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Global Marketing Compilation Chapter 1: Introduction to Global Marketing

Market Development Strategy

This involves seeking new customers by introducing existing products or services into new geographical markets.

Diversification Strategy

A company creates new products or services and introduces them into new geographical markets.

Marketing can also be thought of as a set of activities and processes that along with product design, manufacturing, and transportation logistics, comprise a firm’s value chain.

The Value Equation

Value = Benefits/ Price (money, time, effort, etc.)

The marketing mix is integral to the equation because benefits are a combination of the product, promotion, and distribution.

Ways to improve value for customers

  • 1. Improved bundle of benefits

    • a. Improved product

    • b. Design new channels of distribution

    • c. Create better communication strategies

    • d. Decrease time and effort spent to learn about a product

    • e. Combination

  • 2. Lower price

  • Competitive Advantage, Globalisation, and Global Industries

    When a company succeeds in creating more value for customers than its competitors, that company is said to enjoy a competitive advantage. According to Thomas Friedman, “globalisation is the inexorable integration of markets, nation-states and technologies to a degree never witnessed before- in a way that is enabling individuals, corporations and nation-

    states to reach around the world farther, faster, deeper and cheaper than ever before, and in a way that is enabling the world to reach into individuals, corporations and nation-states

    farther, faster, deeper and cheaper than ever before.”

    In a global industry, a company’s position in one country is interdependent with its industry

    position in other countries.

    Indicators of Globalisation

    • 1. Ratio of cross-border trade to total worldwide production

    • 2. Ratio of cross-border investment to capital investment

    • 3. Proportion of industry revenue generated by companies that compete in all key world regions

    Some Methods Employed to Create Focus

    • 1. Alliances

      • a. Mergers

      • b. Acquisitions

      • c. Divestitures

      • d. Folding some businesses into other company divisions

    Three Primary Concerns of Global Marketing

    • 1. Value

    • 2. Competitive Advantage

    • 3. Focus

    Factors Affecting the Successful Applicability of Global Marketing Strategies

    1.

    Customer preferences

    • 2. Competitors

    • 3. Channels of distribution

    • 4. Communication media

    In single country marketing, strategy development addresses two fundamental issues:

    • 1. Choosing a target market

    • 2. Developing a marketing mix

    Additional Issues for Global Marketing Strategies:

    • 1. Global Market Participation:- the extent to which a company has operations in major world markets.

    • 2. Standardisation versus adaptation:- The extent to which each marketing mix can be standardised or adapted in various country markets.

    • 3. Coordination of Marketing Activities:- Extent to which marketing activities related to the marketing mix are planned and executed independently around the globe.

    • 4. Integration of Competitive Markets:- Extent to which a firm’s competitive marketing tactics in different parts of the world are interdependent.

    Factors Affecting a Company’s Decision to Enter New Markets

    • 1. Resources

    • 2. Managerial mindset

    • 3. Nature of opportunities and threats

    BRIC

    • 1. Brazil

    • 2. Russia

    • 3. India

    Importance of Global Marketing

    The particular approach to global marketing that a company adopts will depend on industry conditions and its source or sources of competitive advantage.

    The largest single market in the world in terms of national income is the United States, representing roughly 25% of the total world market for all products and services.

    Management Orientations

    The orientations are collectively known as the EPRG framework.

    Ethnocentric Orientation

    At some companies, the ethnocentric orientation means that opportunities outside the home country are largely ignored. Such companies are sometimes called domestic companies. Ethnocentric companies that conduct business outside the home country can be described as international companies.

    For a manufacturing company, ethnocentrism may mean foreign markets are viewed as a dumping ground for surplus domestic production. Little or no systematic marketing research is conducted outside the home country, and no major modifications are made to products.

    Polycentric Orientation

    The polycentric organisation is the opposite of ethnocentrism. The term multinational company is often used to describe such a structure. It is a variant of the multinational model discussed.

    Geocentric Orientation

    It was also known as a global or transnational company. Global companies tend to retain their association with a particular headquarters’ country. Transnational companies both serve global markets and utilise global supply chains; in addition, there is often a blurring of national identity.

    One way to assess a company’s “degree of transnationality” is to compute an average of three figures:

    sales outside the home to total sales;

    assets outside of the home country to total assets;

    and employees outside the home country to total employees.

    Multilateral Trade Agreements

    The WTO was created to promote and protect free trade.

    The information revolution- what Thomas L. Friedman refers to as the democratisation of information- is one reason for the trend towards convergence.

    Product Development Costs

    Such costs must be recovered in the global marketplace because no single national market is likely to be large enough to support investments of this size.

    World Economic Trends

    Economic growth has been a driving force in the expansion of the international economy and the growth of global marketing for three reasons.

    • 1. Economic growth in key developing countries has created market opportunities that provide a major incentive for companies to expand globally.

    • 2. Economic growth has reduced resistance that might otherwise have developed in response to the entry of foreign firms into domestic economies.

