Chapters 1 IB Notes.doc

8/10/2019 Chapters 1 IB Notes.doc

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International Business

Chapter 1 Notes

Domestic vs International Business

Business: is the manufacturing of goods or services in order to make a profit

Term trade is used interchangeably with business

Transactions: exchange of things of value

Domestic Business: business that transacts mainly in the country it was based in

ie owned by India

International Business: economic system of transactions conducted between

businesses in different countries

Domestic Transaction: between Indian companies

International Transaction: between Indian! non Indian company

Domestic "arket: the customers of a business who are in the same countryas the

business

#oreign "arket: the customers of a business who are in a different countryas the

business


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$ %ays for businesses to mustbe international

o "&'T own retailers or distributors in another country

o "&'T own manufacturing plant in another country

o "&'T export to other countrieso "&'T import from others

o "&'T invest in other country businesses

Globalization and Interdependence

Globalization: where economies and cultures have become integrated throughnew global communication( investments( trade( and transport

o easy to globali)e nowadays

o global sales( finance( marketing( manufacturing( transportation *

globali)ationo international business I' +,T globali)ation

businesses can operate internationally but not globally

o global businesses can be affected by global events

--. recession

Banks lent at low rates

not getting returned( lost money closure of operations forced

/istory: 0lobali)ation began after %%

o &nited +ation first sign of globali)ation

/elps negotiate treaties and tariffs

Technology: Internet1cellular made trades nearly instant( 2uick( even at remote

places

'ocial Issues

o 3hina 4 India building big economies

o 5arge companies want to expand in 3hina1India

%orkers( moneyflow from huge populationo Blur of political boundaries

6& collaborated all 6urope nations

7greements merge borders

Interdependence: reliance between or more nations for each other8s products

and serviceso eg &' relying on 3hina to make goods


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Imports:bringing products or services into a country

o Intended for resale or Business to Business #B2B$

o Global 'ourcin": importing e2uipment( capital( raw materials from

around the worldo Importing helps keep costs low( improve 2uality( or access new

technologieso 'ervices can also be imported

3all centers are regularly imported from India

o India Imports: machinery+ cars+ oil+ chemicals+ electricity+ consumer

"oods

o In --.( India8s import were CAE- B

,-ports: when companies outside of India purchase Indian goods or serviceso 'ervices can also be exported( ie 3all centers

o India exports lumber+ telecom. e/uipment+ chemicals+ plastics+

fertilizers+ oil+ "as+ electricity+ aluminum

o In --.( India8s exports were CAF B

o 6xports are vital to India8s economic success

o GH 37 trading partner is &'( who is 99>9 of global exports

,ptional 'ection: ,il

o 37 imports H " barrels1dayo 37 exports F> " barrels1day

o 37 imports for 6astern 37 because there aren8t pipelines spanning west=

east( only north=south

&alue 0dded: amount of worth that is added to a product as it is processed

o * cost of finished products 4 cost of raw materials

o Issue:India( making mainly primary goods( have little alue added to

exportso 6xample: alue addition for furniture

3D+ 5umber sold at A$-( )ero value added

&' #urniture "aker sells table at AF---( added AE$- in value

37 #urniture store buys table for AF---( sells for A$--( made

AH$-- in value


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icensin" 0"reement: gives a company permission to use a product( service(

brand name( or patent in exchange for free or royalty>o &sually applicable in one specific region

o #or 6xample: Bell "obility wanted to use &J irgin brand in 37

Bell has to pay irgin a fee for using it in India

Bell therefore has increased profits because of this new brand

,-clusive Distribution i"hts: a form of licensing where a company is allowedto be the only distributor of a product in a specific geographic area>

o 'trategy often used as an entry into a foreign market

o 6xample: ogers was the exclusive carrier for the i?hone F0 in 8-. when

it first came out in 37o 5icensing is used mostly for manufacturing also

'enior parent company staff are sent to train foreign manufacturing

7fter they are trained( the foreign employees manage it as parentstaff retreats

o 5icensing agreements have little risk but offer limited money returns>

!ranchisin": agreement to use a company8s name( services( products( and

marketing>o #ranchisee signs a contract and agrees to follow all the rules with the

