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CERTFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 21
BASICS OF INTERNATIONAL TRADING AREAS AND AGREEMENTS
ALAN L. WHITEBREAD
IMPLICATIONS
• Benefits of trade
– New markets open and small markets grow
– Consumers have greater access to products and services
from around the world
• Trade Barriers are a Marketing Challenge
– Ex.
• “Unique” Japanese snow requires Japanese skis
– Trade Barriers
•
•
•
•
Raise prices for imported products
Limit how much non-members [of a trade area] can sell
Increase relative profitability of members
Generally dampen demand
SELECTED MAJOR TRADING
AREAS
•
•
•
•
•
•
Andean Common Market
CACM
Central American Common Market
CARICOM Caribbean Community and Common Market
EAEC
East Asia Economic Caucus
• Formerly ASEAN Assoc. of Southeast Asian Nations
EFTA
European Free Trade Area
EU
European Union
Mercosur
NAFTA
North American Free Trade Area
MAJOR TRADING AREAS
• As of July, 2006, Mongolia is the only
WTO member nation that is not involved in
any preferential trade agreements.
• See WTO Regional Trade Agreements
reading.
FORMS OF ECONOMIC
INTEGRATION
• There are six different forms of regional
economic integration:
–
–
–
–
–
–
Free Trade Area
Customs Union
Common Market
Economic Union
Monetary Union
Political Union
FREE TRADE AREA [FTA]
Encourages trade among its members by
eliminating trade barriers (tariffs, quotas, and
other non-trade barriers [NTBs]).
-EFTA [European Free Trade Area]
-NAFTA [North American Free Trade Area]
-LAIA [Latin American Integration Association]
-CIS [Commonwealth of Independent States]
-there are many FTAs around the world
FREE TRADE AREA: RULES OF
ORIGIN
PTA Basis for Calculation
MC%-RVC%
PANEURO
NAFTA
MEX-CHILE
MEX-CHILE
CAN-CHILE
MERCOSUR
COMESA
NAMIBIA-ZIMB.
SADC
50-30
60-50
50-41.66
50-40
35-25
40-60
60-35
25
70-35
Value Point [% if applicable]
Yes Ex-works
60 FOB or 50 cost prod.
50 FOB or 41.66 cost prod.
50 FOB or 40 cost prod.
35 FOB or 25 cost prod.
FOB
60 CIF or 35 factory cost
N/A
Ex-works
US-JORDAN
35
FOB
US-ISRAEL
35
Ex-works
MEX-ISRAEL
45-35
45 FOB or 35 cost prod.
[RVC = regional value content]
CUSTOMS UNION
Combines the elimination of internal trade
barriers among its members and the
adoption of common trade policies toward
nonmembers.
-Mercosur
Argentina, Bolivia, Brazil, Chile, Paraguay, Uruguay
COMMON MARKET
This goes a step further than a customs union
by eliminating barriers that inhibit the
movement of factors of production—labor,
capital, and technology—among its members.
-CACM [Central American Common Market]
ECONOMIC UNION
The full integration of the economies of two or
more countries.
-Eliminates internal trade barriers
-Adopts common external trade policies
-Abolishes restrictions on the factors of production
among members and requires members to coordinate
economic policies
-monetary policy, fiscal policy, taxation, and social
welfare programs
Afro-Malagasy Economic Union [Benin, Cameroon, Central
African Republic, Chad, Gabon, Ivory Coast, Mali, Mauritania, Niger, Zaire]
MONETARY UNION
A Common Market with a common
currency and a supranational central
bank.
-EU [beginning January 1, 1999]
POLITICAL UNION
The complete political and economic
integration of two or more countries thus
making them one country.
-[Former USSR]
DEGREE OF INTEGRATION
Stage of
Integration
Abolition
Of Tariffs
Common
Tariffs
Factor
Restrictions
Social,
Economic,
Regulatory
Free Trade
Yes
Customs
Union
Yes
Yes
Common
Market
Yes
Yes
Yes
Economic
Union
Yes
Yes
Yes
Yes
Political
Union
Yes
Yes
Yes
Yes
Political
Yes
EU – KEY ISSUES
• ENVIRONMENTAL
– THE GREEN DOT “Grüne Punkt” SYSTEM
• Germany’s packaging recycling system
• http://www.gruener-punkt.de/?L=1
• A world leader, watch for developments in France and Japan
– Restriction on Hazardous Substances [RoHS]
• Prohibits the use of lead in electronics
• Requires material declarations
• See Oracle’s program for RoHS and others
– http://www.oracle.com/industries/high_tech/rohs_overview.pdf
EU – KEY ISSUES
• PRODUCT AND CONFORMITY
– ISO 9000 SERIES SYSTEMS
• For consistency/reliability, not a quality system
– THE CB SCHEME
• For electrical products
– CE MARKING
• For product approval
EU – KEY ISSUES
• CE MARK
– French "Conformite Europeene"
– A new approach to product approval
– The CE mark certifies that a product has met
EU health, safety, and environmental
requirements, which ensure consumer and
workplace safety.
