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					CERTIFIED GLOBAL BUSINESS PROFESSIONAL
                Online Course

                 SECTION 6A


        INTERNATIONAL MARKET RESEARCH


               ALAN L. WHITEBREAD
MARKET RESEARCH OVERVIEW
                                    Strategic Marketing for
                                       Evaluation data for
                                            -Strategy analysis
       Market Research                      -Setting objectives
                                            -New business analysis

                                    Market Planning for
   The collection and analysis of      Market segmentation
  data for market decisions about      Market share
                                       Market potential
                                       Competitive analysis

   COMPETITORS                      Product Management for
                                       Ideas for new or enhanced products
     MARKETS                           Timing of product introductions
                                       4 P's decisions
    PRODUCTS
                                    Product Development for
   RESPONDENTS                         Product concept testing
                                       End use testing
 STRATEGY OPTIONS                      Sales techniques
                                       Price testing
WHY USE MARKET RESEARCH?

• TO UNDERSTAND CUSTOMER & PROSPECT
  NEEDS AND WANTS.

• TO IMPROVE THE CHANCE SUCCESS OF
  NEW PRODUCTS.

• TO SELL MORE, PRICE BETTER, AND
  IMPROVE ADVERTISING EFFECTIVENESS.

• TO GAIN EFFICIENCY [CUT COSTS].
REASONS FOR INTERNATIONAL
   MARKETING RESEARCH
• The firm needs to understand any new
  environment in terms of different
  – business conduct and practices,
  – cultures,
  – levels and types of competition,
  – product, service, package and other
    requirements, and
  – distribution systems.
ASSESSING FOREIGN MARKETS

1. Screen for [country / region] markets
2. Determine the size of potential markets
3. Determine potential company sales by
   market
4. Conduct specialized research to improve
   the firm’s position
ENTERING FOREIGN MARKETS:
   FIVE INITIAL QUESTIONS
    1. Which markets are the most attractive?


        2. How large are those markets?

      3. How intense is competition in those
                    markets?

     4. How much business can I reasonably
         expect to do in those markets?
        5. Can I expect a sufficient return to
        make it worth entering the market?
  SOURCES OF INFORMATION:
         IN-HOUSE
• The majority of corporate information
  – Financial & marketing information systems
     • Develop a list of items
  – Executives based abroad, subsidiaries &
    affiliates


• Face-to-face conversations increase
  understanding and gain subtleties
  SOURCES OF INFORMATION:
    COMMERCIAL SOURCES
• Full-service research [give examples]
  – Exploratory
     • Understand the problem
     • Define issues and hypotheses
  – Descriptive
     • Magnitudes
     • Product potential, attributes, …
  – Casual
     • Test cause-and-effect relationships
     • Test hypotheses about cause-and-effect
       relationships
  SOURCES OF INFORMATION:
    COMMERCIAL SOURCES
• Research approaches / methodologies
  – Observational
  – Focus Group
  – Survey
  – Behavioral
  – Experimental
    • control groups, placebos, …
  SOURCES OF INFORMATION:
    COMMERCIAL SOURCES
• Specialized research for certain
  techniques and markets
  – personal interviews
  – focus groups
  – telephone or mail survey
  – product tracking
  – customer satisfaction measurement, ...
THE MARKET RESEARCH PROCESS

    Clearly define
   [1] the problem     Develop the
      and [2] the       research     Collect data
        research          plan
      objectives




   Make              Present the     Analyze the
 decisions            findings          data
SOURCES OF RELIABLE DATA

• Library
  – Use a full government repository
  – D&B Exporter’s Encyclopedia [~184 countries]
  – CIA World Factbook [2004 – 268 entities online]


• Internet
  – Must be recognizable
  – Beware of bias, limitations, and lack of
    comparability
       SECONDARY DATA
• SOURCES
 – International organizations
   • IMF, World Bank, WTO,

   • UN Statistics Division
       – See http://unstats.un.org/unsd/default.htm

   • UN Agencies
       –   World Bank Group
       –   International Monetary Fund [IMF]
       –   World Intellectual Property Organization [WIPO]
       –   and more, see http://wipo.int/portal/index.html.en
           or search for “WIPO home”.
      SECONDARY DATA

• SOURCES
 –   Governments
 –   Trade [business] associations
 –   Research firms standard reports
 –   Periodicals / books
 –   Numerous databases
 –   Investment groups
 –   University centers
U.S. SOURCES OF GOVERNMENT
         ASSISTANCE
  – U.S. Department of Commerce
    • GLOBUS (Global Business Opportunities) offers
      daily trade leads from the Trade Opportunities
      Program (TOPS), as well as the Department of
      Agriculture.
    • GLOBUS also offers daily procurement activity
      from the Defense Logistics Agency, the United
      Nations, and the Commerce Business Daily leads.
    • You can also explore USA Trade® Online and
      EuroTrade Online for additional detailed
      information.
U.S. SOURCES OF GOVERNMENT
         ASSISTANCE
  Export-Import Bank [EXIMBANK]
   Foreign Agricultural Service [FAS]
  Agency for International Development [USAID]
  Overseas Private Investment Corporation
  [OPIC]
  SBA International Trade Center [ITC]
  DOS Trade & Development Agency
   Department of Transportation
   Department of the Treasury
   U. S. Trade Representative
  Many, many more
EXPORT STATISTICS WEBSITES
• GOVERNMENT
• Export. Gov market research now includes the
  Information Center data
       • http://www.export.gov/mrktresearch/index.asp

• MARKET RESEARCH FIRMS and SOURCES
  – Frost & Sullivan, Nielson, American Marketing
    Association list of market research firms

• CONSULTING FIRMS
   – McKinsey & Company http://www.mckinsey.com/
   – A. T. Kearny http://www.atkearney.com/
    INTERNATIONAL SOURCES OF
           ASSISTANCE
•   The World Bank http://www.worldbank.org
•   The World Trade Organization http://www.wto.org
•   Regional trade organizations http://www.aseansec.org/
•   The United Nations http://www.un.org/en/databases/
•   OECD http://www.oecd.org
•   IMF http://www.imf.org
•   Various international organizations and associations
•   Other governments
•   Many, many more
 SECONDARY DATA ISSUES

• USING DATA FROM EXISTING SOURCES
  – Data was not gathered for the specific project

• MINIMAL COST AND EFFORT

• POSSIBLE PROBLEMS
  –   accuracy / reliability
  –   availability
  –   timeliness
  –   comparability of data / degree of fit
        PRIMARY RESEARCH

• Used when good secondary data is not
  available
• Provides accurate data for answers to a
  given research problem
• Potential problems
  – Difficulty in obtaining the data
  – Cost
  – Time to gather the data
           DATA AND ITS USE

• QUALITATIVE DATA             • QUANTITATIVE DATA

• Symbolic data                • Numeric data
• Only subjective data         • Objective data
• Understand behavior          • Measure a market
• Evaluate reactions           • Describe groups of
• Describe small groups of       consumers [structured by
  subjects or individuals in     parameters]
  depth                        • Extrapolate from a
• Exploratory role [generate     sample to the general
  ideas and hypotheses]          population [market or
• Depth and richness of          market segment]
  information                  • Representative data
 INTERNATIONAL MARKETING
     RESEARCH ISSUES
• Research design may be much more
  complex
• Data collection costs may be much more
• The challenge of coordinating research
  across multiple markets/countries and
  languages can be very large.
• Understanding the results requires the
  appropriate paradigm adjustments.
 INTERNATIONAL MARKETING
     RESEARCH ISSUES
• How do I compare markets to recognize
  unique characteristics?
• Different techniques may be required to
  study small or different markets.
• There is a lack of data consistency for a
  given term.
  – For instance, in the EU, there is not common
    definition for any of the following terms.
     • Educational level, marital status, and social class
       among others
  INTERNATIONAL MARKETING
      RESEARCH ISSUES
• Developing country data and using
  unfamiliar resources may be questionable
  – at best!

• Test for the compatibility and the
  comparability of data.

• Consumers may be hard to reach.
 INTERNATIONAL MARKETING
     RESEARCH ISSUES
• Markets have different definitions
  – Regional, national, international

• Data must have the same meaning & the
  same level of
  – Validity
      • Does it measure what it intends to measure?
  – Integrity
      • Is it accurate?
  – Reliability
      • How much error exists?
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
              Online Course

                SECTION 6B


            MARKETING BARRIERS


              ALAN L. WHITEBREAD
POLITICAL LEGAL ENVIRONMENT

• Governments have needs because of
  – Political reasons
  – Financial reasons
  – Special interest reasons
  – Different legal systems operate differently and
    may not use the rule of law
      MARKETING BARRIERS

• Impediments to the unrestricted free
  market flow of goods and services.

• Rationale for marketing barriers
  – Protect infant industries
  – Reduce unemployment
  – Equalize costs and prices to their nation’s
    level – How?
  – Reduce balance of payments – How?
  – Enhance national security
                     TARIFFS

•   Taxes levied by a government on an
    import [rarely an export] of an item to
    1. Protect domestic industries by
       •   Providing a price support
       •   Assuring profits so they can be used for
           reinvestment and growth
       •   Building scale and becoming more competitive
    2. Increase employment
                 TARIFFS

• Protective Tariffs
  – Increase domestic prices
  – Reduce consumption
  – Tend to have the highest rates


• Revenue Tariffs
  – Generate income for governments
  – Usually on high-volume products
  – Tend to have the lowest rates
                  TARIFF TYPES

• Single-Stage
  – Collected at one stage in the value chain
     • Retail sales tax
• Value Added
  – Multistage, non-cumulative consumption tax on the
    value added at each stage of a value chain
• Cascade
  – Cumulative and collected only once
     • VAT [EU]
• Excise
  – One time charge levied on specific products
     • Tires, alcohol
 TARIFF DURATION AND TYPES

• Tariff
  – Effective until changed by the government
     • Specific duties – tied to weight or quantity
     • Ad valorem duties – tied to product value
     • Combined duties – specific and ad valorem
• Tariff surcharge
  – Temporary
• Countervailing duty [see anti-dumping]
  – Long term
     • Up to 5 years in the U.S.
HTS AND TARIFF ENGINEERING

• Tariff engineering is the deliberate changing of a
  product to reduce the amount of tariffs due
  coming into a country. A couple of examples will
  show what can be done.

  – A nylon jacket typically has a duty of 32%. By adding
    a water-resistant coating the duty rate drops to 7%.

  – Hypothetically, product A has an import duty of 40%.
    Product A has three components which have a duty
    of 6% each. So as long as you can assemble and
    repackage for less than the 34% difference, shipping
    components saves money.
IMPORT CONTROL REGULATIONS

• Voluntary export restraints [VER’s]
  – Exporting countries limit shipments
     • Japanese limit auto imports into US in 1980’s
     • See also quotas and Orderly Market Agreements
       [OMA]


• License or permit controls
  – A special license or permit is required for
    every shipment
     • Items like alcohol, pharmaceuticals, explosives,
       cosmetics
IMPORT CONTROL REGULATIONS

• Inspection
  – To classify products, verify document
    accuracy, check license requirements, check
    health and safety requirements,
     • Ingredients, diseases, design flaws, ...