franchisoro They pay franchisor fees for finance( marketing( /( operations( 2uality

supporto 6xamples include Jumon( "cDonald8s( %endy8s( Boston ?i))a

o #ranchisees have less risk and lots of support from franchisor

o ,ften have lesser profit( strict rules( and loss of control

%oint &entures: when businesses( one from a foreign country( form a company

with shared ownershipo $=- of all foreign investments are Koint ventures

o eason: Koined so they8ll be allowed into countries

,ften Koining with gov8t or companies in 3hina or 3uba withcommunist

Trade %inds Inc is a 3D+ mining company in 3hina to

exploreo 3ompanies can gain control of new markets( customers( and products

o "ay also share financing( technology( cultural( risk reduction

o /owever( it may be a risk for investors because $- of all Koint ventures

fail


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0" and Toyota Koint failed( lost investor8s money

o To over come these risks( formal contracts( and attention to detail makes

things run smoothly

Trade Barriers

Tariffs

o "ost common type of trade barrier

o Tariffs are taxes or duties put on imported products or services>

o ?urpose to raise the cost of imported goods so consumers will purchase

local productso rotectionism: shielding against foreign competition

o 3inners

Domestic government

5ocal producers

5ocal employees

o osers

#oreign producers

3onsumers 4 price of products go up

#oreign employees 4 overseas employees lose out on opportunities

o India uses +7#T7 to void taxes in +orth 7merica

Trade 4uotas

o 0overnment imposed limit on the amount of a product that cam be

importedo ?rotects domestic producers limiting import and reducing foreign

competition eg India has a 2uota of H>$" kg of peanut butter to export to &'7

o Tariffs increase once company exceeds 2uota

Trade ,mbar"oes

o banning 755 trade on a specific product or with a specific country

o used to pressure foreign countries to change government policies or

human rightso 6mbargoes increase the price of products as supply decreases

--F India embargo for beef with mad cow disease


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Trade 'anctions

o 7ction taken by a country to force another to follow to international trade

agreements or norms of conducts

o 'imilar to embargoes( but 'anctions often only involve banning someproducts

o 3uba 4 &'7 sanction for banning trade will continue until 3uba becomes

democratic

!orei"n Investment estrictions

o 5aws in India influences foreign investment

Investments India 0ctmust review investments to make sure they

benefit India

ie investments L A$" with non %T, country must bereviewed

investments LAFH" with %T, country must be reviewed

trades of uranium( financial( transport( or culture industries

must be reviewed Bank act( telecom act( transport act also limit foreign ownership

Transport act limits $ ownership to all Indian domestic

airlines India faces foreign restrictions too

Indians face 7ustralia8s #oreign Investment eview Board

for LA$" real estate invests

'tandards

o 3ountries have different standards for environmental protection( voltage(

or health1safetyo 3ompanies making products must account for compatibility in foreign

standardso I'5 #International 5r"anization for 'tandardization$ can help

alleviate this standards issue

Currencies

o ,-chan"e ate: amount of currency in relation to the currency of another

countryo #luctuations cause barriers because of uncertainty in pricing goods

accuratelyo 37D often 2uoted with &'D because they are largest partners in the world


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/istorically 37D was less than &'D( at one time low of H37D *

