Chapter 1 Global Environmental Drivers © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Marketing Defined • International marketing: Consists of the activity, institutions, and processes across national borders • Creates, communicates, delivers, and exchanges offerings that have value for stakeholders and society © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Marketing Defined • Forms of international marketing • • • • • • Export–import trade Licensing Joint ventures Wholly owned subsidiaries Turnkey operations Management contracts © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Marketing Defined • Marketing serves as a: • Key agent of societal change • Key instrument for the development of societally responsive business strategy © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Marketing Defined • Making decisions based on international issues and repercussions requires addressing the below questions: • Where are my current and potential customers? • Does my need-to-have market have borders? • Does international activity increase risk? © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Marketing Defined • What marketing adjustments are or will be necessary? • What threats from global competition should I expect? • How do innovation and entrepreneurship change the global marketplace? • What are my strategic global alternatives? © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Importance of World Trade • Within the last decade, world trade represents a growth of 140 percent for trade in both merchandise and services • Global growth of trade has outperformed the growth of domestic economies in the past few decades • International specialization and crosssourcing have made production efficient © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Importance of World Trade • New and emerging economies have liberalized their economic systems • Bringing billions of new consumers into the global economic system • Offering a vast array of new marketing opportunities • Bringing-in production efficiency through international specialization and cross-sourcing • Redefining the way business is done through revolutionary technologies © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Importance of World Trade • Trading blocs • Encourage trade relations among member countries • Regulate the trade and investment flows of nonmember countries • Include the European Union in Europe, NAFTA in North America, MERCOSUR in Latin America, and ASEAN in Asia © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Linkages • World trade has forged a network of global linkages • Binding countries, institutions, and individuals closely • Global linkages have become more intense on an individual level • Communication has built new international bridges © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Linkages • Transportation linkages let individuals from different countries see and meet each other with unprecedented ease • World trade is bringing about a global reorientation of corporate processes • Opening up entirely new horizons © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Linkages • Global technological innovation in marketing directly affects the efficiency and effectiveness of business activities • Products are produced more quickly • Obtained less expensively from sources around the world • Distributed at lower cost • Customized to meet diverse clients’ needs • Enable firms to separate their activities by content and context © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Linkages • The level of global investment has: • Resulted in the buildup of international debt by governments • Affected the international value of currencies • Provided foreign capital for firms • Triggered major foreign direct-investment activities © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Linkages • Increasing foreign investments in some key sectors have resulted in interdependence among nations, firms and people • Realignments taking place on both micro and macro levels make past trade orientations partially obsolete © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Linkages • The growth in the overall volume and value of both merchandise and services trade has had a major impact on firms, countries, and individuals © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Domestic Policy Repercussions • Policy makers find it difficult to isolate domestic economic activity from international market events • Domestic policy measures are cancelled out or counteracted by the activities of global market forces • Traditionally – currency flows are determined by trade flows © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Domestic Policy Repercussions • In the more recent past: • Currency flows have set exchange rates, which are the values of currencies relative to each other • Exchange rates have begun to determine the level of trade • Firms and countries are quick to emulate innovation and counteract carefully designed plans • Due to rapid technological changes and vast advances in communication © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Domestic Policy Repercussions • Governments are powerless to implement effective policy measures • Policy makers have imposed regulations by means of: • Trade barriers, tariffs, quotas, import regulations © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Domestic Policy Repercussions • These measures too have been restrained by international agreements that regulate trade restrictions • Particularly through the World Trade Organization (WTO) • The global market imposes increasingly tight limits on national economic regulation and sovereignty © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Domestic Policy Repercussions • Closer economic relations result in many positive effects • But, interdependence brings with it risks • Dislocations of people and economic resources • Decrease in a nation’s capability to do things its own way • Key task for the international marketer is to stimulate societal acceptance of the long-term benefits of interdependence © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Opportunities and Challenges in International Marketing • To handle newly emerging forces and dangers of unforeseen influences from abroad, firms need to: • • • • Be prepared and develop active responses