• Price controls
  – Regulation of an industry or item
     • Minimum price
     • Fixed price
IMPORT CONTROL REGULATIONS

• Rules of origin
    – NAFTA
• Anti-dumping
    – WTO plus country laws
    – In the U.S. it is a counterveiling duty
•   Use of Fair Trade Laws
•   Embargo
•   Special documentation / license / approval[s]
•   Special fees
    – Supplemental, administrative
• Quota
    – Units and/or monetary amount
IMPORT CONTROL REGULATIONS:
          QUOTAS
• Export Quotas
  – Usually at beginning of a value chain
  – Encourage value-added activities before
    export


• Import Quotas
  – Absolute; impose specific limits on the
    quantity within a time period
    • Japan: leather shoes
IMPORT CONTROL REGULATIONS:
          QUOTAS
• Tariff
  – Step-in tariff goes into effect once a specific
    quantity has been reached
  – Tariff-rate quota [TRQ = tariff + quota]


• Voluntary
  – Quantity limits by exporters to specific
    country, also called Voluntary Export
    Restraints [VER] or Orderly Market
    Agreements [OMA]
IMPORT CONTROL REGULATIONS

• Domestic content regulations
  – Australia: cigarettes must have at least 57%
    domestic leaf content
• State Trading Enterprises [STE’s]
  – China, Japan, Korea, …
• Environmental
  – Germany Green Dot
• Sanitary and phytosanitary barriers
  – Guiding Principle: SAFETY
    OMNIBUS TRADE AND
  COMPETITORS ACT OF 1988
• Allows the President to negotiate trade
  agreements
• Accepts the HS code system
• Permits the U.S. Trade Representative to
  respond to unfair international trade
  practices
• Permits antidumping and counterveiling
  duties
• Protects intellectual property [IP]
• …
          CONTRABAND (U.S.)

• Weapons
• Tobacco products and associated items
• Consumables
    – Foods, beverages, or medicines
•   Alcoholic beverages
•   Narcotics and drug paraphanalia
•   Selective magazines
•   All pornographic photos or materials
             EXPORT CONTROLS
•   EMBARGO
     – US October, 2002
         • Cuba, Iran, Iraq, Libya, North Korea, Sudan, Syria


•   Embargoes and other special controls
    http://www.access.gpo.gov/bis/ear/pdf/746.pdf
     – 27 nations with restrictions paced by US DOC, DOS, or DOT

•   Nonproliferation, Arms Control, and International Security [NAI] Oversight
    List - 54 nations where you must watch subcontractors

•   DOE Sensitive countries list
    http://www.ch.doe.gov/offices/OCI/SensitiveCountries/index.htm
     – 25 nations with proliferation / terrorist concerns

•   TYPE OF PRODUCT
     – US – Encryption technology
      EXCHANGE CONTROLS:
          CURRENCY
• Exchange rate management
  – World Bank [IMF], regional, or central bank
    interference
  – Amount of exchange with another country or the
    amount that can leave the country within a certain
    time period
• Conversion of the portion of country
  income to local / foreign currency
• Currency flows
• Devaluation
   GOVERNMENT CONTROLS:
        EXCHANGE
• Taxes and Surcharges
  – India: Imports and protectionism
  – Indonesia: 10% VAT + 35% luxury tax + x% sales tax
• Restricted foreign investment
  – Ghana
      • foreign investment is not allowed in 1-petty trading,
        2-taxis, 3-lotteries, or 4-beauty salons and barber
        shops
  – India
      • foreigners cannot own supermarkets
   GOVERNMENT CONTROLS:
        EXCHANGE
• Local content and local laws
  – Japan: restricts the size [of a type of retail
    outlet] and/or type of foreign operations.


• Restricted sales
  – Brazil: you must have a manufacturing /
    assembly facility operating in the country to
    be eligible to sell that product in Brazil.
   GOVERNMENT CONTROLS:
      MISCELLANEOUS
• Guidance
• Government Procurement & State Trading
• Subsidies:
  – Concessionary financing
    • Lower than market interest rates
  – Cash subsidies
    • Price cuts or price supports
    • Japan: for R&D expenditures
   GOVERNMENT CONTROLS:
      MISCELLANEOUS
• Favorable foreign exchange conversion
  rate

• Rebates of various taxes
  – VAT rebates for transshipment
  – VAT rebate for company purchases in the
    country in which the firm operates
NON-TARIFF TRADE BARRIERS:
   TRADE RESTRICTIONS
• Quotas
  – Commodity management
• Licensing procedures and requirements
  – Import license [GATT]
• Local content [country] or local area
  content [trade area] requirements
• Price controls
• Embargoes
NON-TARIFF TRADE BARRIERS:
ADMINISTRATION & CUSTOMS
• Valuation
• Anti-dumping practice
• Tariff classification / rulings
  – Argentina: no performance sports footwear
    imports
  – Korea: oranges ≥ 2” in diameter only
• Documentation
  – Certificates / certifications
• Fees
NON-TARIFF TRADE BARRIERS:
   STANDARDS & TESTING
• Additional standards
  – Manufacturing: ISO, CB Scheme, …
  – Quality: AQL, Six Sigma, …
  – Safety: CE Mark, CB Scheme, …
• Alternative testing methods
• Governmental acceptance of standards
  and testing methods
• Packaging, labeling, and marking
  requirements and standards
NON-TARIFF TRADE BARRIERS:
       GOVERNMENT
•   Government procurement
•   Export subsidies
•   Countervailing duty practice
•   Assistance for domestic entities
•   Insurance
    – Panama, Nigeria – shipment must be insured
      by a national insurance company
• Carrier
    – China – must use their flagged vessels for
      ocean transport
NON-TARIFF TRADE BARRIERS:
 IMPORT CHARGES AND FEES
•   Advance deposits
•   Administrative fees
•   Additional duties
•   Phantom customs charges
•   Import credit discrimination
•   Variable duty and fee application
•   Border taxes
NON-TARIFF TRADE BARRIERS:
     MISCELLANEOUS
• Voluntary export restraints
• Orderly marketing agreements
• Trade area issues
  – Prohibited / restricted imports
     • EU: Genetically modified organisms [GMOs]
  – Safe Harbor : US – EU on privacy


• Other restrictions
  – Singapore: small containers only
NON-TARIFF TRADE BARRIERS:
   BUSINESS PRACTICES
• Cartels and business associations
  – Switzerland allows them
  – Not illegal per se in Singapore
  – Korea: use of radio & TV for advertising
  – No Class A dairy products into the U.S.


• Corruption
CUSTOMS / ENTRY PROCEDURES

• Product Classification
  – Tied to rates and are often very arbitrary
• Product Valuation
  – Usually based on transaction value
• Documentation
  – Varies by country, often includes different documents
    and differing quantities of:
     • Certificate of Origin
           – a signed statement as to the origin of the export item
     •   Bill of Lading
     •   Packing List
     •   Shipper's Export Declaration [SED]
     •   Insurance Certificate [may be country specific]
     •   Import License [country specific]
           CORRUPTION
    includes, but is not limited to,
•   Extortion
•   Contract and other favors
•   Skimming
•   Fraud and/or misrepresentation
•   Embezzlement
•   Smuggling
•   Money laundering
•   Bribery [payoffs, kickbacks]
              CORRUPTION
[See Bribery – Transparency International Org.]

• Russian, Chinese, Taiwanese and S. Korean
  companies widely seen
  using bribes in developing countries

• High propensity to bribe overseas also seen for
  companies from Italy, Hong Kong, Malaysia,
  United States, Japan, France and Spain

  Construction and arms industries top sectors of
  heaviest bribery

                  Berlin, 14 May 2002
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
                    Online Course

                      SECTION 7A


EVALUATING ENVIRONMENTS: RISK AND COMPETITIVE ANALYSIS


                   ALAN L. WHITEBREAD
         EVALUTING RISK

•   COUNTRY RISK
•   POLITICAL RISK
•   ECONOMIC RISK
•   LEGAL RISK
•   SOCIAL RISK
•   GOVERNMENT RISK
     COUNTRY RISK SOURCES

•   Bank of America World Information Services
•   Business Environment Risk Intelligence [BERI] S.A.
•   Control Risks Information Services [CRIS]
•   Duke University
    – http://www.duke.edu/%7Echarvey/Country_risk/couindex.htm
•   Economist Intelligence Unit [EIU]
•   Institutional Investor
•   Moody's Investor Services
•   Standard and Poor's Rating Group
•   Political Risk Services
•   Many, many more are available
     POLITICAL RISK ITEMS

• Find a political risk map on the internet
  and find the highest risk nations.
• Economic planning failures
• External conflict
• Corruption [especially in government]
• Military or religion in politics
• Racial or national tensions
• Quality and strength of the legal system
  – “the rule of law”
      POLITICAL RISK ITEMS

• Civil strife

• Process deterioration

• Contract repudiation [some or all]

• Currency controls, limits, & restrictions
TYPES OF POLITICAL / ECONOMIC
          SYSTEMS
• Centrally Planned and controlled
  – Cuba, North Korea

• Democratic Socialism
  – Sweden, Australia

• Radical Interventionism
  – USA
TYPES OF POLITICAL / ECONOMIC
          SYSTEMS
• Light Interventionism
  – Hong Kong, Singapore

• Laissez-Faire Capitalism
  – USA of the Founding Fathers

• Anarchy
  –?
          POLITICAL RISKS

CONFISCATION:
 A government taking property without compensation.
EXPROPRIATION:
 Government confiscation with inadequate
 compensation.
NATIONALIZATION:
 Partial or complete government takeover of assets.
DOMESTICATION:
 Transfer of ownership from a government to local
 individuals or organizations.
GENERAL INSTABILITY RISK:
 Uncertainty regarding the likelihood of government
 actions in the future.
MANAGING / REDUCING POLITICAL
             RISK
• Avoid high-risk situations

• Avoid unstable country situations

• Purchase risk insurance
  – Private insurance [CNA, …, many others]
  – OPIC [Overseas Private Investment Corp.]
ASSESSING COUNTRY ECONOMIC RISK

  • Amount of foreign long-term debt
    – Loans
      • What types of business loans are available?
      • Name some loan assessment measurements.
ASSESSING COUNTRY ECONOMIC RISK

  • Some of many types of business loans
              Business equipment loans
                  Expansion financing
                       Factoring
                Import-Export financing
        Floor plan financing & Inventory loans
                    Machinery loans
                     M&A financing
      Real estate loans [commercial & industrial]
                 Receivables financing
               Working capital financing
ASSESSING COUNTRY ECONOMIC RISK

  •   Inflation rate
  •   Unemployment rate
  •   Nationalized industries and trends
  •   Foreign exchange
  •   Economic volatility
  •   Taxes [as a per cent of GDP]
      –   U.S.       31%
      –   France     50%
      –   Italy      46%
      –   Germany    45%
    LEGAL AND SOCIAL RISKS

• Type of legal system and its use
  – Do they have laws?
  – How well are they enforced [if at all]?
  – Are some people / entities above the law?

• Products conflict with social norms
  – Women’s western clothing in Saudi Arabia

• Role and rights of
  – Firms
  – Women
 CULTURAL COMPATABILITIES

• What is the degree of fit between our
  culture and theirs?

• What do we have to do to succeed?

• Major potential areas of conflict
  – Social classes to caste systems
  – Politeness
  – Speed of doing things
  –?
    TYPES OF MARKET ENTRY
           BARRIERS
• Competitive
  – Examples?


• Duties and taxes
  – Examples?