A->MF9 &'D But now it8s sometimes higher if not even at most times

India is 9th most traded in the world

3inners of 6i"h Indian Dollar

o Importers:consumers like high dollar( means pay less 37D for &'D

products 3ompanies gain when importing &' goods like machinery etc>

o Indian Travelers: costs less to spend 37D in &'D after conversion

o )a7or ea"ue 'ports Teams:teams operating in India pay &' dollars to

players If 37D is higher( it costs &'D less to pay Indian players

osses of 6i"h Indian Dollar

o ,-ports: difficult to foreign importers to buy Indian products

causes companies to leave India for less expensive locations

o Indian Tourism: high cost in India keeps tourists home

--E ?assport policies discouraged 7merican visits even more

/ollywood "ovies which were usually made in India are no

longero Indian etailers:Indian shops in &'7 don8t import from India( prefer to

buy from elsewhere

!actors affectin" the e-chan"e rate

o #loating ate: no fixed rate in 37D compared to other currencies

o Currency &aluation: demand L supply causing 37D to rise

o Currency Devaluation: supply L demand causing 37D to fall

,conomic Conditions in India: Inflation rate( 0D?(

unemployment rate have impact Inflation ate low * good stable prices

0D? increase * stable healthy economy

5ow unemployment * good Kob market Interest rates in 37 attracts investors here

Tradin" Bet8een Countries

6xport L Imports * more demand for currency

6i"her Terms of Trade: comparison between exports to

imports * /igher currency olitics:stability of country affects currency


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Tension( terrorism( rioting

sycholo"ical !actors:historical significance on international

market In international uprising( 'wiss #ranc is refugge( &'!6uro

are safe>

6ard currencies: easily convert to other currencies ;37D(&'( 6uro Thus( 37D still stayed high

o Currency 'peculatin": trading or holding foreign currency in

anticipation of its changing value

?rofit from currency fluctuations Indian companies often trade in &'D to avoid currency

fluctuations 7lso trade with other countries in &'D to have common currencies

,vercome currency fluctuations with multiple bank accounts

serving different currencies

Time 9ones

o Different time )ones mean India can8t call Napan on demand( they must

wait for the right timeo 3ommunication technologies make it easier( but still a barrier

o 3all centers business take advantage of this

o Text1email can communicate( but real time feedback is hard to happen

International Trade 0"reements and 5r"anizations

Jey Ideas:=0lobali)ation=In an economic context( is the movement of goods( services( technology( investment(ideas( and people throughout the %orld>

F maKor types of "lobalization strate"ies;company use = egards the world as one big marketOall people want the same product andwill respond to marketing in a similar way

> = ?roduct and marketing are uniform around the world


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F> = Takes advantage of economies of scale ;proportionate savings gained byproducing larger 2uantities = Does not respond to individual cultures"ulti=domestic

$> = 3ustomi)es products( services( and marketing for the local cultureOlocal

management is most capable ofdetermining what is best for the local subsidiaryM> = 6ffective when cultural differences are prominent9> = 5ess political and exchange=rate risk

Transnational

3ombines the best elements of the global and multi=domestic strategies

espects needs of local market( while maintaining efficiencies of a global

strategy

"anufacturing takes place at least expensive source( human resources and

marketing take place at the

local level Trade agreement

7n enforceable treaty between two or more countries that involves the movementof goods and services( elimination of trade barriers( establishment of terms oftrade( and encouragement of foreign investment>

The North 0merican !ree Trade 0"reement #N0!T0$

4 5aunched in Nanuary HEE between India( the &nited 'tates( and "exico

H> = 3reated world8s largest free trade area

> = 'ets rules surrounding movement of goods( services( and investments across+orth 7merica

F> = 6liminates tariffs and other trade barriers( and promotes fair competition

Ta- Treaties: 7 tax treaty is created to prevent double taxation and tax evasion for peoplewho would pay taxes in India and another country>The ,uropean nion #,$: 7 trade agreement signed in HEEF that now encompassestwenty=seven countries in 6urope and a population of almost half a billion people> It hasits own flag( anthem( and currency( and common financial( security( and foreign policies>

The euro: The 6uropean currency unit adopted by the 6uropean &nion and used in most6& countries>

Trade or"anizations

0roups established to help with the free flow of goods and services> They may be globalin scope or national organi)ations created by individual governments to help domesticcompanies expand into international markets> 6xample:


