Fundamentals of International Business - Assignment Example

Executive Summary Even though the business principles and concepts are universally applicable, the environment within which the marketer must implement plans can change dramatically from country to country or region to region. These difficulties are created by different environments are the international marketer’s primary concern. A successful manager constructs a business plan designed for optimal adjustment to the uncertainty of business climate. International business is the performance of business activities designed to plan, price, promote, and direct the flow of a company’s goods and services to customers or users in more than one nation for a profit. Competition, legal restraints, Government controls, weather, fickle consumers, and any number of other uncontrollable elements can, and frequently do, affect the profitable outcome of good, sound business plans. What makes international business more interesting is the challenge of modeling the controllable element of business decisions (Products, Price, promotion, distribution and research) within the framework of the uncontrollable elements of the marketplace (competition, politics, laws, consumer behavior, level of technology, and so forth) in such a way that business objectives are achieved. This assignment is an endeavor in this concern. It resorts to catechism in order to explain few fundamentals of international business. The assignment will highlight four issues pertaining to international business in form of question and answer. Table of content Executive Summary ---------------------------------------------------------------------- 1 Table of Content -------------------------------------------------------------------------- 2 Introduction ------------------------------------------------------------------------------- 3 Question One ------------------------------------------------------------------------------ 4 Question Two ------------------------------------------------------------------------------ 7 Question Three ---------------------------------------------------------------------------- 8 Question Four ----------------------------------------------------------------------------- 9 Conclusion --------------------------------------------------------------------------------- 10 References ---------------------------------------------------------------------------------- 11 1. Introduction There four issues from the perspective of international business being highlighted during the course of this assignment. These are namely international expansion strategy, remuneration strategy, distribution strategy and lastly the ethical concerns in international business. When a company makes the commitment to go international, it must choose an entry strategy. The approach to foreign marketing can range from minimal investment with infrequent and indirect exporting to large investment of capital and management in an effort to capture and maintain a permanent, specific share of world market. These are called alternate marketing strategy (Hill, 2006). There are four broad categories that a company can adopt. These are exporting, contractual agreement, strategic alliance and ownership (Guillen 2003, pp. 185-189). Issue of remuneration is very critical and decisive in nature. The standard of living is different in different part of the globe. Thus company has to take various parameters to decide the salary structure of employees on international assignments. Each country market has a distribution structure through which goods are physically transferred from the producer to the end customer. There are various middlemen involved within this distribution structure. The behaviors of channel members in general reflect the existing competition, market characteristics, tradition, and economic development (Seong 2004, pp. 5-20) The strategic decisions taken by the company involved in international business has got a social and ethical aspect of it. It reflects the cultural adoption of the firm and its ethical perseverance. This concern is becoming more and more important considering the ever increasing corporate corruptions which are depicted by cases like that of Enron and WorldCom (Gene & Jacob, 2004). 2. Question One: International Expansion Strategy In the given case the company wants to enter into effluent and prosperous market of Western Europe. The company has got a personal computer with all the contemporary features. The unique selling proposition of the product as evident from the case is its price which is almost half of the products from rival firms. The company concerned has got three options as alternate expansion strategy. These are given in the case as exporting, licensing and wholly owned subsidiary. I am the International manager of the firm and will logically build up my recommendation to CEO. The nature o the product will have decisive influence over the selection of the strategy. The company has various patents for its unique design of the computer which makes it so economical to end customer. But the features of the product are contemporary only. Also in case such products, customers go for a tries and tested name unless