Envision new strategies Develop new plans Change the way of doing business © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Opportunities and Challenges in International Marketing • The growth of global business activities offers increased opportunities • Knowledge transfer around the globe helps an international firm to build and strengthen its competitive position © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Opportunities and Challenges in International Marketing • International opportunities require careful exploration: • An awareness of global developments • An understanding of their meaning • A development of capabilities to adjust to change © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 International Trade Frameworks and Policy © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Historical Dimension • The rise and fall of the Roman Empire and the emergence of feudalism can be attributed to trade • The Romans placed primary emphasis on encouraging international business activities © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Historical Dimension • The principal approaches used to implement this emphasis was the Pax Romana, or the “Roman Peace,” and the common coinage © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Historical Dimension • The Smoot-Hawley Act raised import duties to reduce the volume of imports into the United States to help restore domestic employment • This resulted in raising of duties and imposition of barriers to imports by other nations • Led to worldwide depression and the collapse of the world financial system © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Historical Dimension • Global division • After 1945, the world was split into West and East • With Soviet Union as the leader of the Eastern bloc and the United States for the Western world • The Soviet Union focused on developing strong linkages among the members of the Soviet bloc • The United States created the Pax Americana driven by the belief that international trade was a key to worldwide prosperity © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Historical Dimension • Global division • The charter for an International Trade Organization (ITO), a series of agreements among 53 countries, was signed in 1948 • It was designed to cover: • • • • International commercial policies Domestic business practices Commodity agreements Employment and reconstruction © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Historical Dimension • Economic development and international investment • A constitution for a new United Nations agency to administer the whole • Global division • The General Agreement on Tariffs and Trade (GATT) was initiated in 1947 • The World Bank and the International Monetary Fund were created © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • General Agreement on Tariffs and Trade (GATT) • Set of rules for nondiscrimination, transparent procedures and settlement of disputes in international trade • Emphasized on tariff reduction • Reduced trade barriers and developed provisions for dealing with subsidies, and a more explicit definition of rules for import controls © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • Developed improved dispute-settlement mechanisms • Was designed to operate by consensus • Became less effective over a period of time © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • World Trade Organization (WTO) • Created in January 1995 • GAAT has now become a part of the WTO • Responsible for general agreement on trade in Services (GATS), agreements on trade related aspects of intellectual property rights (TRIPS), and trade related investment measures (TRIMS) • Administered international trade and investment accords © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • World Trade Organization (WTO) • Developed speedier trade dispute settlement procedures and streamlined the decision making process • Makes major contributions to improve trade and investment flows around the world © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • The Doha Round was initiated to: • Further hasten implementation of liberalization, particularly to help impoverished and developing nations • Expand the role of the WTO to encompass more of the trade activities in which there were insufficient rules for their definition and structure © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • International Monetary Fund (IMF) • Developed in 1944 • Designed to provide stability for the international monetary framework • Provide for fixed exchange rates between countries • With the changing global financial needs, the future role of the IMF may be very different © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • World Bank • Also recognized as the International Bank for Reconstruction and Development, was formed in 1944 • Key functions: • Provides economic assistance for the reconstruction of war-torn countries • Assists fledging economies to participate in modern economic trade © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • Participates with the IMF to resolve debt problems of the developing nations • Bring a market economy to the former members of the Eastern bloc • World Bank • Current areas of focus: • Capacity building • Development of human capital through investments into education and health © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • • • • • Promoting sustainable growth and development Addressing higher commodity prices Agricultural assistance in times of higher food prices Liberalization of world trade Greater participation of rising economic powers and developing nations in the bank’s governance © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • World Bank • Major challenge - reduce global poverty • Delivers technical, financial and other assistance to those most in need • Promotes growth to the poorest countries, fragile states, the Arab world, middle income countries • Solves global public goods issues • Delivers knowledge and learning services © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • Regional institutions • European Coal and Steel Community – designed to create a common market among six countries in coal, steel and iron • Customs unions - Common external tariff • European Union (EU) - Free movement of capital, services, and people across national