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3orld Trade 5r"anization #3T5$;#ounded in HEE$( has more than H$- memberscountry$ Trillion

o 5eaders switch once every M months( most votes maKority but some

unanimouso 3ouncil of 6& L 6uropean parliament ;laws( budgets< L 6uropean

3ommission ;day to day 'entenced to H$- years in prison

o 3orporate crimes ;white collar crimes< impact the world more than real

crimes Gifts and Tipsare not considered a bribe( Kust a low cost symbol

of friendship Grease: smaller payments to encourage faster negotiations and

speed up business people are bribes Commissions: 5arge payments made to facilitators or go between

business negotiations> +ot bribes and happens often ;realtors( BestBuy Culture Determinants: The main factor that shape the culture of a specific group

include religion( politics( topology( climate( and history>

Cultural 08areness and Business

Indian firms going global must determine the cultural differences

Decide whether or not their business can adapt to foreign culture

,-tent of forei"n operations

5evel of cultural awareness will depend on how much business a company does

in foreign country ?rimary domestic operations that export do not need to care

"anufacturing( retail are more crucial

De"ree of cultural differences

If foreign culture is similar( no need to spend as much time

If its very different( then you need to spend more time

Number of !orei"n 5perations

Businesses in foreign markets need to be aware the difference between cultures

Impact of culture on international business

#ailure to consider culture could ruin negotiations( marketing( labour( or even

deatho roducts


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3ulture has a direct impact on the types of products and services

that will be successful in other markets 3ulture has little impact on the sale of Indian raw goods

Indian exports depend on foreign culture though ;ie pork in

Kewish1muslim area 0dvanta"es:

3onsumer protection

Individual incentive

Basic social services

Disadvanta"e

/igher taxation

Individuals have little on input on tax spendings

5ess working motivation

0overnment might intervene growth

olitical 'ystems

o Theocratic:based on religion

o )onarchy:based on king and 2ueen

o 0ristocracy:based on rich and wealthy


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o Democracy: #ree and fair elections( rule of law( free speech( assembly(

press( and religion 6ntitled to education and govern themselves

7ccompanied by market economy

6x India( &'7

?oliticians get concerned with re=election than the overall benefit ?oliticians rely on corporate funding may be influenced by

corporations 'imilar background from politicians ;lack of women( minorities(

poor< 6xpensive to maintain

+ew emerging economies lack Kudicial systems to maintain

political stability ;latin america

o Developed Countries+ industriali)ed nations( first world countries /igh Income or strong GD

/igh literacy rates( good healthcare( education( and technology

"anufacture diverse complex e2uipment like cell phones(

computers( hybrid cars 'trong alliances between developed countries ;0.

adKusts before economy actually experiences change

guides investors( businesses( and governments

6x> /ousing starts are leading indicators because people won8t

purchase new homes if economy is downo a""in" Indicators: are adKusted after economic changes>

Takes =F 2uarters for economic change to influence a lagging

indicator 6x> &nemployment rate: takes M months for unemployment rate to

decrease after change


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o Coincident Indicators: move in conKunction with the business cycle

6x International Trade: slumping economies involve less trading

Governments and the Business Cycleo During the --.=--E &' recession( India was affected by decrease in

7merican purchaseso 0overnments increased their spending to stimulate the economy

o India allotted AHB for infrastructure( A9>.B for homes( A--B for

consumers>o &'7 had a A9.9B stimulus package to government agencies

o Democratic governments may invest in social programs to influence

voter8s decisions before elections

,conomics of Trade

0bsolute 0dvanta"e

o a country has absolute advantage if it makes a product or service more

productively than other countries>o They use the resources more efficiently to manufacture more products>

o 3ountry has better technology to produce goods with absolute advantage

o 5pportunity Cost: is the value of what is forgone

,pportunity cost of being in school is the money you could be

making in a Kob

Comparative 0dvanta"eo %hen a country has a comparative advantage( it means that country can

produce a good at a lower opportunity cost as the othero 3ountries exporting products in which they have a comparative advantage(

and import goods from country with a comparative advantage for thatproduct( both countries will benefit>

The ole of Government in International Trade

0overnment8s role include: I+1,&T 5aws( tariffs( trade agreements( immigrationlaws( currency rates( taxation laws( education( tax treaties( military systems(environmental policies( infrastructures( embargoes