• Non-tariff trade barriers
  – Examples?
 TYPES OF GOVERNMENT RISK

• Regulations, registrations, approvals
  – Examples?
• Level of bureaucracy
  – Examples?
• Taxes
  – Examples?
• Support and programs
  – Examples?
MINIMIZE INTERNATIONAL RISK

• Political
   – Be involved at many levels
• Financial
   – Borrow locally especially if it is a weak currency
   – Buy investment insurance [public or private]
• Product and program
   – Understand product liability
   – Become culturally astute
• Intellectual property
   – Protect all knowledge
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
              Online Course
                SECTION 7B


          EVALUATING ENVIRONMENTS


              ALAN L. WHITEBREAD
      COUNTRY SELECTION:
    A MULTI-STAGE PROCESS
                    Fail “must have” criteria
~270 country
                                                Fail “must have” or “key
 equivalents
                                                    selection” criteria
               Score >X          Score >X
               in Ex. 6.1        in Ex. 6.1
                                                                  Fail “must
                                                                have”, or “key
                                  Fluent                        selection”, or
                                employees
                                are readily
                                                                  “detailed”
                                 available                         criteria
                                                   Some
                                                  detailed
                                                  criteria



                                                                Prospects



                                                                 Customers
   EVALUATING / SELECTING
         MARKETS
• Evaluation is based on a number of
  criteria:
  – market-related characteristics
  – cost-related aspects
  – the regulatory framework
  – tariffs, duties & non-tariff trade barriers


• The entry decision may vary by country
  – item weights and components
ISSUES AFFECTING THE EVALUATION /
     SELECTION OF MARKETS

 •   Strategy and objectives
 •   Access to target market[s]
 •   Country infrastructure
 •   Foreign exchange
 •   Cost of entry and on-going operation
 •   Opportunity costs
    DEVELOPING CRITERIA

• SELECT AND DEFINE CRITERIA
• Market Potential
   • Size; growth rate; and … ?
 – Market Access and Barriers
 – Assessing Product Needs and Wants
 – Appraising Quality
 – Level of Competition
 – Product / Service Requirements and Fit
 – Logistic / Supply Chain Issues
PRODUCT – MARKET PROFILE

– Who purchases / uses the product?
  • Why that person?
– What are they paying for the current solution?
  • By product configuration
  • Any packaging shortfalls or opportunities?
– Where is or should the product purchased?
  • How strong are the current channels?
  • Are they the right ones?
– What obvious benefits do we offer?
  • There must be an overwhelming reason to switch.
VISITING THE POTENTIAL MARKET

 • ASSESSMENT
  – Confirm or contradict assumptions about the
    market.

  – Gather additional primary data from
    •   Commercial sources
    •   Governmental sources
    •   Private market research
    •   Secondary market research


  – Develop a marketing plan in co-operation with
    the local channels of distribution
SELECTING TARGET MARKETS

                 1. MARKET
                 DEFINITION



                 4. TARGET
 2. MARKET                      5. MARKET
                  MARKET
SEGMENTATION                    POSITIONING
                 SELECTION


                 3. MARKET
               ATTRACTIVENESS
     MARKET SEGMENTATION
        - A SIX-STEP PROCESS -
MARKET             1-Identify the bases for selection
                   [Why are you splitting it this way?]
SEGMENTATION
                   2-Develop detailed market segment
                   profiles
                   [Clearly identify each segment.]

MARKET TARGETING   3-Select and develop measures of
                   attractiveness
                   4-Select target markets or market
                   segments

MARKET             5-Develop a market position for every
                   market segment
POSITIONING
                   6-Develop the marketing mix for every
                   market segment
  B2C MARKET SEGMENTATION
- SELECTING TARGET MARKET SEGMENTS -

  • KOTLER’S FIVE TESTS
    – MEASURABLE
    – ACCESSIBLE
    – SUBSTANTIAL
    – DIFFERENTIABLE
    – ACTIONABLE

  • YOU WANT A NEARLY UNIQUE
    RESPONSE / BEHAVIOR PATTERN
    FOR EVERY MARKET SEGMENT.
  B2C MARKET SEGMENTATION
- SELECTING TARGET MARKET SEGMENTS -

  • KOTLER’S FIVE TESTS
    – MEASURABLE
      • Can I quantify the size of the market segment?
    – ACCESSIBLE
      • Can I get to the segment with my channels of
        distribution?
    – SUBSTANTIAL
      • Is it large enough to be worthwhile?
    – DIFFERENTIABLE
      • Can our products be clearly differentiated?
    – ACTIONABLE
      • Does my company have the necessary desire?
MARKET SEGMENTATION

• Multinational market views
  – Consumers segment by:
     •   Geography
     •   Demographics
     •   Psychographics
     •   Behavior
     •   Benefits


  – Market segments may exhibit similar
    buying behavior despite differences in
    cultural backgrounds.
  BUSINESS SEGMENTATION
        VARIABLES
    Organizational
    Characteristics            Buying Approach
         -Industry                -Centralization
            -Size             -Functional involvement
         -Channel                   -Partnering
 -Operating characteristics



Product[s] or Process[es]         Application[s]
   or Technology[ies]         of Products / Services
    -Level of technology
                                -How they are used?
       -Configuration
                              -What are they used for?
           -Design
                 BUSINESS MARKET
                  SEGMENTATION
                          MARKET (SEGMENT) NAME
                             Brief verbal description

                   INDUSTRY /   INDUSTRY /   INDUSTRY /   INDUSTRY /
                 SEGMENT NAME SEGMENT NAME SEGMENT NAME SEGMENT NAME
                  DESCRIPTION  DESCRIPTION  DESCRIPTION  DESCRIPTION
                     NAICS        NAICS        NAICS        NAICS
APPLICATION 1
 PRODUCT 1
 PRODUCT 2

APPLICATION 1
 PRODUCT 1


PRODUCT 1
 APPLICATION 1
 APPLICATION 2
 APPLICATION 3
B2B TARGET MARKET SEGMENT
         CRITERIA
1. Measurable
  – The degree to which you can measure buyer
    characteristics
2. Accessible
  – The ability to focus on target market
    segments
3. Substantial
  – The degree to which target market segments
    are large enough and potentially profitable
    enough to pursue
B2B TARGET MARKET SEGMENT
         CRITERIA
4. Compatible
  -The extent to which marketing and business
    strengths compare to current and expected
    competitive and technology states
5. Responsive
  -The extent to which target market segments
     respond to elements of the marketing mix
          ATTITUDES
• BSB Global Scan - 18 countries
• The researchers studied
  – Consumer attitudes and values
  – Media viewership / readership
  – Buying patterns
  – Product use

• Five global psychographic segments
  represent 95% of the adult populations
  in the countries surveyed.
            TARGETING
• Standardized Multinational Marketing
  – Same mix for a broad base of buyers
    • “Youthful fun”
    • Coke

• Concentrated Multinational Marketing
  – Choose a single segment of the global
    marketing
    • Very narrow market definition
       – Restaurant dishwashing machines
    • Chanel
            TARGETING
• Differentiated Multinational Marketing
  – Two or more segments with different
    marketing mixes
     • Use different brands
     • Use different marketing programs
     • Look at SWATCH and/or Calvin Klein
        LEVELS OF MARKET
          SEGMENTATION
                 MASS MARKETING
           Same product to all segments
               Coca Cola Early Ford
               SEGMENT MARKETING
    Different products to one or more segments
   Proctor & Gamble Current auto manufacturers
                 NICHE MARKETING
   Different products to different [sub-]segments
          SUV’s standard to family to luxury
                 MICROMARKETING
    Specialized products for individuals and locations

  LOCAL MARKETING                  INDIVIDUAL MARKETING
  [Brands, promotions]                  [1:1 Marketing]
Local chain grocery stores                  Amazon
MARKET SEGMENTATION:
  FILLING THE GAPS

               CHANNELS OF
               DISTRIBUTION
                        1
                                    3



                                2       TECHNOLOGIES

           2                              PRODUCTS
                                           SERVICES
                                        APPLICATIONS
     MARKETS / SEGMENTS


 The volume of the gap is an indicator of its attractiveness.
            POSITIONING

• Positioning
  – The perception of your product in the
    mind of the customer.
     • Expectations of performance and value
     • How do I select positioning dimensions?


• Standardized Position
  – Can you create a standard image?
  – Do you want to create a standard image?
  – High-tech or high-touch?
SOME AREAS OF DIFFERENTIATION

      Form        Durability
    Features      Reliability
   Performance   Repairability
     Quality        Style
   Conformance     Design
POSITIONING DIMENSION CANDIDATES
    AND PERCEPTUAL MAPPING
 Quality
 Application[s]
 Occasion[s]
 Lifestyle /
 image
 Attributes
 Competition
 Price
            Selection of the metric and its scale of measurement [preferably
         subjective] is a very difficult process. Select from the items on the left
            or possibly use your two best differentiators for scale elements.
POSITIONING: PERCEPTUAL
        MAPPING
         Fashion Coverage       This portrays the relative
                                position of our product [U] to
                                our competitors [C].

                     U1
 C                              We are not in a good

 More
     U                          position [U] since we are so
                                close to many competitors.
                                 More

         C
 Copy                           Artwork

   C     C
               C
                            A   We need to find a way to
                                move to a new position [U1]

    C                           much further from any
                                competitor.
                      B
          Club Coverage
          POSITIONING STRATEGIES
                                                        Reposition
       Against Competition
                                                       a Competitor




                            CU                     C                 C

We are positioned very close to a          You reposition a competitor to a new
competitor so there is little perceived    position so that you can occupy their
difference in the products.                old position. This is both difficult and
Consequently, this is little or no price   risky.
differential.
         POSITIONING STRATEGIES
          Find a Position                       Create a Position



                                                                          Un
             C               Un               C
            C C                              C C
                            C                C
                                         We introduce a new product [Un] with
                                         very meaningful differences from all
We introduce a new product [Un] with
                                         competitive offerings. There should
some meaningful differences from all
                                         be a more positive price differential
competitive offerings. There may be
                                         [than with find a position] and / or
some positive price differential and /
                                         market share gain.
or market share gain.
          POSITIONING STRATEGIES
         Broaden the Base




               C U
              C C
                               C
We introduce a new product with
some a little difference from existing
competitive offerings. It is difficult to
get any positive price differential in
the marketplace.
  HIGH-TECH POSITIONING
• Positioning strategy for purchasing
  products for specific product
  features
  • Buyers want considerable technical
    information
• Suitable for:
  • Technical products
     • Electronics, chemicals, high-performance
       products
  • Special-interest products
     • Hobbies and sporting goods
HIGH-TOUCH POSITIONING
• Emphasize the product image
• Suitable for:
  • Products that solve a common problem
  • Common experiences or common
    themes
       •   Heroism
       •   Courtship
       •   Play
       •   Materialism
         BRAND NAME SELECTION
      There are many objectives for creating a successful brand name. It
         should be
      1. Distinctive;
      2. Easy to pronounce, recognize, and remember;
      3. Lack poor foreign language meanings;
      4. Positive;
      5. Suggesting product benefits;
      6. Suggesting product quality;
      7. Timeless; and/or
      8. Versatile.
Strive to achieve at least three of these attributes. Look around, it
   is very difficult to find a brand name that meets four or more of
                       these brand name objectives.
                BRAND ISSUES
                                 Perceived Quality
          Consistency
                                    and Value


   Attributes            Advantages       Easy Identification
                             of
                        Brand Names

                        Advantages
 Defense Against
                            Of              Brand Loyalty
  Competition           Brand Equity


