companies work outside their origin country as well. They pursue their business activities outside by exporting their products or services and in most cases with human sources from the original country. There are many other key players who involved in international business; such as government bodies, transportation companies , legal entities , banks , and insurance companies. Chapter2 Globalization and International Business • Globalization of production • Benefits of globalization for companies • Globalization of Markets • Motives, drivers and reasons for globalizing • Secondary reasons motivating globalization • A background and history on Globalization • Views and opinion on Globalization Globalization of production • Defined as: distribution and diversification of production operations and activities with the goal of minimizing costs or maximizing quality of products or services. • This procedure includes souring of key inputs such as raw materials and parts, outsourcing and crowdsourcing of production at international level. • Every company arranges and makes such decisions based on their business environment, strategies, market and their internal capabilities. Benefits of globalization for companies • Access to cheap labor: Large corporations establish manufacturing plants in countries with cheap labor, low wages and salaries. with this method they take advantage of cheap manufacturing at global production scale. For example, clothing and textile manufacturing in Bangladesh or IT products in Taiwan and Hong Kong. This is also beneficial for the host country by improving overall employment status ( rate) and helps economic development. Access to cheap labor is not limited to manufacturing companies but also spreads to service sector as well. For example providing accounting services, call canters or soft were programming. • Access to proficiency and know-how In some cases companies switch production to other countries to take advantage of the know- How in that country. • Access to raw materials This provide the opportunity ,so companies gain access to materials and resources which they did not have. For example ; Japan’s Nippon Seishi paper company owns wood farms and jungles in Canada , Australia and U.S. • They will enjoy and take advantage of having access to their strategic raw materials as well as more control on their production procedures. Cheap energy is another motive for companies to relocate their production facilities to another country. Globalization of Markets Nowadays, globalization has resulted in development of international business activities. This happens in such a way that companies are now entering new markets which were previously left out of the global markets. During the cold war, The world was categorized into three group of countries: • 1st world – Rich countries with high trade volumes including western Europe’s countries, North America , Australia and some parts of East Asia, considered to be American allies . • 2nd world – Soviet union and communist countries allied. • 3rd world counties: countries with low to moderate level of income including Latin America, Africa and most of Asian Countries. Globalization of Markets • Most the trade was conducted between 1st world countries , 2nd group countries had no business with the 1st world. • 3rd world countries acted as the source of raw material for the 1st world countries. with collapse and fall down of soviet union in 80’s ,this arrangement totally changed. • Thereafter the world bank introduced a new categorization of countries: Developed Less Developed Developing This classification was based on statistics of human resource index and GDP. Globalization of Markets Could be defined as convergence in consumer’s preferences. This trend has occurred in many FMCG, industrial and business services and products. Benefits of Globalization for Companies • Decreases marketing costs : companies who sell products in global scale, save costs on their marketing with standardizing their marketing and manufacturing activities. For example, Coca-Cola sells in Turkey, Iran with almost identical packaging. • Creating or exploring new market opportunities; if the market in a country becomes saturated for a product or service then companies with world demanding products are in a better position to find customers in new markets • Leveling of Unfavorable income; In a case where a company has seasonal sales patterns and faces fluctuation in different seasons because of its product portfolio then, Globalization might be a solution. Sales in international level helps companies balance out their low seasonal demands in one part of the world by high demands from another part of the world at the same time. This helps companies to maintain the consistency of cash flow and control such turbulences. Nowadays. Many international businesses focus on emerging markets opportunities. Emerging markets ( countries) described as countries with their current growth rates equal or close to developed countries. There is no specific definition for emerging markets as some consider BRIX or BIG TEN as emerging markets. Motives, Drivers for globalization • Barriers for trading and foreign investments have been removed by governments • Changes and innovations in Technology Motives, Drivers for globalization Removal of barriers for trading and foreign Investments • In 1947, political leaders of 24 countries including 12 developed and 11 of developing countries, gathered to sign the general agreement of Trade and Transit ( GATT). This agreement aimed at enhancing free trade between countries by decreasing and removing of both commercial and non-commercial barriers for international trading. In 1995, many other countries