Indian government help int8d businesses set up in India with incentives

But impede with regulations( licenses( and laws>


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Government e"ulations

o 0overnment regulates laws such as minimum wage

o To start a business in India( it is easy to start a business with only one

online applicationo +ew registered businesses will receive

7 registration number 0'T1/'T number

3orporate income tax account

Import16xport account

?ayroll deduction information

o In 3hina( though( it takes HF stages of approval to open a business there

Trade offices

o 6stablished in foreign countries( it helps foreign businesses operate

o Trade offices help investments( exports( PD( and lower costs byproviding expertise

0overnment 6mbassies( /igh commissions( and 3onsulates

o Consular 'ervicesin foreign countries help traveling Indians in case of

emergencies 3ommunications with family after accident

5ost passports or identifications

3ustoms( Taxes( I'7s

o ,mbassies: located in capital cities they provide full range of services

o 6i"h Commissions: 'ame as embassies( but in 3ommonwealth countries

;0B( 7ustralia +o consular

serviceso Consulates General: embassy like offices located in maKor cities

o Consulates: located in maKor cities but do not provide all range of services

o Consulates headed by honorary consuls: 5ocated around the world

headed by honorary consuls> In places like &ganda and ?araguay>o 5ffices: #ound in maKor and capital cities to aid with specific proKects

without consular services>

Trade )issions

o ,rgani)ed by D#7IT( Team India visits a specific country focused on a

specific industryo ?rovides Indians a business opportunity to meet potential customers(

suppliers etc>o Nunior Team India are teenagers going abroad to gather business

information( contacts( and opportunities>


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o Brand India promotes Indian 3ulture to foreign places

3hapter $ 4 M +otes

3hapter $: International Trade 7greements and ,rgani)ations

0lobali)ation and International Trade

Globalization:movement of goods( services( technology( investment( ideas( and

people around the worldo /appened when trade barriers are reduced after %%II

?ositive aspects of globali)ation:

o ,utsourcing:o 5ower ?rices

o Improved human rights

o Increased productivity

o Innovation

o Better Kobs

o Increased capital flow

+egative 7spects

o 5ost1fear of lost 3D+ Kobs

o 5oss of 3D+ productivity

o 6xploitation of cheap labour

o Increased pollutiono &nhealthy products

o 'pread of disease

o Increased income gap

o Influence of "+3s ;"ultination corporations< on government

Globalization strate"ies: companies use different strategies with different parts

of the worldo Global 'trate"y: regards world as one big market with decisions made in

head2uarters 7dv: massive economic scale ;produce bulk 2uantities7mericao 7dv: /igher prosperity and efficiency for many companies

/igher paying engineering Kobs in India

#ree flow of resources makes +7 a stronger competitor to 7sia

markets Trade has tripled for partners ;.EB< and exchange rate doubled

o Disadv: "any manufacturing Kobs were lost to "exico

"exico8s corn( beans( milk industry felt lack of tariffs made it hard

to compete "exico increased pollution

#actory Kobs were often poor in standards

!T00 ##ree trade 7greement of the 7mericas

o +ew members are expected to use 6uro( and meet strict policies on

inflation( stability( etc>o 7dv: Decrease exchange rate fluctuations

?rice transparency for comparisons 6liminate transaction costs

Billing 6ase

5arge markets

'tability

5abour movements ;easier to pay To prevent fraudulent activities or immoral practices 'takeholder 7nalysis


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o %hen a company wants to know how it8s doing( it asks stakeholders

?rimary stakeholders: customers( investors( suppliers( competitors

who have direct impact to the organi)ation8s profitability andsuccess

'econdary stakeholders: do not directly affect the company8s profit

like community( media %hen doing a stakeholder analysis( they must determine who has

the most influence on the decision making process

Business 6thics

Business ,thics: refers to the set of rules or guidelines that management or

individuals follow to make decisions for their companyo Include laws( company8s code of ethics( and personal values of the

decision makero Is this honestR %ill this be fair to stakeholdersR /ow will this impact the

company8s reputationR Global ,thical easonin": 6thical decisions are more complex for global

companieso ,thical Imperialism: there is a universal truth standard across all cultures