EU – KEY ISSUES
• CE MARKING
– OBTAIN CE CERTIFICATION
• 3 DIFFERENT WAYS
• OBTAIN A DECLARATION OF CONFORMITY
– AFFIX THE CE LOGO
– THE CE MARK & A Declaration of Conformity are
legally required for a product to be sold in the EU.
– See http://www.ita.doc.gov/td/tic/ce_mark/ceintro.htm
EU AND PRIVACY
• PERSONAL DATA CAN ONLY BE
TRANSFERRED FROM EUROPE TO A
COUNTRY THAT ENSURES AN ADEQUATE
LEVEL OF PROTECTION
– Name, address, phone numbers …
– US follows “self-regulation” – does not comply
– “Safe Harbor” exception invoked for the U.S.
EU CUSTOMS AND TAXATION
http://europa.eu.int/comm/taxation_customs/customs/index_en.htm
•
•
•
•
•
Valuation
Rules of origin
Procedures and duty issues
Container security
Customs 2007 – paperless objective
TRADING AREAS - NAFTA
• U.S., CANADA AND MEXICO
• AGREEMENT ON TRADE, INVESTMENT &
JOBS
– ORIGINAL TARGET: NO TARIFFS BY ~2005
• THE ENVIRONMENT
• CERTIFICATE OF ORIGIN
– You can have a blanket NAFTA Certificate of Origin
that is good for 3 years.
– For a blank form see
https://forms.customs.gov/customsrf/getformharness.asp?formName=cf-434-form.xft
• $13.8 TRILLION GDP IN 2004
TRADING AREAS – MERCOSUR
• Argentina, Brazil, Paraguay and Uruguay
– Bolivia and Chile by extension agreement
• Signed by 4 initial members 1/1/1991
– Immediately eliminated tariffs on 90% of the goods
traded within the bloc
– Exceptions phased out in 1999
• Established an average common external tariff
of 14% on 85% of the goods imported from
nonmembers
• GDP $2.25 TRILLION IN 2004
FREE TRADE AREA OF THE AMERICAS
[FTAA] PARTICIPANTS
All the states that are active members of the OAS (34) participate in the FTAA negotiations. They are:
Antigua & Barbuda
Ecuador
Paraguay
Argentina
El Salvador
Peru
Bahamas
Grenada
Dominican Republic
Barbados
Guatemala
Saint Kitts & Nevis
Belize
Guyana
Saint Lucia
Bolivia
Haiti
Saint Vincent and the
Grenadines
Brazil
Honduras
Surinam
Canada
Jamaica
Trinidad & Tobago
Chile
Mexico
United States
Colombia
Nicaragua
Uruguay
Costa Rica
Panama
Venezuela
Dominica
NOT CUBA
FTAA GUIDING PRINCIPLES
• Preservation and strengthening of the Americas.
• Well-being through economic integration and
free trade.
• Eradication of poverty and discrimination.
• Guarantee of sustainable development and
preservation of the environment for future
generations.
TRADING AREAS – EAEC
East Asia Economic Caucus
• Effective November 6, 2001
– ASEAN + China + Japan + South Korea
• Gross GDP >$2 trillion
• See http://www.infoplease.com/ipa/A0874911.html
SECTION 21: REVIEW
• You should now have knowledge of
– Protectionism
– Selected major trading areas
– Forms of economic integration
– EU – key issues
• CB Scheme, CE Marking and how to obtain
it, and privacy
– NAFTA, MERCOSUR, FTAA, ASEAN
[EAEC]
CERTFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 22
LEADING INTERNATIONAL MARKETING AND RESOLVING CUSTOMER
ISSUES
ALAN L. WHITEBREAD
LEADING INTERNATIONAL:
MARKETING AND SALES
• Challenges
– Coordination
– Cooperation
– Responsiveness
– Diversity and diversification
• Responding to local markets and conditions
• Sensitivity to cultures and business practices
• Minimizing conflict between firm’s entities
LEADING INTERNATIONAL:
MARKETING AND SALES
• Challenges
– Control and local autonomy
• What organizational structure best fits your
diversity and diversification goals?
• Maximizing the marketing mix elements
– Common goals
– Implementation
• Programs
• New products
SALES RESPONSIBILITIES
• VOICE OF THE CUSTOMER
– Feedback about client developments
– Feedback about your company
– Feedback about competitors
• VOICE OF THE COMPANY
– Implement the marketing plan
– Communicate your company policies and/or positions
– Not an agent
• IMPECCABLE ETHICS AND INTEGRITY
SALES PERSONNEL & INCOME
INTERNATIONAL
SALES
$200+ K
NATIONAL ACCOUNT
SALES
I
OEM
SALES
N
TECHNICAL
SALES
C
DIRECT FIELD
SALES
O
SERVICE
SALES
M
INSIDE SALES
TELESALES NOT
TELEMARKETING
RETAIL / ORDER TAKERS
E
$10 K
PROFESSIONALISM
TRANSACTION
MARKETING
RELATIONSHIP
MARKETING
SALES FUNCTIONS
• MANAGING THE PROSPECT FUNNEL
• MINIMIZING THE SALES CYCLE
• CUSTOMER / PROSPECT CARE
• INFORMATION DISSEMINATION
• TERRITORY MANAGEMENT
• PERSONAL IMPROVEMENT
THE PROSPECT FUNNEL
MARKETING
DEPARTMENT
LEADS VS. COLD
CALLS
NEEDS &
PROSPECT
MAXIMIZE SALES
EFFECTIVENESS
APPROACH & QUALIFY
PRESENT
VALUE
FAB
REAL, FALSE,
STALLS
DEMONSTRATE
QUALIFIED !