          Credibility                  Awareness

BUILD SUSTAINABLE COMPETITIVE ADVANTAGE WITH
     EVERY THING YOU DO WITH YOUR BRAND!
     A COMPETITIVE REPORT

• A comprehensive review of every major
  competitor.
• At a minimum, it usually contains all of the
  following items.
  – Company profile and management structure
  – Detailed financials including subsidiaries
  – Market and industry research key items
  – Significant events
     • New product announcements
     • Price change dates relative to competition
  – Trade articles of note
              BATTLEFIELD MAP

  TYPE OF MARKET    MARKET    MARKET
 PRODUCT SEGMENT 1 SEGMENT 2 SEGMENT 3
PRODUCT A  Brand A   Brand A

PRODUCT B            Brand A             Brand B             Brand B
                     Brand B
PRODUCT C            Brand A                                 Brand C
                     Brand C
PRODUCT D                                Brand D

A Battlefield Map helps everyone in the organization understand who they
are competing against in every category. This knowledge helps sales
people focus on what they should sell and how to sell in that situation.
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
                Online Course

                  SECTION 8A


      INTERNATIONAL INTELLECTUAL PROPERTY


                ALAN L. WHITEBREAD
WORLD TRADE ORGANIZATION (WTO)
    http://www.wto.org/english/thewto_e/thewto_e.htm


 • ORIGINALLY GATT [1948 – for tariffs]

 • WTO IS CURRENTLY INVOLVED IN
   – INTELLECTUAL PROPERTY
   – DUMPING
   – SUBSIDIES [three categories from
     allowable to unfair] like
     • JAPAN [100% R&D reimbursement]
   – SAFEGUARDS
     • INDUSTRY PROTECTION [also protectionism]
WORLD TRADE ORGANIZATION (WTO)
     http://www.wto.org/english/thewto_e/thewto_e.htm

   – INFRASTRUCTURE: Member requirements
      • CHINA:
         – ACCOUNTING
               » 2007 – Selected the International Financial
                 Reporting Standards [IFRS]
               » Currently there are multiple sets of books
                  [1] exaggerates for superiors
                  [2] underreports to save taxes
                  [3] fairly accurate
          – PENSIONS
   – DISPUTE RESOLUTION
   – See http://www.wto.org/english/tratop_e/region_e/region_e.htm
     for a map of risk assessment.
 INTELLECTUAL PROPERTY &
     THE MARKETING MIX
• PRODUCT DECISIONS
 – May be dependent upon patents for
   • Designs
   • Production processes, …
 – The brand is often more important than the
   product.

• PROMOTION DECISIONS
 – Slogans, songs, or visual communications
   that become part of the product image need
   to be protected.
  INTELLECTUAL PROPERTY

• DISTRIBUTION DECISIONS
 – Ownership, use, and rights
 – Who is allowed to do what?

• PRICING DECISIONS
 – Driven by competition and the market
   • IP protection may reduce competition for a limited
     time.
 – Price can be used as a weapon to gain share
   or open up new market segments. Be careful,
   this can be very dangerous.
ELEMENTS OF INTELLECTUAL
       PROPERTY
• COPYRIGHT

• TRADEMARK
• SERVICE MARK

• PATENT
• TRADE SECRET

• KNOWLEDGE MANAGEMENT
ELEMENTS OF INTELLECTUAL
       PROPERTY
• COPYRIGHT
 – a guarantee of control of an original work
 – for the original way the idea is expressed

 – any type of
   • artistic, dramatic, digital, literary or musical work
ELEMENTS OF INTELLECTUAL PROPERTY:
     WIPO http://www.wipo.org/about-ip/en/trademarks.html

 • TRADEMARK
    – a guarantee of control of a work of some item
      used to uniquely identify the product [or
      service in some countries]

    – it could be a
       • word, logo, package design, slogan, or other
         identifying mark
           DOMAIN NAMES

• Internet addresses [domain names] are
  bought and sold – sometimes for large
  amounts of money.

• If a domain name infringes on a registered
  trademark, the domain name will be
  suspended immediately if challenged by
  the trademark owner.
ELEMENTS OF INTELLECTUAL
       PROPERTY
• SERVICE MARK
 – some item used to uniquely identify a service
   [available only in some countries]

 – it could be a
    • word, logo, package design, slogan, or other
      identifying mark
     TRADEMARKS & SERVICE MARKS ARE
AVAILABLE IN APPROXIMATELY 200 of ABOUT 270
             POLITICAL ENTITIES
 • There are different filing methods and
   requirements in most countries.

 • You have no more than six months to claim
   copyright protection.

 • The safe route is “first use”
    – Next is “intent to use”
    – Use the U.S. CASSIS System for searching marks
    – See the USPTO website for detailed information.

 • The level of protection by law and in practice
   varies by country.
      TRADEMARKS & SERVICE MARKS
AVAILABLE IN APPROXIMATELY 200 of ABOUT 250
                COUNTRIES

 • A Service Mark [SM] is not permitted in
   some countries.
 • Using a registered trade mark symbol [®]
   may have serious implications in a few
   countries.
 • The mark can often be invalidated through
   3 to 5 years of non-use.
 • The EUROPEAN COMMUNITY TRADE
   MARK ACT [CTM] for 15 nations has one
   filing.
    TRADEMARK PROTECTION

• EXHAUSTION
  or “first sale” determines from when the trademark owner
  may or may not have rights
       -This varies by country

• UNIVERSALITY [or trade identity]
  states a trademark is not only an identification of the
  source of a product but remains as a part of the product.

• TERRITORIALITY
  states a trademark holder has the right to control the
  distribution of the trademarked product.
ELEMENTS OF INTELLECTUAL
       PROPERTY
• PATENT
 – A guarantee of a set of rights to control the
   use of an invention
 – Protects the original idea and the way it is
   implemented [in some countries]
 – Generally 17-20 years protection and can
   vary by country and type of patent
 – Many different types of patents
    • What types can you name?
PRIMARY REQUIREMENTS FOR A
          PATENT
• The new invention must be:
  – Novel
     • not known or used in the country and
     • not published anywhere


  – Non-obvious
     • cannot be an obvious way to do something, e.g., a simple
       extension of a principle


  – Useful
     • must have some application, even if not commercially
       practical. See Wacky Patents and similar sites for many
       examples.
PATENT COOPERATION TREATY [PCT]
    See http://www.wipo.int/pct/en/texts/articles/atoc.htm for complete text.



 • PCT is a procedure for filing patent applications
   internationally. One filing results in a single
   search which is accompanied by a written
   opinion. You can also get a preliminary
   examination. A full examination required by
   national law must to done to receive a patent in
   each application country.
 • No “international patent” exists.
 • Find a map of PCT countries on the web.
 • Find a list of PCT member nations on the web.
 ELEMENTS OF INTELLECTUAL
        PROPERTY
• UTILITY PATENT
  – Covers processes, machines, manufacture or
    composition of matter, plus new and useful
    improvements


• DESIGN PATENT
  – Covers the appearance or ornamental design
    of an article
 ELEMENTS OF INTELLECTUAL
        PROPERTY
• NEW HORIZONS [the U.S. is leading the
  way]

  – Software
  – Sounds
    • Examples?
  – Colors
    • Examples?
  – Smell
    • France, L’Oreal granted in 2006 – the first one is
      the world for a fragrance.
PATENT VARIETY AROUND THE
         WORLD
• EXAMINATION
  – All patent applications are examined prior to award,
  – OR some patent applications are examined prior to award.
  – If there is no examination for novelty, the applicant may be able to request the
    patent to office undertake such a search.

• OPPOSITION
  – An opposition procedure for all patent applications,
  – OR no opposition procedure.
  – Pre-grant adversarial procedures can be initiated by patent office officials to
    resolve disputes,
  – OR no opposition procedure;
  – Patent applications are published prior to award,
  – OR there may be an opposition procure for some patent applications.

• RESTRICTIONS
  –   Food and pharmaceutical applications only.
  –   Food applications only.
  –   Military applications only.
  –   Time measurement and textile patents only.
          TRADE SECRETS

• The Trade Secret Office, Inc. in Naperville,
  Il estimates that trade secret information
  worth $40,000,000,000 per year is stolen
  from U.S. companies.

• Trade secret information is protected by
  the
  – Uniform Trade Secrets Act of 1979, and the
  – Economic Espionage Act of 1996.
 TRADE SECRET GUIDELINES

• COMMON SOURCES OF DISCLOSURE:
  – Inadvertent 3rd-party disclosure [especially
    somewhere in the supply chain]
  – A disgruntled or ex-employee
  – Corporate espionage

• TRADE SECRETS
  –   Process[es] [recipes]
  –   Controls [Escorts, documents, NDA’s, …]
  –   Documentation
  –   Security
  –   Employee knowledge and awareness of the process
  –   Stiff penalties
  KNOWLEDGE MANAGEMENT

• A newly emerging business field of all
  aspects of knowledge within a firm.

  – Information
  – Combined with experience
  – Context of use
  – Interpretation
  – And its place in the context of the firm
  KNOWLEDGE MANAGEMENT

• Intellectual property

• Knowledge within the firm
  – Processes
  – Systems
  – Methods
  – Market knowledge
     • Customer / prospect lists
     • Databases
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
                  Online Course

                    SECTION 8B


  QUALITY SYSTEMS, STARNDARDS, AND SPECIFICATIONS


                  ALAN L. WHITEBREAD
           QUALITY SYSTEMS

• Although the ISO-9000 series is often referred to
  as a quality system, it is really a measure of
  consistency. In particular, it says if you produce
  950 good and 50 bad parts in a day, you will most
  likely produce 950 good and 50 bad parts on any
  day of manufacture.

• A quality system would generally go beyond this
  and tell you about the quality level of the parts
  produced that day.
              QUALITY SYSTEMS

• ISO-9000 Series for Manufacturers
   – This is the roadmap for all standards included in the series though
     ISO-9004.
• ISO-9001
   – The most comprehensive set of standards including design,
     development, installation, production, and servicing.
• ISO-9002
   – A smaller set of standards including installation, production, and
     servicing.
• ISO-9003
   – Standards for quality assurance for firms involved in the final testing
     of products [in place of their customers doing for themselves].
• ISO-9004
   – Standards for executive management to develop and implement an
     effective quality management system.
           QUALITY SYSTEMS

• ISO-14000 Series          Environmental
                            management
                            standards family

• QS9000 (ISO / TS-16949)   Automotive

• ISO-17779                 Information Security

• SIX SIGMA                 Motorola, GE, …

• Malcom Baldridge          Cadillac
                          ISO
       http://www.iso.org/iso/en/ISOOnline.frontpage


• 146 countries working in partnership with
  – International standards organizations
  – Government entities and standards
  – Industry associations
     • including national standards organizations
  – Business and consumer representatives
  – Find the list of ISO members.
                   SIX SIGMA

• Applies to operations, technical areas, customer
  services, marketing, finance, services, engineering,
  …

• It is a measurement of total quality allowing a
  company to quantify its effectiveness in eliminating
  defects [improved quality] and variations
  [consistency of a quality level] from their processes.