If something is wrong in one country( it8s wrong in all countries

o Cultural elativism: Different cultures should be respected as one is not

seen as better than another #or these( different countries will have different ethics or practices

o The &+ has &niversal Declaration of /uman rights that define minimum

human rights

6thical Issues in International Business

,nvironmental Issues: the ability to meet human consumption while maintaing

the environment needs to be considered>o +atural environment is critical for businesses( it must be respected and

sustainedo 6xamples

HE. gas leak from &nion 3arbide ?lant in India killed F--- ,il 'pills 6xxon alde) in HE.E and B? in -H-

Indian waterways polluted with mercury from coal=burning power

plants 0hana( 5ake 'ongor is shrinking because of salt mining( diverting

water for irrigation


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o 0overnments have agreements like io Declaration on 6nvironment and

Development and Jyoto ?rotocol agree to limit greenhouse gas emissionsand other limits

&' India and 3hina have withdrew from it because it impedes with

economic growth

o Nohannesburg %orld 'ummit on 'ustainable Development seeked topreserve natural resources( and world consumption

&nfortunately( &' president didn8t attend( making it hard to have

decisionso In --E( in efforts to maintain global temperature increase to degrees(

H--B were put in to help developing countries reduce emissions '8eatshops: factories of underdeveloped and developing countries where

working environments are unsafe and employees treated unfairlyo ,ften employs children age H

o ?aid very little with overtime pay cheated

o %orkers cannot take sick days( breaks( and work H hours a day

o /ot environments and untrained workers make for dangerous workenvironments

o 0lobal competitiveness( corporate greed( and consumers expectation of

low prices cause sweatshopso 3ompanies shouldn8t stop using factories in developing countries( but

instead make sure they do it right there and invest money in making moreethical

o 7s consumers( we can boycott or buy only certain items from companies

to reflect how we feel Corporate corruption: refers to the involvement in illegal activities to further

one8s business interests

o 5ivent 0arth Drabinsky and "yron 0ottleib involved in accounting

scheme were found guilty in overstating profits( under=representingcosts and inflated value of assets

'entenced in --E to Kail

o 6ollin"er Inc. 3onrad Black was found guilty of fraud obstruction of

Kustice by &' 'ecurities 6xchange 3ommision ;'63< and misappropriatedmillions of dollars

#ined AH$(--- and forfeited AM>H" and sentenced to M>$ years in

prisono Bernard )adoff: 'pent years defrauding investors A$-B in ?on)i scheme

which pays returns to current investors using new investor8s money ratherthan profits> 'entenced to H$- years in prison

o 3orporate crimes ;white collar crimes< impact the world more than real

crimes Gifts and Tipsare not considered a bribe( Kust a low cost symbol

of friendship Grease: smaller payments to encourage faster negotiations and

speed up business people are bribes


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Commissions: 5arge payments made to facilitators or go between

business negotiations> +ot bribes and happens often ;realtors( BestBuy

"arket esearch

o #inds data to solve marketing problems

o rimary Data: data collected first hand> 'econdary Data: data collected

by a third partyo 'tatistics can be used to help determine how well a product will sell given

different ways it could be produced ?roduct Development

o 3ompanies use data as well as additional research to refine their products

so it will appeal to the largest audience when released ?ricing

o &sing data collected throughout the stages( companies can determine the

best pricing for products to be sold attractively to the most amount ofpeople

7dvertising and ?romotion

o 7fter producing the product( companies will need to convince consumers

that their products are worth their price

o 7ds can outline uni2ue creative designs( environmental concerns( andother special features

o It can take many forms like internet ads( billboards( posters( T radio ads(

newspaper ads( sponsorships( endorsements 'ales

o 7 company must know where to sell their products

Craft 'ho8sattract alot of people to one location at once where

products can be shown off etailers can be dealt so they8ll carry and sell your product

