T HE G LOBAL M ARKETPLACE Chapter 2

D OING B USINESS I NTERNATIONALLY Global marketplace has been growing with the increasing acceptance of capitalism around the world, advances in technology and reduction of trade barriers Global news coverage is instantaneous, connecting people around the world Businesses have been encouraged to enter the world marketplace and venture into foreign countries

D OING B USINESS I NTERNATIONALLY Trade agreements set the guidelines for business to operate in the global marketplace Getting involved in international trade: Importing Exporting Licensing Contract manufacturing Joint ventures Foreign Direct Investment Multinationals and Mini-nationals

D OING B USINESS I NTERNATIONALLY Imports Purchasing goods from a foreign country Products entering the U.S. must meet the same standards as domestic products Quotas limit entry of certain goods Quotas exist on cotton, peanuts, tobacco, animal feed, beef, Canadian cheddar cheese, chocolate, cocoa powder, dairy products and sugar Any shipments above the quota are quarantined by U.S. customs Companies hire custom brokers who are licensed by the U.S. treasury department Custom brokers handle over 90% of imports

D OING B USINESS I NTERNATIONALLY Exporting A domestic company that wishes to enter the global marketplace with minimal risk and control may wish to export Assistance available from U.S. government Internet portal and BuyUSA site Export.gov

D OING B USINESS I NTERNATIONALLY Licensing Letting another company use a trademark, patent, special formula, company name, or other intellectual property for a fee or royalty Pros: If product is a success, licensor has gained entry with minimal risk Cons: If product is a failure, licensor’s name is tarnished

D OING B USINESS I NTERNATIONALLY Licensing (con’t) Franchising Franchise agreement: Franchisor grants franchisee the rights to operate under the company name Involves following specific guidelines for operation to foster a unified image of the franchisor Fast-food chains like McDonald’s, Wendy’s, and Burger King have franchised operations in foreign countries

D OING B USINESS I NTERNATIONALLY Contract Manufacturing Hiring a foreign manufacturer to make your products, according to your specifications Finished goods are either sold in that country or exported Benefits: Lower wages More competitive Downfalls: Proprietary information is given out Possibility of inferior goods

D OING B USINESS I NTERNATIONALLY Joint Ventures A business enterprise that companies set up together Some countries do not allow foreign companies to own 100% of business Good idea even if not mandated Domestic business partners know the market and procedures for conducting business in their own country

D OING B USINESS I NTERNATIONALLY Foreign Direct Investment Establishment of a business in a foreign country May involve no more than setting up an office with a staff to maintain presence in that country Higher levels involve acquisitions of existing foreign companies and construction of facilities Advantages: Avoiding foreign government pressure for local production. Circumventing trade barriers, hidden and otherwise. Making the move from domestic export sales to a locally- based national sales office. Capability to increase total production capacity. Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc;

D OING B USINESS I NTERNATIONALLY Multinationals Large corporations that have operations in several countries Gillette, Proctor and Gamble, Unilever, Nike, PepsiCo, and Coca-cola are multinational firms Mini-nationals Midsize or smaller companies that have operations in foreign countries

G LOBAL E NVIRONMENTAL S CAN (PEST) Political Factors Government Stability Changes in government, investors become wary New president, new political party in charge, etc. Trade Regulations and Laws Reduced tariffs, laws to protect intellectual property, increase in percentage of business ownership allowed by foreign investors May need to adopt laws that meet the same standards as the country you are trading with Domestic laws must be followed

G LOBAL E NVIRONMENTAL S CAN (PEST) Economic Factors Infrastructure Telephone service Roads Utilities Environmental issues Labor Force Quality and cost of labor force Educational and skill levels of workers Customary wages and employment laws Employee Benefits Mandated benefits above and beyond wages Taxes Property and profits Reduced taxes as incentives

G LOBAL E NVIRONMENTAL S CAN (PEST) Economic Factors (con’t) Standard of Living Many employees may not be able to afford the product you produce Middle-income workforce is increasing in developing nations Increases demand for all types of ordinary consumer goods Foreign Exchange Rate Price of one country’s currency if you were to buy it with another country’s currency Vary each day U.S. dollar compared to other foreign currency Invest when the dollar is worth more Sell when the dollar is worth less

G LOBAL E NVIRONMENTAL S CAN (PEST) Socio-Cultural Factors Must be savvy with cultural diversity and a foreign society’s value system Language and Symbols Lucky numbers around-the-world-infographichttp://dailyinfographic.com/lucky-unlucky-numbers- around-the-world-infographic Color color.htmlhttp:// color.html Flowers can-mean-death-for-global-business.html?pg=allhttp:// can-mean-death-for-global-business.html?pg=all Slang Hand gestures cultural-gestures_b_ htmlhttp:// cultural-gestures_b_ html Holidays and Religious Observances Social and Business Etiquette Gift giving Entertaining Eating out

G LOBAL E NVIRONMENTAL S CAN (PEST) Technological Factors Measurement standards Electric voltage Use of computers, voice mail, faxes, cell phones, Internet Check CIA’s world fact book website

G LOBAL M ARKETING S TRATEGIES Globalization Selling the same product and using the same promotional methods in al countries Only a small percentage of products are common to all global customers Soft drink companies Product must have a common need that transcends different cultures Global brand recognition Microsoft—computer applications function the same way in different languages Search engines such as Yahoo and Google

G LOBAL M ARKETING S TRATEGIES Adaptation A company’s use of an existing product and/or promotion to which changes are made to better suit the characteristics of a country or region Discover characteristics of a country Target consumers with similar needs and wants Change product Brand name changed Different formulas Change promotion Change message to reflect values, familiar images, and cultural differences in a foreign market Advertising changed to meet government regulations Change pricing policies to compete in local markets

G LOBAL M ARKETING S TRATEGIES Customization Creating specially designed products or promotions for certain countries or regions Each geographic area becomes a unique market segment Specialty soft drinks