• A Six Sigma company will operate at a maximum
  3.4 defects per million opportunities. Another way of
  saying this is 99.9997% defect free.
   – Motorola, General Electric, and TI are some of the
     leaders in Six Sigma implementation
              STANDARDS

• International
  – Metric not imperial
  – Numerous electrical systems


• US
  – Commercial
  – Government
  – Numerous industry standards groups
      COMMERCIAL STANDARDS

• ASTM
  –   http://www.astm.org/cgi-
      bin/SoftCart.exe/BOOKSTORE/BOS/index.html?L+mystore+znwr3647+1116868729




• UL
  –   http://ulstandardsinfonet.ul.com/catalog/stdscatframe.html




• ANSI
  –   http://webstore.ansi.org/ansidocstore/default.asp




• many other industry and other level standards
                  US GOVERNMENT
                    STANDARDS
• Federal Standards
   –   http://apps.fss.gsa.gov/pub/fedspecs/fedspecs.cfm?sort=8&firstTime=Y&RequestTimeo
       ut=500

• FIPS – Federal Information Processing Standards
• MilSpec – Federal military procurement
   –   http://www.dscc.dla.mil/Programs/MilSpec/


• DOD – Department of Defense
   – http://ulstandardsinfonet.ul.com/catalog/stdscatframe.html

• NIST – National Institute of Standards & Testing
   –   http://ts.nist.gov/ts/htdocs/210/ssd.htm

• Review these websites in some depth to see the
  breadth of U.S. government standards.
      PACKAGES AND TESTING

•   Fiberboard Boxes
•   Plastic & Metal Drums and Pails
•   Plastic & Glass Bottles and Jars
•   Paper, Plastic, and Fabric Bags
•   Infectious Substance Shippers
•   Radioactive Materials Shippers
•   Pallet & Bulk Load Systems
•   Metal, Plastic, and Fiberboard
    Intermediate Bulk Containers
PRODUCT RELIABILITY TESTING

• How is the product likely to be used?

• What can happen to the product?

• How should we protect the product …
  – In shipment?
  – In use?
    PRODUCT SPECIFICATIONS

•   Model number
•   Description
•   Features and benefits
•   Pictures and/or drawings
•   Specifications
•   Serial number & location
•   Lot or batch number and location
•   Pick any technical product you use and find
    its technical specifications on the web.
      SHOULD I STANDARDIZE
          PRODUCTS?
ADVANTAGES                        DISADVANTAGES

Cost reduction through            Product does not match market
economies of scale                segment need closely enough

More consistent quality           Must meet all the packaging
                                  requirements with a limited
                                  number of packages
Improved operations due to less   Explosion in number of products
variety                           to be made and inventoried

Improved inventory control        Standard products must
                                  compete against strong local
                                  competitors
GLOBAL BUSINESS PROFESSIONAL
   Online/Distance Learning Course

             SECTION 9A


  FOREIGN MARKET ENTRY ALTERNATIVES


           ALAN L. WHITEBREAD
POTENTIAL TRADE BENEFITS FOR
          THE FIRM
• Incremental profitability
• Acquire / increase economies of scale
• Take advantage of differential growth rates
  in [country] markets
• Take advantage of product / market
  differences
• Extend product life cycles
  – Remember, the more technologically
    advanced products are generally introduced
    over time from the most to least advanced
    economies.
     MARKET ENTRY FACTORS
         -CHALLENGES-
•   GOVERNMENT and BORDER STABILITY
•   FOREIGN EXCHANGE
•   INTELLECTUAL PROPERTY RIGHTS
•   RESTRICTIONS / QUOTAS
•   SHIPPING RISK AND PIRACY
•   MANAGEMENT COMMITMENT
SELECTING FOREIGN MARKETS

• DETERMINE MARKET
  ATTRACTIVENESS
 – ECONOMIC GEOGRAPHY
 – DRIVING FACTORS
 – MARKET RESEARCH

• EVALUATE AND MANAGE RISKS
• EVALUATE THE COMPETITIVE
  POSITION
 – LEONTIF INPUT-OUTPUT DATA
 – COMPETITOR INFORMATION
 – HOW IS INFORMATION TREATED?
MARKET EXPANSION STRATEGIES

• NARROW FOCUS
  – concentrated markets / countries
• COUNTRY FOCUS
  – country-by-country
• COUNTRY DIVERSIFICATION
  – concentrated markets in multiple countries
• GLOBAL DIVERSIFICATION
  – diverse markets in multiple countries
                  FOREIGN MARKET ENTRY
                      ALTERNATIVES
                                          CONTRACTUAL


                                                           DIRECT
                        FRANCHISING
                                                         INVESTMENT




                                                        INDIRECT
                              LICENSING                 EXPORTING


                                             DIRECT
                                            EXPORTING



      COMMITMENT, RISK, CONTROL, PROFIT POTENTIAL
COPYRIGHT A. WHITEBREAD, 2001-2007
                             ENTERING FOREIGN
                                 MARKETS
                                     INDIRECT EXPORTING
        • RISKS
               – LIABILITY, CONTROL
               – VERY ERRATIC DEMAND
               – FIT WITH OPERATIONS
        • REWARDS
               – VERY LITTLE SALES EFFORT
               – INCREMENTAL VOLUME AND PROFIT

                                                       Agents / Distributors
                                     Manufacturer   [Not in destination country
                                                    - Usually in home country]



COPYRIGHT A. WHITEBREAD, 2001-2007
                             ENTERING FOREIGN
                                 MARKETS
                                     DIRECT EXPORTING
         • RISK
                – CONTROL OF INDEPENDENT RESELLERS
         • REWARD
                • DIRECT CONTACT WITH LOCAL MARKET


                                                    Resellers
                                                  [Usually not in
                                                  home country]
                                                                    Individual
                                       Sales                        Accounts
     Manufacturer
                                     Subsidiary
                                                      OEM’s



COPYRIGHT A. WHITEBREAD, 2001-2007
         ENTERING FOREIGN MARKETS
                             LICENSING & FRANCHISING
          • RISK
                – CONTROL OF RESELLERS
          • REWARDS
                – MINIMIZE ENTRY RISK
                – PROFIT STREAM
                                                   Resellers


                                      Licensees
    Manufacturer                          or
                                     Franchisees               Individual
                                                               Accounts



COPYRIGHT A. WHITEBREAD, 2001-2007
                             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


                                      Subsidiary
    Manufacturer
                                     (Manufacturing)                   Individual
                                                         OEMs          Accounts



COPYRIGHT A. WHITEBREAD, 2001-2007
                             ENTERING FOREIGN
                                 MARKETS
                                         CONTRACTUAL
        [JOINT VENTURE, STRATEGIC ALLIANCE, CONTRACT MANUFACTURING]

   • RISKS
          – AUDIT & CONTROL
          – START-UP INVESTMENT; WC
   • REWARDS
          – MINIMIZE ENTRY RISK
          – PROFIT STREAM                            Resellers


                                       Contract
    Manufacturer
                                                                 Individual
                                     Manufacturing               Accounts


COPYRIGHT A. WHITEBREAD, 2001-2007
 LIKELY ENTRY ALTERNATIVES

SITUATION                                              OPTION[S]
A small firm wants to export only.                     Indirect or direct
                                                       exporting
A specialized machinery manufacturer wants to          Add and develop
increase their presence in key country markets.        key resellers
A firm is having difficulty supplying enough goods     Contract
to a regional market.                                  manufacturing,
                                                       DFI, or JV
A firm wants to aggressively increase its sales in a   DFI or JV
region
           ENTITY OPTIONS

• Sole Proprietorship

• Corporation
  – C or S in the U.S.

• Partnership
  – General
  – Limited Liability Partnership [LLP]

• Limited Liability Company [LLC]
   INVESTMENT INCENTIVES

• LOCAL AND STATE
 – Driven by job creation
 – Frequently number of jobs is more important than
   quality of jobs or total payroll
 – Major tax relief
 – Free infrastructure improvements
 – Significant cash reimbursement
    • Relocation
    • Facilities
    • Capital / Equipment
 – Significant training allocation
   INVESTMENT INCENTIVES

• NATIONAL
 – Duty exemptions [materials and equipment]
 – Expediting paperwork & eliminating fees
 – Additional tax exemptions
 – Potential reduced tax rates
    • Ireland 10% for certain manufacturers vs. 38% for
      the other manufacturers
 – Potential duty free imports
 – Potential full or partial VAT exemption
  FOREIGN TRADE ZONE [FTZ]

• FTZs are secure areas are usually located in or
  near a customs or border patrol area.

• An FTZ is a port of entry but it is legally
  considered to be outside the customs territory
  for the purpose of product entry procedures and
  tariff laws.

• FTZs are part of a duty deferral program.
              FTZ BENEFITS

• Duties and taxes are deferred until they are
  transferred to a territory for consumption.
• There generally is no time limit on merchandise
  in the FTZ.
• Materials in the FTZ can be transformed into
  something else.
• There are reduced or no duties on damaged
  goods.
• Customs clearance and duty drawback delays
  are virtually eliminated.
FOREIGN / FREE TRADE ZONE [FTZ]

• Merchandise can pass through without
  paying duty until it leaves the FTZ for the
  country in which the zone is located or, if
  reexported, no duty is due in the FTZ
  country.

• Many forms of FTZs
  – Warehousing
  – Assembly
  – Manufacture
          FREE PORT ZONE

• A port with relaxed jurisdiction with respect
  to the country of location. Most commonly
  this means being free of customs or being
  a special customs zone with favorable
  customs regulations

• Country listing at   http://en.wikipedia.org/wiki/Free_port
GLOBAL BUSINESS PROFESSIONAL
    Online/Distance Learning Course

              SECTION 9B


 CONSUMER AND BUSINESS BUYER BEHAVIOR


            ALAN L. WHITEBREAD
CULTURE AND THE CONSUMER

• THREE MAJOR GROUPS
  – Culture – Society influence
  – Subculture – Group life experiences
  – Social Class – Social divisions


• SOCIAL FACTORS
  – Family, reference group, role, status


• THESE MAY BE VASTLY DIFFERENT AS YOU
  GO FROM COUNTRY-TO-COUNTRY OR
  EVEN WITHIN A COUNTRY..
   CULTURE AND INDIVIDUALS

• Why study individuals?

  – Individuals have meaningful lives through
    experiences in the world.

  – Individuals are shaped by their culture.

  – Consumption [buyer behavior] patterns can
    best be understood in a cultural context.
   RELATING CONCEPTS TO
        MARKETING
• An individual is a socio-cultural locus.
  – Individuals interpret motivation.
  – Individuals pay attention to cues.
  – A cultural context provides implicit and
    explicit messages.
     • Aggressive behavior is O.K. in certain sports
       [fighting in hockey vs. basketball], but not
       otherwise
   RELATING CONCEPTS TO
        MARKETING
• What is the link with marketing?
  – Products relate to cultural ideas and
    practices.
  – Value systems are important.
     • MATERIALISM: The importance a consumer
       attaches to worldly possessions
        – Compare the U.S. to your experience in other
          countries.
    RELATING CONCEPTS TO
         MARKETING
• What is the link with marketing?
   – Products relate to cultural ideas and practices.
   – Value systems are important.
      • MATERIALISM: The importance a consumer attaches
        to worldly possessions
          – Compare the U.S. to your experience in other
            countries.
        FOUR TYPES OF BUYING
             DECISIONS
                HIGH INVOLVEMENT             LOW INVOLVEMENT
              [Quality – Service – Facts]   [Obvious differences]
                 Use personal sales         Use advertising, POP

Significant         Complex                     Variety-
differences          Buying                     Seeking
 between
  brands
                    Behavior                    Behavior

    Few          Dissonance-                    Habitual
differences    Reducing Buying                   Buying
 between
  brands          Behavior                      Behavior

               DURABLE GOODS                 NON-DURABLE GOODS
               [Furniture, appliances,       [Grocery items, frequent
               long-lasting items…]          purchases, …]
               Use subjective appeals,       Use sales promotion,
               advertising                   price
 CONSUMER BUYER DECISION
        PROCESS
       How is this done from afar?
                                              G F
  Consumer defines the need or problem.
                                              E E
     Consumer searches for a solution.        T E