any innovative or breakthrough technology is offered (Rogers, 1995). Thus established brand name also is an important factor to be considered here. If we look closely to the pattern on which such products are brought, we can infer that the features of products outweigh the price. Moreover the pace at which the new features replace old one is very rapid. Thus it is very difficult to establish any long term competitive advantage either on the basis of price or feature. The target market which the company is considering is Western Europe which in general is quite effluent and price would not be a vey determines criteria for buyers. In such market the price-quality relationship matters a lot and more often the low price is misunderstood as low quality. Though there still will be a class of consumers for which price will be a decisive. Taking these considerations for the product and market, the various options of expansion strategy will be judged one by one. Exporting There are two alternatives as far as exporting is considered as option for the given company. These are direct exporting and indirect exporting (Morgan, Kaleka & Katsikeas 2004, pp. 90-108) It is evident from the given case that the company has no pre established network for marketing and distribution in Western Europe. Thus it will cost fortunes for the company if it intend to get involve in direct export. The setting up of offices and maintaining sales staff in that market will be a costly affaire (Leonidou, 2004). This might take way the advantage of low cost of the products from the hands of the company. The company will be new to the market and so will be the product. In case if the firm decides to take the path of indirect exporting then it will have to invest hugely in marketing communication which is also very costly affaire in the target region. The price of the product is as prevailing in the United States. To get the price at which customer will get the product in Europe, various other factors need to be considered. The export duty paid at the US port and the import duty paid at the European port will be of primary concern. These two factors have capability to snatch away the price leadership of the company which is the unique selling proposition for its product. Though the company can take resort to binary and various other global and regional trade agreements to save on such duties (Mitchener 2002, p.A1). But in that case there is a likelihood that the company can be charged of ‘dumping’ its product at such a low cost in foreign market (Morris 2005, p. 18). Considering all the propositions the option of export is not recommendable. Contractual Agreement Under this scheme the company will license a European firm to manufacture and market the personal computer. It will serve a mean to transfer knowledge rather than equity (Hill, 2006). It can serve a great means of establishing a foothold in foreign market without a large capital investment. In fact it is the most favorite strategy of small and medium sized companies. Moreover the advantage of licensing is most apparent when patents and trademarks must be protected against cancellation for nonuse. But at the same time there are various risk involved with this alternative of licensing agreement. The choice of partner becomes decisive for the success of the venture. Company might face difficulty in verifying the quality and production issues. There is also perceived risk of payment default and los of marketing control. Contract enforcement is also very complex issue to be considered (Hill, 2006). This option seems the most viable one but at the same time the company must be ready to take the burden of finding, supervising, and inspiring licensees. Wholly Owned Subsidiary This option is concerned with direct foreign investment. It generally is dealt in line with national policy pertaining to foreign direct investment. Hence this option has to fulfill a lot of criteria and is generally time taking as it needs a lot of governmental approvals. Moreover this option is exercised by any firm in order to exploit low cost of labor and raw material which is not the case here as no way Western Europe is economical on these criteria. The product and the associated technology is also not very sustaining by nature. Hence there is no point putting in huge investment for long term for a product which itself is for short term. The company can also not be certain for any such further breakthrough in its technological arsenal. Thus this option is also not recommendable. Hence out of all options available to the company as alternative international expansion strategy, the option of licensing agreement is the most viable one. 3. Question Two: Remuneration Strategy The question in here is about the parity of salary irrespective of the country of origin or assignment. For this purpose one must look to the various factors which affect the salary structure of any company. This assignment takes the stand that the salary should be specific to the country in which it is dispersed and also should be specific to the job. Every country has got a standard of living which is different from others. Thus the quantum of salary needed varies accordingly. Salary is