58n store can be setup to exclusively sell your product( although

one can be expensive 5nline mediums can reach a great audience and have transactions

done easy and cheap 5ogistics

o "anagement of the flow of goods and services both in and out of an

organi)ationo 3ompanies must worry about packaging( warehousing( inventory( and

management of goods


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?s of International "arketing

roduct: modifications must be made to adapt a foreign culture

o ac*a"in" 8ei"hts: units must be convertedo ac*a"in" colours: some colours are more appealing or have special

meanings in different countrieso e"al e/uirements: some countries re2uire materials or restrict

materials from being in products>o abel e/uirements: 'pecial product labeling rules may also apply

o an"ua"e e/uirements: translate your packaging

o In"redients: 'ome countries restrict the consumption of certain foods due

to religious or other reasons> 7lso( some countries restrict the amount ofharmful ingredients like "'0 or salts in their imports

o 'tyle:

'ome countries may have different styles or more advanced thanothers

3ompanies need to be aware of different traditions and current

trends in foreign country before adapting or selling products there lace: %here to manufacture or sell specific products

o Centralized 'trate"y: all manufacturing and marketing is performed in

one location This strategy limits foreign expansion as the central plant may

become overly largeo Decentralized 'trate"y: means they will setup manufacturing plant in

another country( or hire sales force there to do everything in foreign

countryo ,(Commerce: online distribution of goods make it the fastest way by far

to carry out sales ,(Distribution: companies can use online distribution channels

like 6Bay and 7ma)on to host their products for sale globallyonline

3ustomers can 2uickly and easily pay with methods like ?ay?al

6=commerce transaction types:

B2C:business to consumer operated by maKor retailers

B2G:business to government sells things to various

governments B2B:business to business sells things online to other

businesseso 'ales 0"ents: combines centrali)ed strategy with decentrali)ed one

/ire someone to go to foreign country with stocks and sell there

'ales agents go with customi)ed marketing and sales processes

suitable for foreign marketo Trade sho8s: collection of manufacturers and distributors of similar

products rent a space and display a booth


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7ttracts thousands of potential customers in and often 2uickly sells

fast and make money Between businesses( one can also get attention and make deals

within a trade showo Branch lants: most expensive way( but includes staffing a foreign

location to do all it8s operations 7dv: o8er shippin" costs

Import regulations and tariffs are no longer an issue

?roduct modifications are easier

o 5icensing 7greements

3ompanies can sell rights to use a patent or trademark for a fee as

they take it to do other things with it 7 oyalty is often paid as a percentage of the products sold

)anufacturin" 0"reement: anyone in a foreign country can have

a contract to manufacture products of another company under theirlicense

'ome manufacturers can rebrand the product or market it astheir own with more fees

Distribution 0"reements: etailers can pay royalties to carry

someone else8s products and sell them in a foreign country> In return( the retailer will promise not to sell a competitor8s

product in the same store If interest is high( the can negotiate agreements for selling

these products !ranchisin" 0"reements: are a form of licensing agreement that

turns the ownership of a manufacturing or distribution companyover to a local franchisee>

&nder certain restrictions and fees( a franchisee can use allthe brands and products of the parent company

0c/uisitions: To remove competitions in a foreign country( a

larger company can choose to buy out a smaller company to makeit part of them

7c2uisitions may also be used to ac2uire new skills(

patents( or key people rice: when picking a price for a product to sell in a foreign country( it8s

important to consider the following factorso abour Costs: when products are manufactured in foreign locations( it8s

often lower than if it were to be produced in Indiao 'hippin" Costs: %hen shipping products to farther locations( it may be

very expensive to do so if the distances are farthero Duties and Tariffs: taxes and fees when importing to another country can

hike up the priceso e"al costs: "odifications for adaptation to foreign country and foreign

country approvals may have taken some money so it8s good to considerthose in as well


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o 3ompetition and consumer interest in foreign country should also be

considered romotion: %hen doing ads in a foreign country( you should consider the

following methodso sin" e-istin" ads: some companies may get away using the same ads for

foreign nations because both countries are very similar in culture ;Ie &' PIndiao It ensures all the materials arrive correctly in sync to be manufactured

o %orks in part with supply chains to make this happen

Business o"istics: is responsible for ensuring a steady flow of needed materials

and information( transportation( storage facilities( all move to the end consumer