Consumer evaluates reasonable alternatives.     D
                                              G B
   Consumer makes a purchase decision.        O A

Consumer makes a postpurchase evaluation      O C
           SATISFIED or DISSATISFIED
                                              D K
UNDERSTANDING CONSUMERS

• The market
  – What is / are the consumer’s
    • Ability to pay?
       – Examine GNP and GNI per capita, disposable income
         per capita
    • Needs?
    • Buying motives?
       – Be especially sensitive in collective societies.
    • Actual buying process?
    • Consumption patterns?
BUSINESS & CONSUMER MARKET
        DIFFERENCES
 • PRODUCTS
     – specification and performance
 •   PURCHASE VOLUMES
 •   PRICING STRATEGY AND TACTICS
 •   PROMOTION METHODS
 •   DISTRIBUTION CHANNELS
 •   CUSTOMER RELATIONS
 •   DECISION-MAKING PROCESSES
 •   NEGOTIATIONS
               B2B MARKETING

•   B2B marketing consists of selling to
    businesses for the following three applications.
    1. Internal consumption for use in their business.
       –   Staples for the office.
    2. As a component part that will be put with other
       parts to product a finished product.
       –   The box the finished product goes into to be put on the
           shelf.
    3. As a finished product that will be sold to other
       businesses.
       –   An accessory like an additional game controller.
  BUSINESS PRODUCTS CLASSIFICATION
           For an Auto Plant
INSTALLATIONS          Factories, support buildings, large machines, large
                       material handling equipment

RAW MATERIALS          Rolled steel, rubber, plastic resins

COMPONENTS             Spark plugs, radiators, steering wheels

ACCESSORY              Drill presses, assembly lines, small material
EQUIPMENT              handling equipment


MRO SUPPLIES           Cleaning supplies, office supplies, toilet tissue,
Maintenance, Repair,
Operation
BUSINESS SERVICES Grounds maintenance, cleaning service, office
                  equipment servicing
      WHAT IS SCM TODAY?

 It is the seamless end-to-end management
 of a complex set of decisions requiring the
 exchange and flow of information,
 products, services, and money.
                          -Institute for Supply Management




Simply put,
  SCM involves everything from taking
  materials out of the ground to the satisfied
  customer.
             FIRMS USING SUPPLY CHAIN
                   MANAGEMENT




                   The Aromatics (Thailand) Public Co. Ltd.




plus every other company, governmental agency, and
organization.
[ASU video     i2 video]
      SUPPLY CHAIN MANAGEMENT
             Mining companies –       Your entity is   Resellers of   Final
             Manufacturers –          always the       all kinds or   purchaser
             Suppliers –              FOCAL            final          s of
             Assemblers –             FIRM.            purchasers     resellers
             Services                                                  CUSTOMER’S
MARKETS                                                                CUSTOMERS
Consumers:
             SUPPLIER’S                  FOCAL
Customers                 SUPPLIERS                    CUSTOMERS
             SUPPLIERS                   FIRM
Prospects
Suspects




                           FOCAL FIRM
                           NEW PRODUCT
                           DEVELOPMENT
       SUPPLY CHAINS ARE
        INTERDEPENDENT

                                               SUPPLIERS’
MARKET
                            SUPPLIERS          SUPPLIERS
Consumers:
             FOCAL FIRM
Customers
Prospects
Suspects
                               If you change one thing in a
                               supply chain, you know that
                               one or more other things will
        CUSTOMERS              be affected. So you must
                               make decisions for the good
                    CUSTOMERS’
                               of the entire supply chain, not
                    CUSTOMERS
                               for a specific area.

                                   For instance, the system
                                   losses in all other areas may
                                   greatly exceed the benefit to
        THE SUPPLY CHAIN AT WORK:
  A product flow view – the auto industry

              UPSTREAM                                              DOWNSTREAM
                                                                    DEALERS
                                                                               CONSUMERS
  STEEL        UPSTREAM         DIRECT                 FORD, GM     RENTAL     BUSINESSES
COMPANY        SUPPLIER      SUPPLIER                  CHRYSLER     AGENCIES   CONSUMERS
                                                                                FLEETS
                                                                               SPECIAL
 3RD   TIER     2ND   TIER     1ST     TIER            FOCAL FIRM
                             Manage all other tiers.                           VEHICLES
                                                          OEM
  STEEL        FASTENERS     RADIATORS                 VEHICLES
Raw materials, semi-finished, and component                         Finished products
                 products                                            and components
     CREATING CUSTOMER VALUE:
     DEMAND PULLS ALL PRODUCT!
 B2C
 B2B


 Suppliers
                 Manufacturers
                                       Warehouses
                                       or Distribution        Resellers
                                       Centers
                                                                                   B2B or B2C
                                                                                   Consumers

              INFORMATION, PRODUCTS AND SERVICES, MONEY

Planning and forecasting accuracy are critical as any delay in the system has a ripple effect!
             BASIC ECONOMICS
                    INELASTIC     ELASTIC
    EQUILIBRIUM      DEMAND      DEMAND

P
R
I
C
E

     QUANTITY      Small Q     Small  P
    DEMANDED       LARGE  P    LARGE  Q
    [PER PERIOD]
                 BASIC ECONOMICS
    DEMAND FOR A      DEMAND FOR A   DEMAND FOR A
        NECESSITY:    SUBSTITUTE:    SUBSTITUTE:
          SALT          PEANUTS        COTTON
P   ?
R
I
C
E
        QUANTITY        PRODUCT        INDUSTRY
        DEMANDED      SUBSTITUTION   OVERSUPPLY
      BUSINESS DEMAND

• Inelastic demand

• Fluctuating demand

• Derived demand

• Joint demand
          BUSINESS DEMAND

DERIVED DEMAND
Situations were demand for products and services is
derived from the demand for their customers’
products and services
     EXAMPLE: PC’s drive computer chips


JOINT DEMAND
Situations where two products are used together and
demanded together
     EXAMPLE: Coke + iron ore to make pig iron
 BUSINESS CLASSIFICATION

• NORTH AMERICAN INDUSTRIAL
  CLASSFICATION SYSTEM [NAICS]
 –   SUPPLY-ORIENTED SYSTEM
 –   20 SECTORS: 1,174 INDUSTRIES [and growing]
 –   NAFTA: 5 DIGITS + 6TH FOR COUNTRY CODE
 –   COMPATIBLE WITH ISIC Rev. 3 [UN] [SITC]
 –   CONTINUALLY UPDATED
      • Services is now the major development project.
        THE ECONOMY AND NAICS
                     Manufacturing                           Services
                        31-33                                 51-89



                                                                  Professional              Public
Agriculture           Wholesale                   Information                            Administration
                                                                    Services
    11                   42                            51                                     92
                                                                       54
                                                                  Management
  Mining                Retail                     Finance
                                                                  Companies
    21                  44-45                         52
                                                                       55

  Utilities                                       Real Estate      Arts / Enter.
     22                                               53                61

Construction                                        Health      Accommodation
    23                                               62              72

                                                        Other Services
                                                              81

    Transportation               Administration                                    Educational
        48-49                     Waste Mgt.                                           71
                                      56
 UNDERSTANDING NAICS CODES
            http://www.census.gov/epcd/naics02/naicod02.htm


          NAICS
DIGIT     Number
First 2   32           ECONOMIC SECTOR

3rd       326          ECONOMIC SUB-SECTOR
                       Plastics and Rubber Products Manufacturing
4th       3261         INDUSTRY GROUP
                       Plastics Product Manufacturing
5th       32612        DETAILED INDUSTRY GROUP
                       Plastics Pipe, Pipe Fitting, and Unlaminated Profile
                       Shape Manufacturing
6th       326122       U.S. INDUSTRY - SPECIALIZED
                       Plastics Pipe and Pipe Fitting Manufacturing
BUSINESS BUYER CLASSIFICATION

 PRODUCERS       Purchase products for producing other
                 goods and services


 RESELLERS       Purchase finished goods for resale,
                 rental, or leasing for a profit


 GOVERNMENTS Federal, state, and local governments
             [all different buyer behaviors]


 NPOs            Purchase finished goods and services
                 for resale, rental, or leasing for a profit
     B2B CHANNELS – TYPES OF
    DISTRIBUTORS [see NAICS codes]
•   General Line
•   Material handling / Material handling supplies
•   Plastic
•   MRO
•   Electrical
•   HVAC
•   Plumbing
•   Power distribution
•   Medical instruments / Medical supplies
•   Chemical
•   …many more
RELATIONSHIP MARKETING


                     CUSTOMER
       QUALITY
                      SERVICE




              MARKETING




 TRUST – BONDING – EMPATHY – RECIPROCITY
GOVERNMENT PURCHASING:
    The US system is not typical

Public review
  • Open bids
  • Freedom of Information Act [federal]

Varying amount of paperwork depending on the
total value of the purchase
Drive for cost minimization
     but exclusives are possible

Domestic suppliers have a strong advantage
  ELEMENTS OF TOTAL COST FOR
    INTERNATIONAL SOURCING

• Base price                 • Tooling

      Common additional international price factors

• Changes to packaging       • Escalation of prices
• Transportation from x      • Customs duties
• Additional insurance       • Payment terms &costs
• Document fees              • Port storage / handling
• Port handling charges      • Customs brokers
• Taxes [all kinds]          • Communications
• Possibly travel            • Inventory costs
               FINDING LEADS

• How do I find potential buyers?
  – Methods
     • Explore numerous online sources on your own
     • Search for your industry conferences, organizations, press
       releases, publications, …


  – U.S. Department of Commerce
     • GLOBUS (Global Business Opportunities) offers daily trade
       leads from the Trade Opportunities Program (TOPS), as well
       as the Department of Agriculture.
     • GLOBUS also offers daily procurement activity from the
       Defense Logistics Agency, the United Nations, and the
       Commerce Business Daily leads.
     • http://www.stat-usa.gov/tradtest.nsf
           FINDING LEADS

• How do I find potential buyers?
  – Methods
  – Sources of information


• How do marketing activities differ?
GLOBAL BUSINESS PROFESSIONAL
   Online/Distance Learning Course

             SECTION 10A


      CHANNELS OF DISTRIBUTION


           ALAN L. WHITEBREAD
     CHANNEL POWER and
  DIFFERENTIAL ADVANTAGE
• POWER
  – Obtained through differential advantage


• DIFFERENTIAL ADVANTAGE or
  SUSTAINABLE COMPETITVE ADVANTAGE
  CAN BE ANY OF THE FOLLOWING.
  –   Physical / experiential
  –   Psychological [communication / perception]
  –   Purchase environment
  –   Total cost including price and terms of sale
  –   Post-purchase satisfaction [cognitive dissonance]
WHY ARE CHANNELS IMPORTANT?
 • One of the least developed areas of business, they present an
   opportunity to rapidly expand sales and profitability
    – ALTOIDS [Kraft Foods, Altria] went from <$10M to >$100M by changing
      from a niche to a mass distribution strategy including supermarkets,
      drug chains, and mass merchandisers. There was no change to the
      other 3 P’s.

 • Companies have prospered and declined primarily based on
   their evolving [or not] channel strategies.
    – Stanley [tools] / Office products firms / Dell and Compaq
       • What have you noticed Dell doing differently with its channels in the
         last few years?