HANDLE OBJECTIONS
HOT PROSPECT
TRIAL & ACTUAL CLOSES
COGNITIVE DISSONANCE
CLOSE
FOLLOW-UP &
REINFORCE
Copyright A. Whitebread, 2001-7.
CUSTOMER !
SALES PERSONNEL TRAITS
• GOAL ORIENTED
• STRONG EGO BUT EMPATHETIC
• VERY KNOWLEDGEABLE
– Products and company at a minimum
• CONTROL ANY SITUATION
• IMPECCABLE INTEGRITY AND ETHICS
SALES PERSONNEL TRAITS
• IMPECCABLE INTEGRITY AND ETHICS
– ETHICAL AND LEGAL ISSUES 
•
•
•
•
•
•
•
DISPARAGEMENT 
MISREPRESENTATION 
BRIBERY 
HIGH-PRESSURE SALES TACTICS 
FAVORITISM / DISCRIMINATION 
DEALING WITH COMPETITORS 
CULTURE AND BUSINESS PRACTICES: THEIR
HOME COUNTRY VS. THAT OF THE FIRM 
SALES MANAGEMENT ISSUES
1.
2.
3.
4.
5.
6.
7.
8.
Organization, strategy, and structure
Implementation and orchestration
Recruiting and selecting
Training and developing
Compensation
Direct, supervise, and motivate individuals
Evaluation
Retention
TYPES OF SALES FORCES
• Field sales
– These are defined as various sales organizations that are
primarily composed of your employees and there is faceto-face contact.
• Direct marketing
– This is all activity to solicit business without any face-toface contact.
• Direct mail, telesales, …
• Alternative
– These are all other types of sales entities where you do
not have 100% control over their activities.
TYPES OF SALES FORCES
FIELD
DIRECT SALES
NATIONAL
ACCOUNTS
OEM
DIRECT
MARKETING
TELESALES
ALTERNATIVE
DIRECT MAIL
RESELLER
PARTNERSHIPS
CATALOG
MANUF. REP’S
INTERNET
FRANCHISES
GOVERNMENT
LICENSEES
HOUSE
JOINT VENTURES
INTERNATIONAL SALES CAN BE ANY MIX OF OR ALL OF THESE.
Copyright A. Whitebread, 2001-7.
PRODUCT SALES STRUCTURE
VP
Marketing
PRODUCT
MANAGER
GROUP 1
PRODUCT
MANAGER
GROUP n
ADVANTAGES
-DRIVEN BY PRODUCT
PURCHASES
-SPECIALIZED KNOWLEDGE
FOR SPECIALIZED PRODUCTS
-HELPS PRODUCTION
SCHEDULING
SALES
MANAGER
GROUP 1
SALES
MANAGER
GROUP n
MARKETING
COMMUN.
MANAGER
DISADVANTAGES
-DUPLICATION OF EFFORT
-HIGHER ADMIN. COSTS
-COORDINATION NEEDS
-MAJOR ACCOUNT PROBLEM
WITH MULTIPLE PRODUCT LINE
PURCHASES
A product sales structure is used when you need a lot of specialized product knowledge in a
product family to sell the product.
Copyright A. Whitebread, 2001-7.
GEOGRAPHIC SALES STRUCTURE
(OR TERRITORIAL SALES STRUCTURE)
VP
Marketing
PRODUCT
MANAGER
GROUP 1
PRODUCT
MANAGER
GROUP n
ADVANTAGES
-SIMPLE STRUCTURE
-LOW COST OF SALES AND
ADMINISTRATION
-DIRECT INTERACTION
EASTERN
SALES
MANAGER
WESTERN
SALES
MANAGER
MARKETING
COMMUN.
MANAGER
DISADVANTAGES
-NO SPECIALIZATION
-CONTROLLING HOW THE SALES
FORCE SPENDS ITS TIME
-FRACTURED FEEDBACK
-COMPLETE PRODUCTS
KNOWLEDGE REQUIREMENT
A geographic sales structure is used when you need market coverage and general
knowledge about all product families to sell the products.
Copyright A. Whitebread, 2001-7.