a very crucial issue which can affect the employee performance and commitment to the company. Moreover it is always compared. Thus if a company has a standard salary structure for all of its global operations, then it would end up paying less in the country of high standard of living or very high in the countries with moderate of low level of standards. The comparison is done by any employee with its peer within the company as well as with the rival companies. The comparison with rival company’s salary structure can induce dissatisfaction. Thus it is recommended that any company should have matching salary when compared with other players in the industry of that country. A one size fit for all policy will not hold good here. Secondly the difficulty level associated with a given assignment also varies from place to place and with time to time. This factor must be considered while deciding the salary structure. For an example the effort put forward by a sales person involved in marketing a new product is more than the efforts put forward by a sales person involved in marketing and established and mature product. There are various other factors also like tax regulation, interest rates and inflation which must be taken into consideration at the macro level to decide the salary structure of the employees. 4. Question Three: Distribution Strategy In the given case the company wants to enter in food retail market of India. For that it has to decide on its distribution strategy. The existing retailers and wholesalers are having long term pact with a Korean food company. At the same time the food retail in India is fragmented. The company must understand the psychology of the market first. Organized retail is a new concept in India. According to a study conducted by the Associated Chamber of Commerce and Industry of India (Assocham) along with KPMG, the organised retail in India accounts for seven percent of the retail market, though it is projected to grow at a breadth taking pace of 40 percent per annum to touch $51 billion by 2010. Hence there is a vast opportunity in the field of organised retail. There are various upcoming retail giants most of them are big corporate houses (Kripalani 2005, p. 56). Apart from it global giants like Wal-Mart is also contemplating joint venture with local partners (http://www.researchandmarkets.com/reports/340653/). This means that scenario is going to change drastically from what it is now. So the company need not to worry much about the existing long term contract between channel members and a Korean company. Rather should make futuristic plans for entry and expansion in Indian food retail market. Since the whole market is going to expand hugely, even a small portion can fetch fortunes. This new retail model eliminates the middleman and makes the complete retail chain shorter. This also optimizes the cost involved in the value chain and hence makes it more profitable for the company and economical to the end consumer. In the given case the company should also approach such local retail giant to get into a contract for its food section. This will help the company to penetrate deep into Indian market. Along the way the company also need to communicate to the consumer through its integrated marketing communication about its product range. Since the Indian market is dominated by the middle income group, the television would be the best channel to get into their living rooms (Kanso and Nelson, 2002). The food products should be categorised and made available as per the taste of the consumers. Thus the company need to get the taste, liking and demands surveyed by a good research firm. Accordingly the market team of the company can resort to adaptation so that the products are accepted in the market and localization so that products are not rejected in the market (Harvey and Novicevic, 2002). One the products are established in the market, then the company can also consider local grocery stores for deeper market penetration. In that case it needs to give healthy margins on its product so as to compete at the bottom of the pyramid (Prahlad, 2005). 5. Question Four: Ethical Considerations Markets are the results of a three way interaction of a marketer’s efforts, economic conditions and all the other elements of culture (Hill, 2006). Thus companies involved in international business keep constantly adjusting their efforts to cultural demands of the market (Dwyer, Mesak, and Hus, 2005). Moreover they also act as agent of change wherever the product or idea is innovative. Religion makes a very fundamental element of culture and often become decisive in marketing strategy. For an example it was the religious issue which made Coca Cola to rename its product as Mecca Cola in Saudi Arabia. Similarly it is the religious belief that bans the liquor manufacturing companies from entering into most of the Middle Eastern nations. It was the religious belief only which compelled Mc Donald’s to drop Ham Burger from its menu in India. A swimsuit manufacturing company specially designed swim suits in Islamic style for markets in Islamic nations (Zaman 2005, p. A3) . Examples are cluttered where religious dominance has outweighed the marketing strategy. Any company involved in international business must be adaptive as far as religion is concerned. It must customise and hence create its own market for its products. Religious believes are deeply ingrained in people and are very difficult to change. It is easier and economical to change products to suite the belief system. The cost involved with customization and adaptation of the product will always be less that the cost involved with the rejection of the product in the market due to religious contradictions. While deciding such issues a company must understand and respect the sentiments of the local customers (Hill, 2006). Anyway marketing is always customer centric. 