 • The emergence of multi-channel shopping provides firms the
   opportunity to provide products through multiple channels.
    – You buy toilet paper at a retail store for your home but you purchase it
      in large quantities for your factory from a paper products distributor.
                     CHANNELS

                    PRODUCTS &
                     SERVICES
                           APPLICA-
                 MARKET[S]  TIONS
                 SEGMENT[S]




Channels of distribution tie markets, segments,
products, services, and applications together.
INTERNATIONAL DISTRIBUTION

•   Channel Structures
•   Distribution Patterns
•   Types of Resellers
•   Channel Selection
•   Channel Relationships
        CHANNEL STRUCTURES




     PRODUCERS
         AND                        CONSUMERS
     PROVIDERS



CHANNELS PROVIDE UTILITY OF PLACE, TIME, POSSESSION, &
                   INFORMATION
      CHANNEL STRUCTURE

• What are the types of channel members?

• What is the channel intensity for the
  – Firm
  – Market


• How many channels should be used?
                CHANNEL MEMBERS

MANUFACTURER
               • Manufacturers, importers, or primary
                 providers are the original source of
                 the product / service.
                 CHANNEL MEMBERS

MANUFACTURER
               • Manufacturers or importers or
                 primary providers
               • Large resellers generally servicing
DISTRIBUTOR
     or
WHOLESALER
                 smaller resellers
                 – DISTRIBUTOR to DEALER for B2B
                 – WHOLESALER to RETAILER for B2C
               • Can also be dealer direct, club, mail
                 order / catalog, …
                 CHANNEL MEMBERS

MANUFACTURER    • Manufacturers or importers or
                  primary providers
  NATIONAL
 or REGIONAL
                • Significant purchasing power for
 RETAIL CHAIN
                  multiple retail brands / stores
                  – Department store, mass merchandiser,
                    specialty store, category killer,
                    convenience store, off-price retailer,
                    supermarket, …
                  – Potentially club, mail order / catalog,
                    co-op, licensees, …
                 CHANNEL MEMBERS

MANUFACTURER   • Manufacturers or importers or
                 primary providers
DISTRIBUTOR
     or
               • Large resellers generally servicing
WHOLESALER
                 smaller resellers
   DEALER
     or
  RETAILER     • Generally smaller resellers
                 –   Smaller retailers, franchisees, VARs, …
                 –   Rack jobbers
                 –   Potentially licensees
                 –   Beware of the DEALER label – it can mean
                     the same as DISTRIBUTOR in some
                     channels.
                CHANNEL MEMBERS

MANUFACTURER
            • Manufacturers or importers or
              primary providers
WHOLESALER • Large resellers generally servicing
DISTRIBUTOR


              smaller resellers
   DEALER
     or
            • Generally smaller resellers although
  RETAILER
              there are very large retailers
 [BUSINESS]
 CONSUMER

              • Consumers of various types
                   CHANNEL MEMBERS

MANUFACTURER   •   Manufacturers or importers or primary
                   providers
               •   Large resellers generally servicing
DISTRIBUTOR        smaller resellers
WHOLESALER
               •   Generally smaller resellers although
                   there are very large retailers
   DEALER
     or
  RETAILER



               •   Business consumers of various types
  BUSINESS
 CONSUMER          generally purchasing for
                   1. Consumption
                   2. As a component of a finished product
                   3. As a final product
DEFINING CHANNEL STRATEGY
      AND OBJECTIVES
•   Market share / volume
•   Market coverage [density of distribution]
•   Distribution strategy
•   Channel roles, expectations, and controls
•   Others
    –   Presence and continuity
    –   Channel alignment, control, length, and leadership
    –   Distribution and channel logistics
    –   Profitability
      CHANNEL STRATEGIES

• Use the market segments to determine
  which sets of channels of distribution may
  be the optimum one.
  – One often finds that channel sets are not
    optimized.
  – This requires significant discussion with
    existing channel members.
• Build a new channel of distribution
  – Risky and expensive
  – Consider an acquisition
   INTERNATIONAL CHANNELS

• They may be longer and thus require a larger
  number of intermediaries.
   – Wholesalers, distributors, retailers, and many other
     types exist.
   – In some countries like Japan, laws prevent you from
     shortening the channel.

• They are more complex to manage due to the
  idiosyncrasies of intermediaries and their
  environments.

• They are more difficult to effectively and
  economically control.
TYPES OF VERTICAL MARKETING
       SYSTEMS [VMS]
  Greater
            CORPORATE
            Common Ownership at Different Channel Levels


         CONTRACTURAL
  Degree Contractual Agreements Among Channel Members
    of
  Direct
  Control
            ADMINISTERED
            Leadership is Assumed by One or a Few Dominant
            Members; Contracts are not common
  Lesser
              TYPES OF CHANNELS


       International Vertical Marketing Systems [VMS]

  Corporate
                              Contractual               Administered
  Subsidiary
                  Resellers   Licensees [Franchisees]   No agreement
    or JV
                              Degree of
      More                     Direct                   Less
                               Control


International channels of distribution may use any possible combination
  of the above systems. There is frequently significant region-to-region
  variation and sometimes major country-to-country differences. Each
         business must build the best combination for their needs.
DISTRIBUTION STRATEGY:
       INTENSITY
            INTENSIVE
             Frito-Lay:
    we need to have potato chips
       available everywhere.
            SELECTIVE
             Panasonic:
     we need to select technically
         competent resellers.

            EXCLUSIVE
               Jaguar:
   we need a single strong dealer in
           every territory.
      CHANNEL MAPS:
Understanding the channel flow
• A channel map provides a picture of the
  flow of goods and/or services through the
  various functional channel members.

• It is a great tool for explaining your
  system, or system changes and why they
  are needed. It is especially good for
  explaining changes or new channels to
  your sales organizations.
B2B [INDUSTRIAL] CHANNEL MAP
   [Simple direct distribution]
                   Manufacturer


 Manufacturer’s    Manufacturer’s   Manufacturer’s
  sales branch      Internet site   representative




                  B2B CONSUMERS
B2B [INDUSTRIAL] CHANNEL MAP
  [Simple indirect distribution]
                     Manufacturer


 Manufacturer’s      Manufacturer’s       Manufacturer’s
  sales branch        Internet site       representative




    Many Types of Industrial Distributors [See NAICS]
    May Resell to Many Types of Industrial Dealers



                   B2B CONSUMERS
 CONSUMER CHANNEL MAP
    [Simple distribution]
                      Manufacturer

Manufacturer’s
 Internet Site             Mass
                      Merchandiser’s                   Wholesaler
                       Internet Site




                                                       Retail Store


Direct distribution                Indirect distribution



                      CONSUMERS
         DIRECT DISTRIBUTION

           Pros                           Cons
• Close to customers           • Difficult to manage if not
• Active market                  familiar with new market
  development                  • Time consuming
• Greater control over         • Expensive
  strategies                   • Costly to maintain without
• More uniform                   sufficient volume
  implementation of policies
• Increased market
  knowledge
       INDIRECT DISTRIBUTION

            Pros                         Cons
•   Simple                      • Lose marketing control
•   Inexpensive                   in target market
•   Small start-up costs        • Depend on
•   Intermediaries usually        performance of
    represent several clients     intermediary
                                • Potential reseller
                                  conflict of interest
                                • Intermediary may have
                                  significant bargaining
                                  power
THINKING ABOUT CHANNELS OF
        DISTRIBUTION
• To build good channels of distribution one
  needs to understand the buying choices
  and preferences of every channel level.
  – For example, what choices do you have for
    where to purchase a digital camera?
     •   Camera specialty store
     •   Discount merchandiser
     •   Warehouse club
     •   Drug store
     •   Online
     •   Where else?
   TYPES OF RESELLERS:
WHOLESALING INTERMEDIARIES
  Merchant Wholesalers          Distributors - Wholesalers
      -Take Title to Goods      Dealers - Retailers
    -Independently owned        Exporter
     -Distributors / Dealers    Export Trading Company
-Fairly standard arrangements     [possibly state controlled]




       Representatives          Agent
     -Independently owned       Broker
   -Never take Title to Goods   Export Broker
    -Help negotiate business    Export Management Company
         arrangements           Manufacturer’s Rep.
    -Be careful of payments !   Freelance Sales Person
EXPORT MANAGEMENT COMPANY
AND EXPORT TRADING COMPANY
                                            EMC                                ETC
Handles all export                             Yes                    Yes plus imports –
operations                                                            mostly exempt from
                                                                        antitrust [U.S.]
Under contract                            Usually yes                 Can be from no to a
                                                                         joint venture
Handles promotions                             Yes                               Yes

Communicates /                                 Yes                               Yes
arranges logistics
Compensation                       Usually a commission                   As negotiated
                                    or fee arrangement
For details of an ETC, see the Export Trading Company Act of 1982. ETCs work much like a Japanese
sogoshosha.
    WHOLESALER PROBLEMS

• Problems of fragmentation
     • If the number of wholesalers is high, transaction costs are
       high drive consumer prices up.
     • Smaller firms carry smaller lines, less variety, smaller
       assortment; have limited market coverage and service


• Dealing with fragmentation
  – Increase company role
     • Increase direct investment into building channels
     • Use master wholesalers to reach smaller ones
  – Use pull strategy [large consumer firms only]
     • Heavy consumer advertising to build demand
       RESELLERS ADD VALUE
     BY PERFORMING FUNCTIONS
• FOR THE SUPPLIER      • FOR THE CUSTOMER


•   -Market coverage    •   -Information
•   -Sales contact      •   -Credit
                        •   -Customer service
•   -Inventory
                        •   -Technical support
•   -Order processing
                        •   -Allocating / expediting
•   -Information
•   -Customer support   • -How can you be sure your
                          representative is doing this?
   CUSTOMER-CHANNEL MEMBER
  INTERACTION AND THE NATURE
       OF THE EXCHANGE
       TRANSACTIONAL EXCHANGE RELATIONAL EXCHANGE

       Short-term oriented                            Past, present, and future
                                                      considered
       Sharp-in, sharp-out                            Reciprocity

       Self-interest only                             Relationships

       No concern for the future                      Long-term focus

       One shot deals                                 Win-Win

How will this impact [1] the traits of the sales people you hire, [2] requirements for the manufacturer’s
                       sales organization training, and [3] sales compensation?
NEW DISTRIBUTION SYSTEMS
  HORIZONTAL              HYBRED
  MARKETING              MARKETING
    SYSTEM                SYSTEM

    Two or More         A Firm Sets Up
 Companies at One      Multiple Marketing
 Channel Level Join    Channels to Reach
 Together to Follow       One or More
 a New Opportunity.   Customer Segments.
  Nontraditional -    Use three - Retailers,
 Banks in Grocery     Catalogs, and Sales
      Stores                 Force
 UNDERSTANDING CHANNELS

• Some preliminary information can be
  gathered on the Internet from large
  research houses.
  – Retail see http://www.atkearney.com/main.taf?p=5,3,1,110,1
  – Search for other data using “global retail
    opportunity ranking”.