CUSTOMER SALES STRUCTURE
VP
MARKETING
PRODUCT
MANAGER
GROUP 1
PRODUCT
MANAGER
GROUP n
NATIONAL
SALES
MANAGER
NATIONAL
ACCOUNTS
ADVANTAGES
-DRIVEN BY CUSTOMER TYPE
-SALES MANAGEMENT CONTROLS
FIELD TIME
MAJOR
ACCOUNTS
MANAGER
MARKETING
COMMUN.
MANAGER
OEM
Government
DISADVANTAGES
-HIGHER SELLING AND
ADMINISTRATIVE COSTS
-IMPROVED FEEDBACK
A customer sales structure is used when you need specialized sales people based on the
type of customer and general product knowledge. In this example, National Accounts, OEM,
and Government all reports to the Major Accounts Manager.
Copyright A. Whitebread, 2001-7.
COMPLEX SALES STRUCTURE - 1
VP
MARKETING
NATIONAL
SALES
MANAGER
DIRECT
SALES
MANAGERS
RESELLER
SALES
MANAGER
S
GROUP
PRODUCT
MANAGER
DIRECT
MARKETING
MANAGER
TELESALES
MANAGER
OUTSIDE SALES

INTERNET
SALES 
MANAGER
INSIDE SALES
MAJOR
ACCOUNTS
MANAGER
NATIONAL
ACCOUNTS

OEM
MARKETING
COMMUN.
MANGER
GOVERNMENT
OUTSIDE SALES
ADVANTAGES
ISSUES
DISADVANTAGES
-DRIVEN BY CUSTOMER
TYPE
-RECLASSIFICATION OF
ACCOUNTS
-REQUIRES A LOT OF
COORDINATION
-SPECIALIZED SALES
SKILLS
-WHO GETS THE ACCOUNT
FIRST?
-INFORMATION IS WIDELY
DISSEMINATED
-VERY DIFFICULT FOR
COMPETITVE ANALYSIS
-PRICE STRATEGY AND
IMPLEMENTATION
-HEAVY LOAD ON
MARKETING COMMUNICATION
A complex sales structure is used when you need specialized sales people based on the
type of customer and general product knowledge plus direct marketing efforts [in yellow ].
Copyright A. Whitebread, 2001-7.
COMPLEX SALES STRUCTURE - 2
VP
MARKETING
NATIONAL
SALES
MANAGER
DIRECT
SALES
MANAGERS
DIRECT
MARKETING
MANAGER
RESELLER
SALES
MANAGER
TELESALES
MANAGER
GROUP
PRODUCT
MANAGEMENT
INTERNET
SALES
MANAGER
NATIONAL
ACCOUNTS
MAJOR
ACCOUNTS
MANAGER
OEM
MARKETING
COMMUN.
MANAGER
GOVERNMENT
THIS BECOMES EVEN MORE COMPLEX
WITH
-MANUFACTURER’S REPRESENTATIVES
-CUSTOMER SERVICES
-TECHNICAL SALES SUPPORT
-INTERNATIONAL SALES AND SUPPORT
WHERE SHOULD CUSTOMER SERVICES REPORT? WHY?
Copyright A. Whitebread, 2001-7.
SALES FORCE AUTOMATION [SFA]
• WHAT IS IT?
– COMPRHENSIVE ACCOUNT MANAGEMENT
– CONTACT PROFILES [N-TIERS]
– AUTOMATED QUOTES &
CORRESPONDENCE
– FORECAST, ORDER & CONTRACT
GENERATION
– INSTANT ACCESS TO HISTORICAL DATA
– DRIVEN BY TECHNOLOGY
CUSTOMER RELATIONSHIP MANAGEMENT
[CRM]
MARKETING “TO”,
NOT
INTERACTING WITH CUSTOMERS
VISITING CUSTOMERS AND
PROSPECTS
•
•
•
•
•
•
Vast distances
Long travel times
Jumping multiple time zones
Dealing with jet lag
Being fresh when you arrive
Department of State and per diem
information
– http://www.state.gov/m/a/als/prdm/
THE APPOINTMENT CHECKLIST
• How early or late should I be?
• Have I dressed appropriately?
• Do I need gifts?
– Are they appropriate?
– Do I know how to present the gifts?
• Am I prepared?
– Have I review all recent notes?
RESPONDING TO CUSTOMERS
• QUALITY PROBLEMS
– Send we send a person [quality or sales] to assess?
– Authorize a return?
– Scrap in the field?
• INFORMATION
– Collateral
– Extensive product
• TRAINING
– Reseller or customer personnel?
SECTION 22: REVIEW
• You should now have knowledge of
– The challenges of leading international
marketing and sales
– Sales responsibilities and functions
– The prospect funnel
– Sales personnel traits
– Eight key sales management issues
– Types of sales forces and structures
– SFA and CRM
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 23
ADVANCED INTERNATIONAL TOPICS
ALAN L. WHITEBREAD
MARKET ENTRY FACTORS
-CHALLENGES-
• MARKET AND COMPETITIVE
INFORMATION
• GOVERNMENT AND BORDER STABILITY
• FOREIGN EXCHANGE
• INTELLECTUAL PROPERTY
• PIRACY
• QUOTAS
• EMBARGOS
• MANAGEMENT COMMITMENT [time, $]
SELECTING FOREIGN MARKETS - REVIEW
• DETERMINE MARKET ATTRACTIVENESS
– ECONOMIC GEOGRAPHY
– DRIVING FACTORS
– MARKET RESEARCH
• EVALUATE AND MANAGE RISKS 
• EVALUATE THE COMPETITIVE POSITION
– LEONTIF INPUT-OUTPUT COUNTRY DATA
– COMPETITOR INFORMATION
– HOW IS INFORMATION TREATED?
