Download Market Development Costs - McGraw Hill Higher Education

Chapter 5
Financing the
International
Operation
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-1
Chapter Learning Objectives
• The various factors that create the need
for increased capital.
• What market entry and market
development costs are.
• The various sources of funding and
support available to support the
international marketing involvement.
• The methods of international payment for
goods.
• The types of potential risks existing in
international marketing involvement and
the management of those risks.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-2
Global Perspective
Exporting Risk: Global Implications of the
Securitisation of US Housing Debt
• Problems with global capital markets that first surfaced
in the US have spread widely throughout the financial
world.
• Regulatory regime governing the global capital market
has lagged behind economic growth, leaving investors
and the global economy vulnerable to potential
economic disaster.
• The use of asset securitisation, the fastest growing
sector of credit markets, has proliferated internationally
and plays a vital role in the flow of global capital.
• Political decisions and the resulting financial outcomes
can unsettle the market environment.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-3
Global Perspective
Exporting Risk: Global Implications of the
Securitisation of US Housing Debt (cont.)
• This environmental, political and financial volatility can be
experienced as a global phenomenon or as an individual
country market specific.
• The wider the international operation, the greater the
potential for high financial risks to arise.
• Changes in the financial environment can influence:
– The value of a country’s currency
– The motivation to invest in a market
– The market growth potential
– Long-term expectations for the international marketer.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-4
Increased Need for Working
Capital
• Need for additional funds is relevant to the growth of the
business internationally.
• The potential risks associated with international marketing
relate to:
– Time it takes to prepare products and physically move
them across borders.
– Logistical characteristics of the host country.
– Status of the infrastructure.
– Changes in tariff and non-tariff structure.
– Taxes imposed by home and/or host country.
– Restrictions imposed on exchange transactions.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-5
Market Entry Costs
• Preliminary research.
• Specific research relating to specific industry
and market conditions.
• Selection and training of distributors.
• Market visits:
– Time
– Opportunity costs
– Travel costs
• Other costs:
– Legal fees
– Site location and office set-up
– licenses
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-6
Inventory
• Three broad categories of costs:
– Costs of manufacturing, warehousing and
distribution.
– Costs associated with physical facilities.
– Costs of recruiting and training warehouse
personnel.
• Cost escalations and stock shortages
associated with inventory management
not only results in increased cash outlays
but also loss of market share and longerterm loss of confidence.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-7
Market Development Costs
• Market development activities focus primarily on
integrated marketing communication efforts.
• Other push strategy initiatives, or additional
incentives, need to be included in the channel of
distribution’s terms of trade.
• The more substantial the stock – in terms of value,
space requirements, maintenance, insurance and
merchandising requirements – the more substantial
the support needed.
• In situations where channel control is critical for
managing the business, companies may choose to
acquire ownership of the channel.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-8
Capital Investment
• Host country regulations may require a
prescribed level of local content.
• Marketers attempting to do business with
economic blocs may have an advantage by
conceding to local content rules.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-9
Sources of Funds
• Commercial banks:
– Largest source of funds for exporters.
– Offer long- and short-term trade finance.
– Key services include:
 Managing financing of international trade.
 Managing risks associated with importing and
exporting.
 Managing payments for imports and exports.
• Factoring and forfaiting
• Government assistance:
– EFIC
– AusIndustry
– Cooperative Innovation Program
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-10
A Comparison of the
Characteristics of Factoring and
Forfaiting
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-11
Australia’s Export Market
Development Grants
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-12
Managing Financial Risks
• Consideration of risks is important before
entering into a contract of sale and in
providing for the conduct of international
marketing.
• Key areas of risk include:
–
–
–
–
–
–
–
Political risk
Exchange risk
Shipping
Custom clearance delays
Quarantines
Local legal conditions
Standards regulations
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-13
Managing Financial Risks (cont.)
• Strategies with respect to risk
include:
– Assessing the type, severity or
likelihood of it occurring.
– Pre-empting measures that can be
adopted to avoid or minimise.
– Actions available to the company to
combat the effects of risk that does
occur.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-14
Summary
•
•
•
•
•
One of the major concerns is the large commitment in
new categories of cost beyond the local market costs.
The need for increased working capital for procurement
and inventory, market entry, market establishment and
market maintenance costs must be considered.
Involvement with international marketing and benefiting
from the opportunities it offers present challenges as well
as risks.
Political risks may result from regime changes and/or
change of government.
These changes may bring about fundamental changes in
the economic management of the country and create
corporate ownership, operating and transfer risks for the
foreign operator.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-15
Summary (cont.)
• Commercial risks may include payment
risks, insolvency, delivery risks,
incovertibility of local currency and foreign
exchange fluctuations.
• Detailed risk management plan must be
prepared based on a realistic assessment
of the inherent risks existing in the country
of interest.
• Options available to deal with risks and
effective and pre-emptive measures
should be put in place.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a International Marketing by Cateora
Slides prepared by Kate Mizerski, Edith Cowan University
5-16