• This must be supplemented with additional
  materials before key entry or expansion
  decisions are made.
    SOURCES OF INTERNATIONAL
      RESELLER INFORMATION
•   Competitor’s resellers
•   Consultants
•   Directories [country or industry]
•   Industry Associations [and directories]
•   Trade shows
•   U.S. Department of Commerce
    – International Partner Service
    – Export Marketing Service
    – Other programs
  BUSINESS CLASSIFICATION
       http://www.census.gov/epcd/www/naicstab.htm



• NORTH AMERICAN INDUSTRIAL CLASSIFICATION
  SYSTEM (NAICS)
  – Focuses on new and emerging industries, industries using
    new technologies, and service industries
  – Provides for comparability with Canada and Mexico
  – Adds U.S. industries to provide more detail

• NORTH AMERICAN PRODUCT CLASSIFICATION
  SYSTEM (NAPCS)
  – An initiative of the statistical agencies of Canada, Mexico,
    and the United States to develop a comprehensive demand-
    oriented product classification system.
         THE ECONOMY AND NAICS
                      Manufacturing                            Services
                         31-33                                  51-89



                                                                     Professional              Public
Agriculture            Wholesale                    Information                             Administration
                                                                       Services
    11                    42                             51                                      92
                                                                          54
                                                                     Management
  Mining                 Retail                      Finance
                                                                     Companies
   21                    44-45                          52
                                                                          55

  Utilities                                         Real Estate      Arts / Enter.
    22                                                  53                61

Construction                                          Health       Accommodation
    23                                                 62               72

                                                          Other Services
                                                                81

     Transportation                Administration                                    Educational
         48-49                      Waste Mgt.                                           71
                                        56
 UNDERSTANDING NAICS CODES
            http://www.census.gov/epcd/naics02/naicod02.htm


          NAICS
DIGIT     Number
First 2   32           ECONOMIC SECTOR

3rd       326          ECONOMIC SUB-SECTOR
                       Plastics and Rubber Products Manufacturing
4th       3261         INDUSTRY GROUP
                       Plastics Product Manufacturing
5th       32612        DETAILED INDUSTRY GROUP
                       Plastics Pipe, Pipe Fitting, and Unlaminated Profile
                       Shape Manufacturing
6th       326122       U.S. INDUSTRY - SPECIALIZED
                       Plastics Pipe and Pipe Fitting Manufacturing
     B2B CHANNELS – TYPES OF
    DISTRIBUTORS [see NAICS codes]
•   General Line
•   Material handling / Material handling supplies
•   Plastic
•   MRO
•   Electrical
•   HVAC
•   Plumbing
•   Power distribution
•   Medical instruments / Medical supplies
•   Chemical
•   …many more
LARGE ACCOUNT MANAGEMENT
PERSONNEL CHARACTERISTICS
• OEM / NATIONAL ACCOUNTS
  MANAGERS
  – Manage multiple projects
  – Extensive contacts throughout the client firm
  – Politically astute
  – Equally comfortable on the factory floor and in the
    boardroom
  – Highly respected by their organization
  – Extensive product knowledge
  – Very self-sufficient
     • RFP, RFQ, organizing and managing resources
LARGE ACCOUNT MANAGEMENT
PERSONNEL CHARACTERISTICS
• B2B RESELLER MANAGERS
  – Good product knowledge
  – Sound sales skills through sales training
  – Provider of information and training
  – Well-liked motivator
  – Provide various types of assistance
    • Customer issues
    • Problem resolution
    • Delivery schedules
LARGE ACCOUNT MANAGEMENT
PERSONNEL CHARACTERISTICS
• B2C RESELLER MANAGERS
  – Good knowledge of products, planograms, and
    retailing
  – Sound sales skills through sales training
  – Provider of information and training
  – Well-liked motivator that is really good with
    consumers
  – Provide various types of assistance
     • Customer issues
     • Problem resolution
     • Delivery schedules
SELECTING CHANNEL MEMBERS

• A key to solid long-term growth is selecting
  resellers that fit a defined profile. Some key
  profile items include …

   – Have they successfully sold similar products?
   – How may their competitive lines impact our sales?
   – Can they adequately cover the territory [number of
     sales people, locations, …]?
   – Will they fit with our corporate culture and
     philosophy?
SELECTING CHANNEL MEMBERS

• SCREENING AND SELECTING CHANNEL
  MEMBERS: CRITERIA

  –   Must fit the customer profile [characteristics]
  –   Meet minimum qualifications
  –   Use and acceptable sales style
  –   Possess product and market segment knowledge
  –   Possess industry experience
  –   The product[s] will fit with existing product lines
  –   They are willing and able to perform all specified
      channel role[s]
SELECTING CHANNEL MEMBERS

• SCREENING AND SELECTING CHANNEL
  MEMBERS: CRITERIA [continued]
  – Must be a team player
  – Sales strategy: existing and potential fit
  – Make some sales calls with their people to verify
    sales skills
     • as a trainee / prospective employee
  – Administrative / management fit
  – Management orientation [long vs. short] and
    chemistry
  – Risk assessment
  – Check references [industry, suppliers]
    STRUCTURING CHANNELS WITH
    TERMS & CONDITIONS OF SALE
ACCOUNT TYPE      PAYMENT TERMS         DELIVERY TERMS     SPECIAL TERMS       PROMOTION AND
                                                                                  INCENTIVES

Regional          Choose from:          Choose from:      Choose from:         Choose from:           Most
    Distributor   Net _ days            FOB [Ex works]    Inventory            Co-op advertising   Favorable
                  Prompt pay discount   Time                   adjustment      Sales promotions      Terms
                  …                     Special charges   Minimum order size   …
                                        Shipping fees     …
                                        Drop ship
                                        …
Distributor




Dealer




B2B Consumer                                                                                         Least
                                                                                                   Favorable
                                                                                                     Terms
       PROACTIVE CHANNEL
          STRATEGIES
• Product differentiation
  – Exclusive features for appeal to target
    markets
• Strategic pricing
  – Larger price differentials, more exploitation
• Intermediary development
  – Give intermediaries less incentive to cheat
• Marketing information systems
  – Better unit tracking to identify sources of leaks
TYPES OF CHANNEL PROMOTIONS
 • OFF INVOICE - temporary price reduction
 • BILL-BACK - retailer bills manufacturer at the
   end of the promo
 • BONUS - extra cash payment for sales
 • FREE GOODS
 • CONSIGNMENT - manufacturer financing of
   reseller inventory
 • CONTESTS - for reseller and sometimes their
   sales people
 • COOPERATIVE ADVERTISING ALLOWANCES
 • RESELLER LISTING - reseller listed in
   manufacturer’s ad[s]
 • INVENTORY ADJUSTMENT
 STRATEGY FOR NEW MARKET
          ENTRY
• ENTRY OPTIONS
  – Use established channels [competitive]
  – Build your own channels [risky and expensive]
  – Abandon the market
• You must provide incentive to channel
  members to accept a new product /
  vendor.
• Direct distribution is often the most
  effective alternative.
                   SUMMARY

• Channel decisions are difficult to manage
  globally.
• A global marketer must
  – tailor the marketing program to different types of
    channels
  – and / or introduce new retail / merchandising
    concepts
• Effective channel management is dependent on
  control—from the selection process through the
  implementation of roles, expectations, and
  controls.
  GLOBAL BUSINESS PROFESSIONAL
       Online/Distance Learning Course

                 SECTION 10B


USPPI, CISG, RESELLER AGREEMENTS AND CHECKLISTS

               ALAN L. WHITEBREAD
U.S. PRINCIPLE PARTY IN INTEREST
     [USPPI] RESPONSIBILITIES
• For products purchased and shipped direct to
  U.S, resellers are considered domestic sales,
  even if ultimately destined for export.
• The U.S. Reseller is responsible as the USPPI
  when forwarding product to any foreign
  destination.
• This applies to shipments to any
  –   Domestic location, or
  –   Subsidiary [regardless of location], or
  –   Foreign trade zone, or
  –   Drop shipped to a customer requested location
  –   See http://www.aesdirect.gov/support/usppi_overview.html for details.
UN CONVENTION FOR THE INTERNATIONAL
       SALE OF GOODS - CISG

 • Effective January 1, 1988 CISG replaced
   the United Nations Commission on
   International Trade Law [UNCITRAL]
 • It
   – Involves places of business in different
     nations
   – Is based on French Civil Code
   – Is approved by ~62 member nations, ~ 8
     organizations
UN CONVENTION FOR THE INTERNATIONAL
       SALE OF GOODS - CISG

 • Is not concerned with the

   – Validity of contracts, or

   – Competency of parties, or

   – Rights of third parties.
UN CONVENTION FOR THE INTERNATIONAL
       SALE OF GOODS - CISG

 • Does not apply to
   – Sales of consumer goods, or
   – Items with special regulations
      • securities, ships, aircraft, and electricity, or
   – Labor services, or
   – The supply of goods for manufacture IF the
     buyer supplies a large portion of the finished
     product content.
     CHANNEL CONTRACTS

• There are many types of channel of
  distribution contracts including
  – Distributor / Dealer
  – Wholesaler / Retailer
  – Manufacturer’s representative

  – Try not to use “agent” or “agency”.


• Tying [franchises: full line purchases]
          CONTRACT ISSUES
            The Territory
• A detailed description of the “territory”
  [geographic, product line, channel, account(s) or
  other] to which the agreement applies. This
  should include any logical extensions like new
  products or new programs. It may also address
  expansion and/or contraction of the territory.

• Is this for a[n] “exclusive”, “non-exclusive”,
  “restricted”, or “general” reseller?

• What are the rights of the exporter to add
  resellers of other types in the defined territory?
         CONTRACT ISSUES
        Status of the Reseller
• Is the reseller “independent” or
  “associated” in some manner?

• Beware of the reseller being an “agent”—
  this is very sensitive on a country-by-
  country basis—most are not. In general,
  the only right to bind your company should
  be with your express written approval.
            CONTRACT ISSUES
            Duties of the Reseller
• What marketing activities should the reseller perform?

• Are there performance targets? If so, clearly explain and quantify
  each one.

• What level of respect should the reseller have for patent and
  property rights?

• There should be a provision in the contract that the reseller and its
  employees know about and will comply with all requirements of the
  Foreign Corrupt Practices Act [FCPA] and other applicable U.S.
  laws.

• The reseller and its employees will comply with the laws of all
  countries where they will conduct business on behalf of your
  company. Why?
      CONTRACT ISSUES
Duties of the Reseller - continued
• Are there any reporting obligations? Be specific
  and show examples.

• There should be a provision in the contract that
  the reseller and its employees know about and
  will comply with all requirements of the Foreign
  Corrupt Practices Act [FCPA] and other
  applicable U.S. laws.

• The reseller and its employees will comply with
  the laws of all countries where they will conduct
  business on behalf of your company. Why?
           CONTRACT ISSUES
Duration, Terms, and Conditions of Sale
 • What is the initial duration of the contract and
   how can it be extended in time?

 • What are the method and terms of payment, and
   conditions of sale? Be very specific!

 • If there are any payments, commissions, or
   other financial amounts due the reseller enclose
   specific details. Note: some countries prohibit
   payment to foreign bank accounts or other
   indirect methods.
         CONTRACT ISSUES
           General Items
• Include all restrictions that apply to the
  contract—export controls, U.S. and foreign
  government laws or policies—be
  complete!

• Generally, the reseller shall not sell,
  distribute, or represent competitive
  products and/or services if you provide a
  full line of products.
  – What will you allow if you can not supply a full
    line of products?
          CONTRACT ISSUES
            General Items
• What is the governing law of the contract and
  relevant arbitration [if chosen]?

• The contract should be the sole agreement to
  govern the business relationship.

• What languages is [are] to be used for the
  agreement?

• How can the agreement be modified?
          CONTRACT ISSUES
             Termination
• What are the grounds for each party to terminate
  the agreement?

• What is the length of notice required for
  termination?

• What are the consequences of termination for
  each party?

• This is an especially sensitive area. Make sure
  to retain highly qualified international contract
  law expertise!

				
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