FOREIGN MARKET ENTRY
ALTERNATIVES
CONTRACTUAL RELATIONSHIP
[Contract manufacturing, strategic alliance, joint venture, …]
DIRECT INVESTMENT
FRANCHISING
[Acquisition, greenfield, brownfield]
INDIRECT
LICENSING
EXPORTING
[To a reseller in your country]
DIRECT
EXPORTING
[To a reseller in another country]
These all have different amounts of
COMMITMENT, RISK, CONTROL, PROFIT POTENTIAL
COPYRIGHT A. WHITEBREAD, 2001-2011
TAXES AND MARKET ENTRY
• There are numerous issues that affect the
business and the employees.
– For the EU, go to
http://europa.eu.int/comm/taxation_customs/common/about/welcome/index_en.htm
• Administrative and regulatory
demands vary widely by country
ENTERING FOREIGN MARKETS
INDIRECT EXPORTING
• RISKS
– LIABILITY, CONTROL
– VERY ERRATIC DEMAND
– FIT WITH OPERATIONS
• REWARDS
– VERY LITTLE SALES EFFORT
– INCREMENTAL VOLUME AND PROFIT
Manufacturer
COPYRIGHT A. WHITEBREAD, 2001-2011
Agents / Distributors
[Not in destination country
- In your home country]
ENTERING FOREIGN MARKETS
DIRECT EXPORTING
• RISKS
– CONTROL OF INDEPENDENT RESELLERS
– RESELLERS ACTIONS
• REWARDS
• DIRECT CONTACT WITH LOCAL MARKET
• PIGGYBACK MARKETING
Resellers
Manufacturer
Sales
Subsidiary
Selling to Resellers and OEMs may grow to a size
where you want to set up a Sales Subsidiary.
COPYRIGHT A. WHITEBREAD, 2001-2011
Individual
Accounts
OEM’s
ENTERING FOREIGN MARKETS
LICENSING
• RISKS
– CONTROL OF LICENSEES AND RESELLERS
• REWARDS
– LOCAL MARKET KNOWLEDGE
– MINIMIZE ENTRY RISK
– PROFIT STREAM
Resellers

Manufacturer
Licensees
Individual
Accounts
COPYRIGHT A. WHITEBREAD, 2001-2011
INTERNATIONAL LICENSING
•
IS ADVANTAGEOUS WHEN ONE OR
MORE OF THE FOLLOWING EXIST.
1.
2.
3.
4.
5.
the marketing potential is too large to self-fund;
there is likely to be insufficient capital and/or cash flow to
support the growth required investment[s];
you have IP protected product, process, or brand and
choose to expand utilizing other sources of capital;
you choose to use this protected item to increase the
cash flow for a long time to fund other projects or
investment streams; or,
other more promising cash, investment, and growth
situations consume your available capital.
INTERNATIONAL LICENSING
KEY ISSUES
•
•
•
•
•
•
•
•
Who?
Degree of exclusivity
Territory
Duties of the licensee
Duration, terms, and restrictions
Payments
Conditions of the license
Termination
ENTERING FOREIGN MARKETS
FRANCHISING
• RISKS
– CONTROL OF RESELLERS
• REWARDS
– LOCAL MARKET KNOWLEDGE
– MINIMIZE ENTRY RISK
– PROFIT STREAM
Resellers

Manufacturer
COPYRIGHT A. WHITEBREAD, 2001-2011
Franchisees
Owned Facilities ?
Individual
Accounts /
Consumers
ENTERING FOREIGN MARKETS
DIRECT INVESTMENT
[ACQUISITION, GREENFIELD, BROWNFIELD]
• RISKS
– START-UP OPPORTUNITY COST; INVESTMENT; WC
– COUNTRY STABILITY; CURRENCY EXCHANGE
• REWARDS
– DIRECT MARKET CONTACT
– PROFIT STREAM
Resellers
Manufacturer
Subsidiary
(Manufacturing)
COPYRIGHT A. WHITEBREAD, 2001-2011
Individual
Accounts
MARKET ENTRY BY ACQUISITION
• KEY ISSUES
– Finding the right acquisition
– Corporate philosophy
– Management chemistry
– Accept their culture
– Be sensitive to their management style
MARKET ENTRY BY ACQUISITION
-Problems• WAL-MART GERMANY
– 1997 acquires Wertkauf then Interspar
– Appoint a Managing Director [MD] that did not
speak German
– The next MD tried to manage from England
– Executives did not understand the customers:
Germans like to shop on their own without
smiling assistants
– Lacked sufficient scale of operation
– 2006 Wal-Mart sells to Metro and will take a
one-time charge of €1,000,000,000
INTERNATIONAL MERGER &
ACQUISITION ISSUES 
HARD ISSUES
SOFT ISSUES
Anti-trust, business
operations
Cultural differences between
the firms
Employee benefits, rights,
and protections
Cultural differences in
negotiating styles
Export and data protection
Verbal vs. written contracts
and the role of attorneys
Tax structuring and currency Due diligence – high or low
exchange
level reviewers
SUBSIDIARIES
• The most extensive foreign involvement
• Subsidiary choices
– Creation of a new unit
• Ownership options; type of entity; charter
– Acquisition
• Decision-making, control, approvals
• Reporting obligations
• Special considerations for
– Transshipments
– Payments to/from foreign bank accounts
SUBSIDIARIES
• In many countries majority or total ownership
by foreign companies is forbidden. 