6. Conclusion Doing business at domestic level and at international level is entirely different. The dynamism makes the later more challenging. The number of factors to be considered when involved in international business is lot more that what is to be considered otherwise. Through for questions, few of the issue discussed by this assignment highlight the challenged involved with international business. It has revealed the spectrum of insight need to deal with. The efforts are just doubled as soon as any company goes global. All the successful global companies are not just insightful but are also accommodating in nature. To carve out a market in a foreign country need respect and adaptability for the locals. The actual marketing warfare works at the local level and hence any company should know its market in and out before venturing into it. Any company should understand the concerns of the local channel partners in order to exploit its benefits for distribution of its products. Moreover the policies for international business are also governed by the capital and resources available at the disposal of the company. A deep pocketed company has more leg room to experiment its ideas into new market but such liberty is not available to medium or small scale companies. Thus they should decide the expansion strategy very carefully considering all the facets of the international business. The incentive given to the employees should also bring level of satisfaction and should instil commitment in the work force. Thus is it necessary that salary and incentives should be comparable to what exist in the industry. Employees often undergo parity check with their peers and counterpart across globe. Thus a company should amalgamate its salary policy with standard of living prevalent in the country where it is venturing. In a nutshell it can be said that as the global economy is growing, it become imperative to understand the international business with a global perspective and local awareness. 7. References a. Ali Kanso and Richard Alan Nelson, 2002, “Advertising Localization Overshadows Standardization,” Journal of advertising research 42, no. 1 (Jan-Feb), pp. 79-89. b. Amberin Zaman, “Islamic Style Swimsuits Give women Freedom to Dive In,” Los Angeles Times, August 21, 2005, P. A3. c. Brandon Mitchener, April 23, 2002 “Increasingly, Rules of Global Economy are set in Brussels,” Wall Street Journal, p. A1. d. C. K. Prahlad, The Fortune at the Bottom of the Pyramid, (Philadelphia: Wharton School publishing, 2005) e. D. Moris, 2005, “All Countries must Adhere to WTO rules,” Financial Times, July 8, P. 18. f. Everett M. Rogers, Diffusion of innovations, 4Th ed.(New York: Free Press, 1995) g. Gene R.Laczniak and Jacob Naor, “Global ethics: Wrestling with the corporate Conscience”, Business, July-September 2004. h. Hill, C.W.L., 2006, International Business: Competing in the Global Marketplace, 6th Edition, McGraw-Hill/Irwin, New York i. http://www.researchandmarkets.com/reports/340653/ Surfed as on 16th June 2009. j. Leonidas C. Leonidou, “An Analysis of the barriers Hindering Small Business Export Development,” Journal of Small Business Management, July 2004. k. Manjeet Kripalani, “Here comes the wal-Mart Wannabes,” Business Week, April 4, 2005, p. 56 l. Mauro F. Guillen, 2003, “Experience, Imitation, and the sequence of foreign Entry”, Journal of International Business Studies 34, no. 2, pp. 185-198. m. Michael Harvey and Milorad M. Novicevic, 2002, “Selecting Marketing Managers to Effectively Control Global Channels of Distribution,” International Marketing Review 19, no. 4-5, pp. 525-544. n. Neil Morgan, Anna Kaleka and Constantine S. Katsikeas, 2004, “Antecedents of Export Venture performance: A Theoretical Model and Empirical Assessment,” Journal of marketing 68, no. 1, pp. 90-108. o. Seong Mu Suh, “Fairness and relationship quality perceived by local suppliers: In serach of critical success factors for international distribution”, Journal of Global Marketing 18, no. 1/2. pp. 5-20. p. Sean Dwyer, Hani Mesak, and Maxwell Hus, 2005, “An Exploratory Examination of the Influence of national Culture on Cross National Product Diffusion,” Journal of International Marketing 13, no. 2, pp. 1-27 Following websites were frequently visited a. http://en.wikipedia.org/wiki/Islam, surfed on 16th June 2009 b. www.walmart.com/home, surfed on 16th June 2009 c. www.assocham.org/policies/indvis/indiavision.php, surfed on 16th June 2009 d. www.thecoca-colacompany.com/, surfed on 16th June 2009 Read More