'upply 3hain

'upply Chain: is the sum total of all activities involved in moving raw materials(

processed goods( and finished products into an organi)ation( moving them out tobe processed( and eventually to the consumer

o &ertical Inte"rationcompanies who own the entire supply chain

;shipping( raw materials etc>< ertical integration re2uires lots of resources and attention that

takes away from the 2uality "any companies prefer to use third party logistics ;F?5< so they

can spend more time correcting problems instead of managing thehuge animal

Inventory )ana"ement: refers to the way inventory is gathered and used

o 'J& ;stock=keeping units< are used to number and manage stocks

o etails often have point=of=sales terminal to get products out the door

o 5arge companies need to coordinate the availability of product inventory

from hundreds of suppliers as well as store inventory in hundreds oflocations


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o If a company designs it8s own clothing( it also needs to find out if these

materials are available before they choose to use that design 'torage

o 'tored in locations: place where it8s made( a warehouse( a distribution

centre( or place that receives the goods

o 3ompanies often use third party warehouses instead of their own to reducecosts

o Due to high costs( many companies use %ust In Time Inventory 'ystems

so that everything arrives Kust in time to eliminate the need to store themfor too long

o ,nline retailers re2uire a lot of warehouse space( but since warehouse

spaces are cheaper than retail( online retailers smart with their Nust In Timesystems can compete with brick and mortar stores

3ash=#low management

o They only need cash=flow management if the transaction take place

between businesses in different countries

o Involves negotiating payment terms( method of payment( and exchangingfunds of the supply chain >

o ,ften for large payments for products( machinery( transportation( and legal

feeso 7 etter of creditcan be used to hold some money and guarantee that the

funds will arrive once the deed is done> /owever( in places where banks and financial institutions aren8t

developed( this may be difficult 'upplier "anagement

o efers to the sourcing and finding reliable sources for products and

services a business needs

&sing electronic data interchange ;6DI


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Information )ana"ement: 'oftware can be used to analy)e large amounts of

data which can be vital to monitoring and making decisionso "any companies use enterprise resource planning software to plan

resources and connect global suppliers for them hysical Distribution: the movement of the finished product to customers

o Inbound Distribution: deals with receiving the goods that are sent to thecompany

esponsibility rests to the buyer

7t this point( the buyer takes possession of goods since it passed

the !5B point eceivin" process: a process in which a company follows when

shipments arrive 3heck for damages( count them( assign 'J&s( record

location 5utbound Distribution: refers to arranging the shipment of goods

for shipment

It8s a seller8s responsibility to arrange shipping the goods tocustomers

,- 3or*s #,@3$: where the buyer responsible for all

shipping related charges and chores The shipping company( carrier( must present a bill of

ladin" indicating that the company has accepted these goodfor shipment

!5B oint: defined by the I33( is the point in which the costs(

and risks with the shipment passes from the seller to the buyer !C0: free carrier: the seller hands the goods( cleared for

export into the name of the buyer

!5B: free on board: where seller must load goods on shipnominated by the buyer( then it will be given rights to thebuyer

CI!: cost( insurance( and freight: seller pays all costs

including insurance to bring goods to the port of destination C!: cost and freight: same as 3I# but risk is transferred

once the goods have crossed the ship8s rial CI: carriage and insurance paid to: seller pays all

insurance to the point but risk is transferred once the goodsare handed to the carrier

DD: delivered duty unpaid: 'eller delivers goods to the

buyer at destination named in contract of sales> 0oods arenot cleared for import or unloaded at the place ofdestination> Buyer is responsible for risks thereafter

DD: delivered duty paid: seller pays for all transportation

and bears all risk until goods have been delivered any paysthe duty> "ost advantageous to buyer as seller pays allshipping costs


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"ethods of ?hysical Distribution in the supply chain

The method depends on ;H< what is being shipped( ;< %eight of shipment( ;F

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Chapters 1 IB Notes.doc

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