borders and the joint development of common international policies © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transnational Institutions Affecting World Trade • Regional institutions • North American Free Trade Agreement (NAFTA), MERCOSUR - Latin America, and Gulf Cooperation Council (GCC) - focus on issues such as forming a customs union, a common market, an economic union, or a political union • Private sectors have begun to develop international trade institutions of their own • Transatlantic Business Dialogue (TBD) © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Trade Positions Compared • International trade positions have changed substantially when measured in terms of world market share • The U.S. share of total world export has declined precipitously since 1950s • An important development is the rise of China’s trade position © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 2.1: Merchandise Exports and Imports as a Percentage of World Total, 2008–2011 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Trade Positions Compared • Factors behind the decline in U.S. international competitiveness: • Attitude of the American policy makers • Ignoring domestic firms in an attempt to boost the development of foreign economies • Perception within the U.S. private sector about international marketing being risky and complicated • • • • Lack of global interest Inadequacy of information Unfamiliarity with international market conditions Complicated trade regulations © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Impact of Trade and Investment • The effect of trade – Export is important as it: • Creates a trade balance by reducing trade deficits • Affects the currency values and fiscal and monetary policies of the government • Shapes public perception about competitiveness • Determines the affordable levels of imports for a country © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Impact of Trade and Investment • Can be instrumental in creating jobs • Helps to achieve economies of scale • Firms benefit from market diversification • The effect of trade – Importance of imports: • Firms are exposed to new competition © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Impact of Trade and Investment • Gives rise to new marketing approaches, better processes or better products and services • Competitive pressures keep quality high and price low © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Impact of Trade and Investment • The effect of international investment • Foreign direct investment is extensive in many U.S. industries • Almost one in seven U.S. manufacturing employees works for a foreign affiliate • To some extent, foreign direct investments substitute for trade activities © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Impact of Trade and Investment • Even though theory suggests an open investment policy that welcomes foreign corporations, some degree of uneasiness exists about the rapid growth of such investment © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Impact of Trade and Investment • Restriction on investments may: • Serve national security or policy goals • Permit more domestic control over industries • Deny access to foreign capital and often innovation • Tighten up of credit markets, higher interest rates, and decrease the willingness to adapt to changing world market conditions © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Policy Responses to Trade Problems • Have consisted mainly of political ad hoc reactions, which over the years have changed to protectionism • Voluntary import restrictions • Aid domestic industries to reorganize, restructure, and recapture their trade prominence of years past © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Policy Responses to Trade Problems • Non-tariff barriers • Providing preferential treatment to domestic bidders • Using national standards • Placing emphasis on design rather than performance • Preventing the market entry of foreign products © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Policy Responses to Trade Problems • Export promotion efforts • Earn foreign currency, encourage domestic employment, and increase domestic economic activity • Offering mixed aid credits • Take the form of loans composed partially of commercial interest rates and partially of highly subsidized developmental aid interest rates © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Policy Responses to Trade Problems • Formation of export consortia • To provide the foreign buyer with a one-stop shopping center for a variety of complementary and competitive products © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A Strategic Outlook for Trade and Investment Policies • A U.S. perspective • Improve the quality and amount of information government and business share to facilitate competitiveness • Encourage collaboration among companies in such areas as goods and process technologies • Overcome its export reluctance and its shortterm financial orientation • Invest in its people, providing education and training suited to the competitive challenges • Renewal of trade promotion authority © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A Strategic Outlook for Trade and Investment Policies • Closer government–business collaboration is seen as one key to enhanced competitiveness • It will make both business and government more responsive to each other’s needs • It will reduce the failures that can result from a lack of collaboration and insufficient understanding of linkages © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A Strategic Outlook for Trade and Investment Policies • An international perspective: • Bilateral or multilateral trade and investment negotiations must continue • Policy makers must be willing to trade off short-term achievements for long-term goals • Design new mechanisms to evaluate restraint measures • Assess the cost of policy measures which affect trade and investment flow © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 3 The Role of Culture © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Culture Defined • Culture: An integrated system of learned behavior patterns that are distinguishing characteristics of the members of any given society • It encompasses a wide variety of elements, from materialistic to the spiritual • Culture is conservative, resists change and fosters continuity © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Culture Defined • Acculturation: Adjusting and adapting to a specific culture other than one’s own • It is one of the keys to success in international operations © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Culture Defined • High-context culture: Context is as important as what is actually said: • Speaker and the listener rely on a common understanding of the context • Low-context culture: Most of the information is contained explicitly in the words © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Culture Defined • It is important to understand the difference between the context cultures to avoid misunderstanding of messages and intentions © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Culture Defined • Roles of a international manager • Identifying cross-cultural and intracultural differences • Isolating potential opportunities and problems • The international business entity acts as a change agent by introducing new products or ideas and practices © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Culture Defined • The change agent leads to social change in: • Manner of consumption • Type of products consumed • Social organization © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Culture Defined • The international marketer may be accused of cultural imperialism • Cultural imperialism: The changes brought about are dramatic or if culture-specific adaptations are not made in the marketing approach • Global marketers and media have made national and regional artists to break into worldwide markets © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Cultural universals: Manifestations of the total way of life of a group of people • Elements included are: • Body adornments • Courtship • Etiquette © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • • • • • • • Family gestures Joking Mealtimes Music Personal names Status differentiation Trade • The manifestation is unique which brings about cultural diversity © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 3.1 - Elements of Culture © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Language is described as the mirror of culture and is multidimensional by nature: • Includes both verbal and nonverbal communication • Language mastery is required and must go beyond technical competency © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Language capability serves four roles in international marketing: • Aids in information gathering and evaluation efforts • Provides access to local society • Is important in company communications • It extends beyond mechanics to the interpretation of contexts © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Local assistance is required when dealing with language problem • Selecting the translation software is important when translation is required • International marketers should translate emotions and not words © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Back-translation: Translating a foreign language version back to the original language by a different person from the one who made the first translation • Nonverbal language: • Managers must analyze and become fluent in a diversity of culturally derived behavioral displays © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • The five key topics that managers need to understand are: • • • • • Time Space Material possessions Friendship patterns Business agreements • Religion defines the ideals for life, which are reflected in the values and attitudes of societies and individuals © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Religion provides the basis for transcultural similarities under shared beliefs and behavior • The major religions include: • Christianity: It consists of two significant groups, Catholicism and Protestantism • Lays stress on frugality and accumulation of wealth from hard work © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Islam: Plays a pervasive role in the life of its followers • It supports entrepreneurship and discourages exploitation • Hinduism: Family is an important element in Hindu society • The extended family structure has an impact on the purchasing power and consumption of Hindu families © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Buddhism: Views life as an existence of suffering • Emphasizes on spiritual achievement rather than worldly goods • Confucianism: Is characterized by a code of conduct • stresses on loyalty and relationships © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Values and attitudes: • Values are shared beliefs or group norms that have been internalized by individuals • Attitudes are evaluations of alternatives based on values • Attitudes towards change: • Is positive in industrialized countries • Is viewed with suspicion in tradition-bound societies © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Manners and customs: • Cultural convergence: Globalization cannot be rejected as it represents a transformation brought about by us • Understanding manners and customs is important in negotiations © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Potential problem areas for marketers arise from insufficient: Understanding of different ways of thinking Attention to the necessity of saving face Knowledge and appreciation of the host country Recognition of the decision-making process and the role of personal relations and personalities • Allocation of time for negotiations • • • • © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Managers must be concerned with differences in the ways products are used • Concept tests determine the potential acceptance of a proposed new product • Focus groups: Consists of eight to twelve consumers representative of the proposed target market audience, can be interviewed to check for disasters and fine-tune research findings • In-depth studies: Are used to study of consumer needs across markets © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Material culture results from technology • It is directly related to the way a society organizes its economic activity • It is manifested in the availability and adequacy of the following basic infrastructures: • • • • Economic Social Financial Marketing © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Aesthetics • Each culture makes a clear statement concerning good taste as expressed in the arts and in the particular symbolism of colors, form and music • Color is used as a mechanism for: • Brand identification • Feature reinforcement • Differentiation © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • International firms have to take into consideration local tastes and concerns in designing their facilities © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Education • Formal and informal education play a major role in the passing on and sharing of culture • Educational levels of a culture can be assessed by using literacy rates and enrollment in higher education • Educational levels have an impact on business functions © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Social institutions • Affect the ways in which people relate to each other • Family relations and a strong obligation to family are important factors to be considered © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Social stratification: Division of a particular population into classes • The higher strata control most of the buying power and decision-making positions • Reference groups: Provide the values and attitudes that become influential in shaping behavior • Can be primary or secondary • Social organization determines the roles of managers and subordinates and the way they relate to one another © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Elements of Culture • Sources of cultural knowledge • Cultural: Is defined by the way it is acquired • Factual: Obtained through communication, research, and education • Experiential: Acquired by being involved in a culture other than one’s own • Interpretive: Acquired by understanding the nuances of different cultural traits and patterns © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 3.3 - Types of International Information © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cultural Analysis • Dimensions of culture are: • • • • • Individualism–collectivism Power distance Uncertainty avoidance Gender-role orientation Long-term versus short-term orientation © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cultural Analysis • Self-reference criterion: Unconscious reference to one’s own cultural values • Recommendations to reduce the influence of one’s own cultural values: • Define the problem in terms of domestic and foreign cultural traits, habits, or norms © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cultural Analysis • Isolate the self-reference criterion influence in the problem and examine it to see how it complicates the problem • Redefine the problem without the selfreference criterion influence and solve for the optimal goal situation © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cultural Analysis • Ethnocentricism: The belief that one’s own culture is superior to others: • It can be achieved by acknowledging and properly adjusting to its possible effects in managerial decision making © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Training Challenge • To foster culture sensitivity and acceptance of new ways of doing things: • Internal education programs must be included • The objective of training programs is to foster: • • • • Preparedness Sensitivity Patience Flexibility in managers and other personnel © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Training Challenge • Area studies: Provides factual preparation for a manager to operate in, or work with people from, a particular country • Cultural assimilator: Trainees must respond to scenarios of specific situations in a particular country © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Training Challenge • Sensitivity training: Focuses on enhancing a manager’s flexibility in situations that are quite different from those at home • Field experience: Exposes a manager to a different cultural environment for a limited amount of time © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 3.8 - Cross-Cultural Training Methods © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Making Culture Work for Marketing Success Embrace local culture Build relationships Employ locals to gain cultural knowledge Help employees understand you Adapt products and processes to local markets • Coordinate by region • • • • • © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 4 The Economic Environment © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Market Characteristics • Population • Population figures can be classified to show specific characteristics of their respective markets • Age distribution and life expectancy correlate heavily with the level of development of the market • Household: Includes all the persons, both related and unrelated, who occupy a housing unit © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Market Characteristics • The degree of urbanization dictates the nature of marketing task the company faces, in terms of: • Distribution • Market potential • Buying habits • Income • Per capita GDP is used as a primary indicator for evaluating purchasing power © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Market Characteristics • Income-distribution can be classified as: • • • • Very low family incomes Very low and very high family incomes Low, medium, high family incomes Mostly medium family incomes • Purchasing power parities (PPPs): Show how many units of currency are needed: • In one country to buy the amount of goods and services that one unit of currency will buy in another country © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 4.3 - World Economic Pyramid © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Market Characteristics • Income figures are useful in the initial screening of markets • Consumption patterns • Economic data on consumption patterns can be obtained and analyzed depending on the: • Sophistication of a country’s data collection systems • Engel’s laws provide generalizations about consumers’ spending patterns © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Market Characteristics • Engel’s laws state that as a family’s income increases: • Percentage spent on food will decrease • Percentage spent on housing and household operations will be roughly constant • Amount saved or spent on other purchases will increase • Data on product saturation or diffusion: • Is information on the percentage of households in a market that own a particular product • Allows a further evaluation of market potential © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Market Characteristics • General consumption figures must be cautiously viewed as critical product-form differences may be concealed • Inflation: Affects the buying ability of both industrial customers and consumers • Introduces uncertainty into both the marketer’s planning process and consumers’ buying habits © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Market Characteristics • Infrastructure • The facilitating functions of marketing: • • • • Marketing communications Distributing Information Financing © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Market Characteristics • Transportation networks by land, rail, waterway, or air are essential for distribution • Communication systems for marketing include: • • • • • • Telephones Computers Broadcast media Print media Internet Wireless technology © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Market Characteristics • The more extensive the firm’s international involvement: • The more it can rely on its already existing support network of banks, advertising agencies, and distributors to assess new markets © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 4.8 - World Internet Usage and Population Statistics, 2011 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Impact of the Economic Environment on Social Development • Factors impeding economic growth: • • • • • • Infrastructure limits Labor shortages Demand for greater political freedom Environmental destruction Urban congestion Spread of drug addiction • Social indicators: • Share of urban population © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Impact of the Economic Environment on Social Development Life expectancy Number of physicians per capita Literacy rate Percentage of income received by the richest 5 percent of the population • Percentage of the population with access to electricity • • • • • Physical Quality of Life Index (PQLI): Is a composite measure of the level of welfare in a country © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Impact of the Economic Environment on Social Development • PQLI is composed of: • Life expectancy • Infant mortality • Adult literacy rates • Emotional well-being may be determined by: • • • • Quality of social relationships Enjoyment at work Job stability Overall conditions in the country © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 4.9 - Forms of Economic Integration in Regional Markets © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Regional Economic Integration • Economic integration • One of the main economic developments affecting world markets since World War II • Success of blocs depend on: • Leadership of selected countries • Their proximity in terms of geography, culture, administrative dimensions and economic factors • Their commitment to regional cooperation © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. European Integration • It results in economic growth • Sources of growth being: • Elimination of transaction costs • Economies of scale attained as production becomes concentrated • More intense competition among European companies • Operations from one country can be freely expanded to other countries © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. European Integration • Goal of free movement of goods has been achieved due to the move from a “common standards approach” to a “mutual recognition approach” © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Levels of Economic Integration • North American Free Trade Agreement • Trade between United States and Canada exceeded $527 billion in 2010 • The ratification of the North American Free Trade Agreement (NAFTA) created the world’s largest free market: • 460 million consumers and a total output of nearly 17.5 trillion • Top 20 exports and imports between Mexico and the United States are in virtually the same industries © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Levels of Economic Integration • Distinctive feature of NAFTA is the two-side agreements to correct perceived abuses in labor and in the Mexican environment • Maquiladoras: Plants that make goods and parts or process food for export back to the United States © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Regional Economic Integration • Other economic alliances • Integration in Latin America – MERCOSUR has three objectives: • Establishment of a free trade zone • Creation of a common external tariff system • Free movement of capital, labor, and services • Integration in Asia • Integration in Africa and the Middle East © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Emerging Market • Is a country making an effort to change and improve its economy: • Raising its performance to that of the world’s most advanced nations © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Emerging Market • Strategies adopted by marketers to thrive in emerging markets: • • • • Adjust entry strategy Manage affordability Invest in distribution Build strong brands © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 4.13 - Marketing Contexts for Key Emerging Markets © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Developing Markets • Five elements of success for an international marketer to thrive in developing markets • • • • • Research Create buying power Tailor local solutions Improve access Shape aspirations © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Economic Integration and the International Marketer • Economic integration creates opportunities and potential problems for the international marketer • Decisions regarding integrating markets must be assessed from: • • • • Effects of change Strategic planning Reorganization Lobbying © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 5 The Political and Legal Environment © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Introduction • While deciding upon a firm’s international marketing activities the manager needs to concentrate on three areas: • The political and legal circumstances of the home country • The political and legal circumstances of the host country • The bilateral and multilateral agreements, treaties, and laws governing the relations between host and