• Legal requirements of Boards of Directors
vary. 
• May also be done with an acquisition.
CORPORATE TAX RATES – 2005
MAJOR CORPORATIONS
•
•
•
•
•
USA
UK, China
Germany
Egypt
?
35%
30%
25%
20%
?
CAUTION: There is often a significant difference between the
maximum rate [above] and the effective rate or the effective rate on
capital which can be much lower! 
ENTERING FOREIGN MARKETS
CONTRACTUAL RELATIONSHIP
[CONTRACT MANUFACTURING, STRATEGIC ALLIANCES, JOINT VENTURES]
• RISKS
– AUDIT & CONTROL
– START-UP INVESTMENT; WC
• REWARDS
– MINIMIZE ENTRY RISK
– PROFIT STREAM
Resellers

Manufacturer
Contractual
Agreement
COPYRIGHT A. WHITEBREAD, 2001-2011
Individual
Accounts
STRATEGIC ALLIANCE
Two [sometimes more] partners develop a joint
long-term strategy with
–
–
–
–
–
–
–
–
similar mission and vision
mutual needs
shared objectives
a reciprocal relationship
synergistic strengths
share transferred resources
defend or improve their market position[s]
retain identities in new markets
STRATEGIC ALLIANCES
• Strategic Alliances
• Core Competencies and Key Success
Factors
• Types
• Competitive Alliances
• Co-operative Alliances
• Joint Ventures
• Operational
• R&D
STRATEGIC ALLIANCE
KEY SUCCESS FACTORS
Mission
Strategy
Governance
Cultural fit
Organisation
Management chemistry
Implementation
STRATEGIC ALLIANCE
DEMANDS
• PARTNERS
– Remain independent
– Share the benefits of the alliance
– Share control
– Make ongoing contributions
•
•
•
•
Technology
Products
Capital [funding, equipment]
Strategic areas of participation
STRATEGIC ALLIANCES
COMPETITIVE TYPE
•
•
•
•
Partners are competitors
Some conflict between partners is
expected, but minimized
Partners must protect their interests
Learning from the other partner[s] is
critical
CO-OPERATIVE ALLIANCES
THE JAPANESE KEIRETSU
• An alliance or enterprise of interrelated
companies or company groups.
• It operates in a wide array of markets.
• Keiretsu executives sit on each other’s boards
and share information.
• Foreign competitors often view keiretsu as
cartels to dominate the market and restrict
competition.
• The most famous keiretsu are Mitsui and
Mitsubishi.
JOINT VENTURES
• The JV company is run by two [rarely
more] partner firms.
• Risk and rewards are shared based on an
initial formula.
• It combines the strengths of the partners.
• Influence depends upon ownership.
• JV may have better acceptance by
authorities if one partner is local.
JOINT VENTURES KEY ISSUES
•
•
•
•
How do you value contributions?
What is the distribution of earnings?
How are losses supported?
How do you appoint Directors and Senior
Management?
• What are its policies?
• How do you assure compliance with the
wishes of both partners?
• What is the distribution at dissolution?
MARKET REENTRY 
• Occasionally, a firm will exit a market
[country] and want to get back in at a later
date.
• There are numerous challenges with this
approach. They include credibility and
commitment [staying power], how to
reenter [alone or with what kind of
partner], and the brand name to be used
just to name a few.
SECTION 23: REVIEW
• You should now have knowledge of
– Market entry challenges
– The six common foreign market entry
alternatives
• Indirect exporting, direct exporting
• Licensing, franchising
• Direct investment
– Acquisition, greenfield, brownfield
• Contractual relationship
– Contract manufacturing, strategic alliances, joint
ventures, …
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 24
CHOOSING FROM GROWTH ALTERNATIVES
ALAN L. WHITEBREAD
AD VALOREM DUTY
[means “in proportion to the value”]
• Ad valorem is the most common duty applied
by any importing country.
• It is always a fixed percentage.
• The percentage may change over time.
• May be on either the value when exported
[FOB] or the value at the arrival port [CIF].
