Flashcards in L3: International MR (politics) Deck (47)
Types of information needed for international MR
1) General information about the countries.
2) Information to forecast future marketing requirements by anticipating social, economic and consumer trends within specific market or countries
3) Specific information used for Marketing Mix decisions and marketing plans
Market potential assessment tools
2) Potential market size evaluation
3) Overall Market Opportunity Index (OMOI)
4) Expert Opinion (VUCA)
Home country environment (Hollensen, 2013)
1) Promotional activities by government
2) Financial activities
3) Information services
4) Export-facilitating activities
5) Promotion by private organizations
6) State trading
1) Promotional activities by government in home country environment (Hollensen, 2013)
- Gov sponsorship or joint efforts b/w business and gov.
- How: granting subsidies by lower taxes on export profit, refunding of indirect tax, or direct grant.
- Purpose of gov export promotion program: increase motivation towards global MKT, provide information, reduce resource-based/ operational limitations.
- Ex: Huewei extend credit by CDB.
5) Promotion by private organizations in home country environment (Hollensen, 2013)
- Assistance includes information and publications, education and assistance in 'technical' details, and promotion in foreign countries.
- Ex: Industry and trade association, Chamber of commerce, Banks, Transport companies, etc.
2) Financial activities in home country environment (Hollensen, 2013)
- Gov = International banker if it's a member of IMF or WB.
- Ex: Credit policy - better payment terms and financing conditions.
=> Sales better even higher price or inferior quality.
- Yet, risk of non-payment. It may be necessary to transfer some (commercial and political) risk from exporters to gov through credit insurance.
3) Information services in home country environment (Hollensen, 2013)
- Gov = major source of basic MKT information for small firms and newcomers.
- Information types: (PES data; individual reports of foreign firms, info on gov regulations in both countries, etc.)
- Available via published reports, seminar or workshops.
4) Export-facilitating activities in home country environment (Hollensen, 2013)
- For firms: the low-cost way of making direct contact with potential buyers in overseas market.
+ Trade development offices abroad.
+ Gov-sponsored trade fairs and exhibitions.
+ Sponsoring trade missions of employees going abroad.
+ Operating permanent trade centers in foreign market areas (trade shows).
6) State trading in home country environment (Hollensen, 2013)
- State trading in some former communist countries.
- Issues about state trading: Establishment of import or monopolies power affects both export MKT programmes and private international marketers.
Three major types of political risk in host country (Hollensen, 2013)
1) Ownership risk: expose property and life
2) Operating risk: interference with the ongoing operations of a firm
3) Transfer risk: when companies want to transfer capital between countries
Types of actions resulting from political risks (Hollensen, 2013; Cateora et al., 2012)
1) From gov - Import restrictions; Labour restrictions; Local-content laws; Control in exchange, market, price and tax; Change of gov party; Expropriation, Confiscation, Domestication; and Political sanctions.
2) Outside the gov control: violence, war, terrorism, cybercrime
The effect of Import restrictions as political risk (Hollensen, 2013)
- Selective import restrictions to force foreign firms purchase more from host-country suppliers => Create market for local industry.
> Challenges: 1) hamstring and interrupt operations of established industries. 2) if there are no adequately developed sources of supply.
The effect of Local-content law as political risk (H,C)
- Require a portion of any product sold within the country to have local content.
- Often imposed on companies that assemble products from foreign-made components. (car producers)
- Ex: NAFTA = 62% content for cars, Thailand = >50% milk
The effect of Exchange control as political risk (H,C)
- Stem from shortages of FX held by a country, so it applies control over capital movement to conserve the supply of FX for the most essential uses.
- Ex: Necessary products: low FX. Luxury products: high.
> Challenges for foreign investors: profit and investments in currency of home country.
The effect of Market control as political risk (Hollensen, 2013)
- Control to prevent foreign companies from competing in certain markets.
=> US threatened to boycott foreign firms trading with Cuba.
The effect of Price control as political risk (Hollensen, 2013)
- Control over price of essential products (pharmaceuticals, food, petrol and cars).
- Can be used during inflationary periods to control consumer behaviour or the cost of living.
The effect of Tax control as political risk (Hollensen, 2013)
- Control foreign investments. They can be raised without warning and in violation of foreign investments.
- In underdeveloped countries, unreasonable taxation of successful foreign investments appears as the quickest way for gov of finding funds.
The effect of Labour restrictions as political risk (Hollensen, 2013)
Unions can persuade gov to pass restrictive laws that support labour unions at heavy cost to business. Ex: Latin US to prevent layoffs and plant shutdowns.
The effect of Change in gov party as political risk (Hollensen, 2013)
Risk of new gov may not honour an agreement with the previous gov.
The effect of Expropriation as political risk (Hollensen, 2013; Cateora et al., 2012)
- Gov seizes the foreign property and makes some reimbursement for the assets.
=> Businesses become less efficient, technologically weak and noncompetitive.
- Less often as developing countries see FDI as desirable.
The effect of Domestication as political risk (Hollensen, 2013; Cateora et al., 2012)
- Gradually transfer of foreign investments to national control and ownership > reduce control of owners.
- The controls include: 1) Greater decision-making powers accorded to nations. 2) More products produced locally rather than imported for assembly. 3) Gradual transfer ownership through JV with nations. 4) Promotion of large number of nationals to higher levels of management.
The effect of Confiscation as political risk (Cateora et al., 2012)
The seizing of a company’s assets without payment. Ex: Cuba seizes US' company.
=> Led to business that are less efficient, technologically weak and noncompetitive.
The effect of Violence, war, terrorism, war, cybercrime as political risk (Cateora et al., 2012)
- Businesses will become increasingly attractive to terrorists, both because they are less defensed than gov targets and because of what they symbolize.
- Ex: China’s Cow Tongue Sea, China hacks VN's airplane
Reasons for tariffs (Hollensen, 2013)
- Protect domestic producers: it raises effective cost of imported goods, so domestically produced goods are more attractive to buyers. Ex: VN 200% car
- Generate gov revenue: as less-developed nations lack the capability to record domestic transactions accurately.
Tariff definition and pros (Hollensen, 2013)
A gov tool used to protect local companies from outside competition. They are direct taxes and charges imposed on imports.
Forms of tariff (3)
Specific (weight or volume); Ad valorem (% of import price); Discriminatory (particular country)
Non-tariff definition and pros (Hollensen, 2013)
Biases against a foreign company’s bids, or product standards that go against a foreign company’s product features. It has substantially increased.
Forms of non-tariff (4)
Quotas; Embargoes (complete ban on trade); Administrative delays; Local-content requirements
Quota as a non-tariff trade barrier
- Definition: A restriction on the amount (units or weight) of goods that enter or leave a country in a period of time.
- Reasons for import quota: protect domestic producers; force foreign firms to compete.
- Reasons for export quota: maintain supply in home country; and control supply in world markets (OPEC).