home countries © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Firms are affected by government policies and the legal system, and this has a major impact on a firm’s opportunities abroad • Minimum wage legislation affects the international competitiveness of a firm using production processes that are highly labor intensive © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Cost of domestic safety regulations may significantly affect the pricing policies of firms in their international marketing efforts • Environmental superfund • Governments may attempt to aid and protect the international marketing efforts of companies through gray market activities © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Gray market goods are products that enter markets in ways not desired by their manufacturers • Areas of governmental activities which are of major concern to the international marketer are: • Embargoes and trade sanctions • Export controls © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Import controls • Regulation of international business behavior • Embargoes and sanctions: Government actions to distort the free flow of trade in goods, services, or ideas for adversarial and political purposes • Reasons for the impositions are varied, ranging from human rights to nuclear nonproliferation to terrorism © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Unilateral impositions result in shift in trade, and do not produce the desired result • Sanctions must be imposed multilaterally • Governments often consider sanctions as being free of cost © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Export control • Designed to deny or delay the acquisition of strategically important goods by the adversaries • The legal basis for export controls varies across nations • Dual use items, which are goods useful for both military and civilian purposes, are controlled by the Joint List of the European Union © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • The U.S. export control system is based on the: • Export Administration Act (Department of Commerce) • Arms Expert Control Act (Department of State) • The exporter must obtain an export license, which consists of written authorization to send a product abroad © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 5.3 - The U.S. Export Control System © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Restricts the flow of materials and helps avoid the proliferation of weapons of mass destruction • Reduces flows of technological knowledge to control the sophistication of armaments used by insurgent groups • Imposes financial controls which inhibit funding for terrorist training • Principal focus of export controls rests on the Third World © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Export controls use a “tactical balance” approach affecting specific hotspots • Availability of high-technology products • Export control of these products imposes a major competitive burden on domestic firms • State-of-the-art technology has made it difficult to supervise the transfer of such equipment • Import controls • Either all imports or imports of particular products are controlled through tariff and nontariff mechanisms © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Tariffs: Taxes imposed on imports, which subsequently increase the price of the imported product in the domestic market • Voluntary restraint agreements: Nontariff trade barriers in the form of self imposed restrictions and cutbacks • Aimed at avoiding punitive trade actions from the host country • Quota systems: Reduce the volume of imports accepted by a country © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Problems faced while administering import controls: • They exact a huge price from domestic consumers • The social cost of these controls may be damaging to the economy • They bring about downstream change in import composition © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • They do not to work as intended • Supply may respond to artificial stimulation and grow far beyond demand • Regulation of international business behavior • Boycotts: Firms refuse to do business with someone • For political reasons, antitrust measures and corruption © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Home-Country Political and Legal Environment • Antitrust measures - firms restrict competition • Bribery and corruption - firms obtain contracts through bribes rather than performance © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Host-Country Political and Legal Environment • Political risk: Risk of loss when investing in a given country caused by changes in a country’s political structure or policies • Major types of political risk • Ownership risk - exposes property and life • Operating risk - interference with the ongoing operations of a firm © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Host-Country Political and Legal Environment • Transfer risk - encountered when shifting funds between countries • Government policies to combat political risks include: • Expropriation: Seizure of foreign assets by a government with payment of compensation to the owners • Confiscation: Transfer of ownership from a foreign firm to the host country without compensation for the firm © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Host-Country Political and Legal Environment • Domestication: Whereby the government: • Demands partial transfer of ownership and management • Imposes regulations to ensure that a large share of the product is locally produced and major profit is retained in the country • Effects of domestication include: • Poor cooperation and communication from managers • Increased costs, inefficiency, and lower-quality products © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Host-Country Political and Legal Environment • Disruption of international distribution plans • Inefficiencies due to a lack of market discipline • Common risks faced by most businesses operating abroad: • Shortage of foreign currency • Difficulty dealing with exchange controls • Prolonged negotiations with government officials • Increase in tax rates or stricter applications of the host country’s tax codes © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Host-Country Political and Legal Environment • Government control on the prices