– The U.S. charges duty based on export value
[FOB].
• Variations exist! 
– South Africa Ad Valorem Excise Duty is paid in
addition to normal duties
AD VALOREM DUTY OFFICIAL
NOTICE
VALUE ADDED TAX [VAT]
• VAT is a consumption tax put on the added
value of goods and services.
• It is a percentage of the price to consumers.
• It currently ranges from 6% to 25% depending
on the country.
• It is collected fractionally through a system of
deductions where VAT-registered businesses
can deduct the VAT tax they have paid for their
purchases from their total VAT liability.
VAT
• There is huge variation in the rules from
country to country for VAT.
• VAT may be recovered if you complete the
proper forms and have VAT receipts upon
country exit.
• For current EU and its country details go
to http://europa.eu.int/comm/taxation_customs/index_en.htm
INTERNATIONAL ORGANIZATION &
CONTROL
• Be very sensitive to cultural differences.
• Find an acceptable balance between
management control and unit autonomy.
• Be able to respond to industry issues at
various stages of development around the
world.
• Do what is best for the total corporation.
• Protect IP and the firm’s knowledge base.
URUGUAY ROUND: TRIMS & TRIPS
• TRIMS
– TRADE-RELATED INVESTMENT MEASURES
• prohibits members from imposing or maintaining certain
measures relating to investment that adversely affect
trade in goods
• TRIPS
– TRADE-RELATED ASPECTS OF INTELLECTUAL
PROPERTY RIGHTS
• attempts to increase the commonality of IP items among
member nations
WTO - DUMPING
• Article VI of GATT [Tokyo Round] allow contracting
parties to apply anti-dumping measures to an export
priced below its “normal value”.
– Usually the price of the product in the exporting country
– If such dumped imports cause injury to a domestic industry in the
importing country.
• More detailed rules governing the application of such
measures are currently provided in an Anti-dumping
Agreement concluded at the end of the Tokyo Round.
• The Uruguay Round negotiations have resulted in
improvements to many weak or unclear areas of the
current Agreement.
WTO - DUMPING – URUGUAY
ROUND
• How to determine if a product is being
dumped
• How to determine the extent of injury
– The burden of proof is on the importing
nation!
• Investigation procedures
• Implementation and duration of antidumping measures
• Anti-dumping measures [counterveiling
duties] generally expire within five years
WTO – SUBSIDIES & COUNTERVEILING
MEASURES
•
“Prohibited” subsidies are
1. Contingent upon export performance, OR
2. Based upon the use of domestic versus
imported goods
WTO – SUBSIDIES & COUNTERVEILING
MEASURES
•
“Actionable” subsidies show
– “Serious prejudice” when the subsidy
exceeds 5% of the ad valorem value
– the burden of proof is on the granting
country to show no serious prejudice
WTO – SUBSIDIES & COUNTERVEILING
MEASURES
• “Non-actionable subsidies can be either
– non-specific subsidies, or
– specific subsidies involving
• assistance to industrial research and precompetitive development activity, or
• assistance to disadvantaged regions, or
• certain type of assistance for adapting existing
facilities to new environmental requirements
imposed by law and/or regulations
FOREIGN DOMESTIC INVESTMENT
[FDI]
• Foreign domestic investment [FDI] is the
investment in real assets such as
factories, offices, or distribution facilities.
• Foreign portfolio investment [FPI] is the
investment in bonds, debt instruments, or
stocks.
FDI COUNTRY COMPARISON
ITEM
CZECH REPUBLIC
RUSSIA
None
Many
Very high
Medium
Domestic market
size
Small
Large
Distance to major
markets
Close
Close
Exchange / capital
controls
Total FDI
The exchange / capital controls may be so significant to Firm A that the major
facility is in the smaller Czech Republic and the minor one in Russia.
WHAT ATTRACTS FDI?
• A combination of
– Market access and / or a distribution hub
– Stable economic and legal systems
– IP protection
– Acceptable and improving infrastructure
– Good corporate governance
– Unrestricted flows of funds
– Low labor costs
– Ample raw materials
FIRMS INVEST IN FDI TO
• Have production to satisfy local demand or
export to other markets
• Gain access for less expensive or a greater
quantity of raw materials.
• Shift production to countries where one or
more of the factors of production are
significantly less expensive.
• Gain access to new technologies or
managerial expertise
• Establish operations in countries unlikely to
interfere with private enterprise
TYPICAL FDI INCENTIVES
•
•
•
•
•
•
•
•
•
•
Tax credits, exemptions, deferrals, or deductions
Land and/or building[s]
Grants
Equipment
R&D
Training
Relocation
Easy regulatory approvals
Subsidies
Many more
FINANCIAL CONSOLIDATION
ISSUES
•
•
•
•
Chart of Accounts
Taxation
Currency translation
Rolling into consolidated corporate level
financial statements
• Special issues with goodwill, subsidies,
privatizations, and other items
KNOWLEDGE OF U.S. TAX LAWS
• Corporate
• Income
• Employee labor in U.S.