joined this agreement and developed it to more comprehensive form called WTO. WTO has 3 major goals • Facilitating free trade. • Helping to open new markets. • Helps to settle trade disputes Motives, Drivers for globalization Removal of barriers for trading and foreign Investments • Regional Trade Treaties Treaties and cooperation in such form as European union, ASEAN or OPEC will facilitate trading and business opportunities for membering countries. Motives, Drivers for globalization Changes and Innovations in technology • Developments of Micro processors and long-distance communication. Internet Email and video conference Intranet and internal networks of companies • Developments in transportation and distribution industries. Main Reasons To Join Globalization Trends • Strategic Requirements: Some factors such as companies wanting to take advantage of their strengths, competitive advantages and value created at their local market in the home country and offer them in International markets. Another important factor is getting access to new sources of raw material, labor, capital and technology. Also, getting access to new markets will open up new demands and helps them to meet a better economy of scale in their production. • Business Environment: Political and technological developments and trends have become more friendly and acceptant toward international businesses. This includes developments in transportation. Richard Baldwin theory of globalization process ( 2006 ) • Industrialization and de-industrialization: He explains at the first wave of industrialization, Nordic countries became industrialize meanwhile China, India and Southern countries were excluded. He adds, with the second wave East Asian countries became industrialize while Nordic countries became new industry creators. • Divergence and Convergence: During the first wave, we faced a huge divergence between North and South whereas in the second wave a minimal convergence attained. During the First wave product trade boomed while by the second wave product and capital trade shifted toward countries which were part of Great Britain's colony. Monitoring and Evaluation of Globalization • Researchers suggest some criteria's for evaluating globalization trend. One the most criteria's and evaluation methods, introduced by A.T Kearny which is a global management consulting firm. They suggest evaluating 72 countries who have about 97% of the world’s GDP as well as 88% of population. Each country’s rank is calculated based on 12 variables and some the most important of these variable are • Economic Integration • Personal Contact • Technological Contact • Political engagement History and background of Globalization History of business and trade goes back to ancient times. During the 6th century, The Silk Road was a critical route for business and trade between East and West, Where Spices, hand crafts and precious metal exchanged. From 1500-1900 Popularity of English and Spanish languages, developments in fire arms, technological advancements in printing as well as transportation achieved during this time bracket. Countries were competing for exploring new territories. The Eastern Indian Company was the first multinational company established during this time for protecting Britain’s interests in its colonies. History and background of Globalization From 1900- 1980 This historical time frame is called the era of international companies and globalization. From the mid 1900’s with new technologies in transportation and communication as well as 1st and 2nd world war, resulted to a huge immigration from Europe to North America; where about 300,000 people annually moved to North American countries. Most of the international companies formed during 1945 – 1980. From 1980- Now The climax of globalization trend happened during 1989, when the Berlin wall destructed as well as collapse of Soviet Union. These two helped globalization to surge at a faster pace. World bank and IMF also help the globalization process hugely. Reviews and comments on Globalization There have been many different points of view on globalization trend, with some being in favor and others against this trend. Negative views Effect of globalization on jobs and wages: • Globalizations results in Job losses in developed countries • Cheaper wages in developing countries has resulted to lowering wages in developed countries • Exploitation of labor force in developing countries • Income levels and environmental pollution Reviews and comments on Globalization Positive views • Globalization results in a more dynamic job market for developing countries • Helps economic development and progress in developing countries • Effect of globalization on labor force • Work standardizing • Environmental protection • Emerging markets Reviews and comments on Globalization • Globalization and inequality in income and poverty: Positive views indicate that globalization trend leads to industrial shift from countries with higher income level to lower income countries. This will result in reducing social gap between countries. • Globalization and development of inequality between nation ( Gini Coefficient may be used to evaluate inequality) • Globalization and global inequality, globalization has helped reducing inequality at global scale. • Globalization and national authority: Those, who are against globalization trend emphasize that globalization weakens national authority where, positive views indicate that globalization helps and supports promoting of democracy. • Effect of Globalization on culture: Supporters believe that globalization helps us to enjoy and take advantage of our differences and exchange them in return of higher quality lifestyle and welfare.