of imported products or services • Legal differences and restraints • Countries differ in their laws as well as in their implementation of these laws • Two major legal systems popular worldwide are: • Common law - Based on tradition and depends less on written statutes and codes than on precedent and custom © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Host-Country Political and Legal Environment • Code law - Based on a comprehensive set of written statutes that spell out legal rules explicitly • Antidumping laws - prohibit below-cost sales of products • Require export and import licensing • Laws may be designed to protect domestic industries and reduce imports • Very specific legislation may exist to regulate advertising • The enforcement of laws may have a different effect on national and foreign marketers © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Host-Country Political and Legal Environment • Dealing with the intricacies of national politics: • Ignore prevailing rules and expect to get away with it • Provide input to trade negotiators and expect problems to be resolved through multilateral negotiations © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Host-Country Political and Legal Environment • Develop coalitions or constituencies to motivate legislators and politicians to consider and implement change through: • Recasting or redefining issues • Highlighting direct linkages and their benefits to legislators • Lobbying © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Relationships • International politics • Political relations and conflicts between countries can have a profound impact on firms trying to do business internationally • If bilateral political relations between countries improve, business can benefit • Apart from being aware of political currents worldwide, an international marketer must anticipate changes and plan strategies accordingly © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Relationships • International law • No enforceable body of international law exists • Treaties and agreements respected by a number of countries influence international business operations • Firms are restricted by both home- and hostcountry laws © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The International Relationships • In case of a conflict in deciding which country’s law to follow, firms can choose either arbitration or litigation • Litigation involves extensive delays and is very costly • Arbitration procedures are included in the original contract • International terrorism and marketing • Terrorism is the systematic use (or threat) of violence aimed at attaining a political goal and conveying a political message © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Relationships • Terrorists direct their strikes at business more than any other target • Terrorism creates new opportunities for firms in a few industries like construction, security, and information technology • Direct effect of terrorism on business activities are the immediate cost levied on individual firms © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Relationships • Indirect effect of terrorism on business activities - Real or perceived decline in per capita income, purchasing power, and stock market values • Chill effect: A phenomenon where there is uncertainty about the state of a nation’s economy • Leading to a sharp reduction in demand for both consumer and industrial goods © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Relationships • Physical damage inflicted by terrorism disrupts power supply, communication, transport and other forms of infrastructure • Thereby interrupting the supply of inputs, resources and services • Deteriorates transnational relationships © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Relationships • Key side effect of terrorism • Regulations imposed by the government to reduce a country’s vulnerability to terrorism may delay the supply of inputs, increase administrative burden and require firms to invest in new procedures • Transaction costs generally increase • Commercial environment may be altered in ways that are more harmful to business than the terrorist attack itself might have been © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 5.5 - A Model of Corporate Preparedness for Terrorism © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethical Issues • The ethical obligations faced by multinational enterprises include: • Corporate governance and responsibility • Intellectual property rights • Corruption • Corporate governance and responsibility • Corporate governance: Relationships among stakeholders that determine and control the strategic direction and performance of an organization © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethical Issues • Its key elements include: • Transparency of a firm’s operation • Financial results • Principles by which it measures sales, expenses, assets, and liabilities • Intellectual property: Legal entitlement of exclusive rights to use an idea, piece of knowledge, or invention © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 5.6 - Comparative Corporate Governance Regimes © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethical Issues • Bribery and corruption • The Foreign Corrupt Practices Act (FCPA) was passed in 1977 to disallow U.S. firms to bribe foreign officials for business purposes • Functional lubrication - The “express fee” charged in many countries, which has several characteristics: • The amount is small • It is standardized • Is passed on to others involved in the processing of the documents © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethical Issues • In the process driven by “individual greed,” the amount depends on the individual official and is for the official’s own personal use • In 1995, the Organization of American States (OAS) officially condemned bribery © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethical Issues • The Organization for Economic Cooperation and Development (OECD) in 2009 released a Recommendation for Further Combating Bribery of Foreign Public Officials • The Sarbanes-Oxley Act of 2002 was intended to protect investors by improving the accuracy and reliability of corporate © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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