– Immigrant and local; illegal
• Working abroad
• Property
STRATEGIES FOR MINIMIZING
GLOBAL TAX EXPOSURE
• Legally leverage transfer pricing
• Obtain an Advance Pricing Agreement
[APA] from the IRS and foreign tax entities
• Prevent double taxation
• Maximize credits for restructuring
• Minimize adjustments or penalties
• Negotiate with tax authorities
TRANSFER PRICES
• The price a parent company charges a
subsidiary for products or services from
the parent company that are sold by the
subsidiary in its market.
– If the price is too high, it may encourage a
gray market [parallel imports]. 
– If the price is too low, it may be dumping. 
TRANSFER PRICE OBJECTIVE
• Maximize profitability for the firm, not a
part of the firm.
– What profit levels are desired and where?
– What is the price and demand elasticity by defined
market segment?
– Where do you pay taxes on profits?
TRANSFER PRICING
• The price paid by another part of the organization
when the product crosses a national border
– Arms-length price (unrelated parties)
• Cost-based or negotiated
– Most favored customer (best)
– Tax implications
SECTION 24: REVIEW
• You should now have knowledge of
– Ad Valorem duty, penalties, and notice
– VAT
– Uruguay Round: TRIMS and TRIPS
– WTO position on subsidies and
countervailing measures
– FDI and FPI
– International consolidation and tax issues
– Transfer pricing
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 25
THE FUTURE OF INTERNATIONAL TRADE
ALAN L. WHITEBREAD
TODAY’S SITUATION
• OUR RAPIDLY CHANGING WORLD
– The “have” versus the “have not” nations.
• There will likely be a continuing migration of
selected production to lower labor cost nations.
• The rich countries get richer, but what is the
opportunity for industrializing nations?
• What happens to today’s poor, underdeveloped
nations?
RESOURCES FOR THINKING
ABOUT THE FUTURE
• National Intelligence Council
– http://www.cia.gov/nic/NIC_globaltrend2020_es.html
• Futurist Organizations
• “Think Tank” publications
• Many others exist
TODAY’S SITUATION
• OUR RAPIDLY CHANGING WORLD
– Rapidly increasing productivity
– Increasing global population
– Continuing urbanization
• In 2007 more than 50% of the population lived in
urban areas for the first time in world history.
– Rapid change in the channels of distribution
– Tremendous increase in information
accessibility
TODAY’S SITUATION
• Corporations need more growth and
improved profitability which drives
– mergers and acquisitions,
– product and service licensing,
– expansion to more and more market
[segments], and
– firms seek growth oftentimes in large chunks.
TODAY’S SITUATION
• OUR RAPIDLY CHANGING WORLD
– All of the industrialized nations are aging and
this demographic trend will continue for a few
decades. Some of the associated issues
include
• longer life expectancy;
• social systems for retired people burden young
workers; and
• there will likely be a rapid decrease in labor force
in OECD nations sometime after 2010.
– See the www.census.gov International population
pyramids.
TODAY’S SITUATION
• THE EMERGENCE OF TRADING
BLOCKS
– EU
– FTAA – When?
– NAFTA to FTAA
– EAEC [ASEAN] + ?
– Which group does India join?
– Which group does Russia join?
– What about the Middle East, Africa, and other
nations that do not belong to any trading block
today?
TODAY’S SITUATION
• THE EMERGENCE OF TRADING
BLOCKS
– Standards are moving from national to
regional to international.
– Trade barriers and trade liberalization lessen
within trading areas, but protectionism is alive
and well between trading areas.
TODAY’S SITUATION
• IP
– What is the role of the WTO?
– Protection is highly variable by country
– Definition, coordination, and enforcement are
all problems
TODAY’S SITUATION
• THE ELECTRONIC WORLD
– An IP nightmare
– The Internet & E-commerce
• Cyber theft
• Cyber terrorism [worms, …]
• Find more information on the web plus see
– http://www.aic.gov.au/topics/cybercrime/
•?
TODAY’S SITUATION
• KEY EMERGING ISSUES
– Security is a major concern on several fronts
• Around the world
• Merchandise and shipments
• Identity
– Privacy
• The EU-USA dispute: a major hurdle
TODAY’S SITUATION
• CORRUPTION
– Piracy is increasing
– Bribery is common
– Counterfeiting is tolerated in some places
• THE CHALLENGE OF SERVICES
SECTION 25: REVIEW
• You should now have knowledge of
– The challenges of today, potential
scenarios for the future, and have an
action plan for what you are going to do if
…
PREPARING FOR THE CGBP EXAM
• Vocabulary
• Readings
–
–
–
–
Enforcement Lists [Section 3]
International Copyright …[Section 8]
International Distribution Agreement Issues [Section 10]
Understanding the Four Categories of Incoterms 2000
[Section 14]
– Trade Finance Guide [Summary] [Section 17]
• Exercise 5.2 U.S. Government Programs & Services
• Exercise 17.3 Letter of Credit
• Exercise 18.1 Loans …, OPIC, and EXIMBANK