    • 3. The worldwide movement toward free markets, deregulation, and privitsation is a third driving force.

    Leverage

    Leverage means some type of advantage that a company enjoys by virtue of the fact that it has experience in more than one country. It enables a company to expend less time, less effort, or less money.

    Four important types of leverage are :

    • 1. experience transfers,

    • 2. scale economies,

    • 3. resource utilisation, and

    • 4. global strategy.

    Scale Economies.

    Greater manufacturing volume to obtain traditional scale advantages within a single factory.

    Global Strategy

    A global strategy is built on an information system that scans the world business environment to identify opportunities, trends, threats, and resources.

    Restraining Forces

    • 1. Management myopia

    • 2. Organisational culture

    • 3. National controls

    • 4. Opposition to globalisation

    Chapter 2: The Global Economic Environment

    The World Economy: An Overview

    To achieve success, executives and marketers must take into account the following new realities:

    • 1. Capital movements have replaced trade as the driving force of the world economy

    • 2. Production has become “uncoupled” from employment

    • 3. The world economy dominates the scene; individual country economies play a subordinate role

    • 4. The struggle between capitalism and socialism that began in 1917 is largely over

    • 5. The growth of e-commerce diminishes the importance of national barriers and forces companies to re-evaluate their business models.

    According to orthodox economic theory, when a country runs a deficit on its trade accounts, its currency should depreciate in value. Today, it is capital movements and trade that determines currency value.

    Economic Systems

    More robust descriptive criteria include the following:

    • 1. Type of economy

      • a. Advanced industrial state and emerging economy, transition economy or developing nation

    • 2. Trade and capital flows

    • 3. The commanding heights

    • 4. Services provided by the state and funded through taxes

    • 5. Institutions

    • 6. Markets

    The Washington DC based Heritage Foundation Key economic variables considered:

    2.

    Taxation policy

    3.

    Government consumption of economic output

    4.

    Monetary policy

    5.

    Wage and price controls

    6.

    Property rights

    7.

    Regulations

    8.

    Black Market

    Stages of Market Development

    The World Bank has developed a four-category classification system that uses GNI per capita as a base.

    Big Emerging Economies (BEM)

    1.

    China

    2.

    India

    3.

    Indonesia

    4.

    South Korea

    5.

    Brazil

    6.

    Mexico

    7.

    Argentina

    8.

    South Africa

    9.

    Poland

    10. Turkey

    Low Income Countries

    About 40% of the world’s population is included in this economic category.

    Lower-Middle Income Countries

    Countries such as China, Indonesia, and Thailand.

    The developing countries in the lower-middle income category have a major competitive advantage in mature, standardised, labour-intensive industries.

    Upper-Middle Income Countries

    Malaysia, Chile, Hungary

    Countries in this group that achieve the highest rates of economic growth are

    sometimes referred to collectively as newly industrialised economies (INE’s). ISO- 9000 certification for documenting compliance with recognised quality standards. Mistaken Assumptions about the Bottom of the Pyramid (BOP):

    o

    The poor have no money

    o

    The poor are too concerned with fulfilling basic needs to “waste” money on

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    nonessential goods. The goods sold in developing markets are so inexpensive that there is no

    o

    room for a new market entrant to make a profit. People in BOP markets cannot use advanced technology

    o

    Global companies that target BOP markets will be criticised for exploiting the poor.

    High Income Countries

    Post-industrial countries

    United States, Sweden, Japan

    Derived increasingly from the codification of theoretical knowledge rather than from

    “random” inventions.

    Other characteristics are:

    o

    The importance of information processing and exchange

    o

    Ascendancy of knowledge over capital as the key strategic resource; of

    o

    intellectual technology over machine technology; of scientists and professionals over engineers and semi-skilled workers An orientation towards the future

    o

    Importance of interpersonal relationships in the functioning of society

    South Korea occupies a unique position among the high income countries in that it is the only one classified as an emerging market by influential stock market indexes.

    The 30 nations that belong to the OEDC believe in market-allocation economic systems and pluralistic democracy.

    The recently OEDC has become more focused on global issues, social policy, and labour market deregulation.

    The Triad

    Successful global companies had to be equally strong in Japan, Western Europe, and the United States.

    Today, two-thirds of world income as measured by GNI is located in the Triad.

    In the expanded Triad, the Japanese leg encompasses the entire Pacific Region. The American leg includes Canada and Mexico, and the boundary in Europe is moving eastward.

    Marketing Implications of the Stages of Development

    The stages of economic development described previously can serve as a guide to marketers in evaluating product saturation levels, or the percentage of potential buyers or households who own a particular product. In countries with low per capita income, product saturation levels for many products are low.

    Balance of Payments

    The balance of payments is a record of all economic transactions between the residents of the country and the rest of the world.

    Trade in Merchandise and Services

    Thanks in part to the achievements of GATT and the WTO, world merchandise trade has grown at a faster rate than world production since the end of World War II. Put differently, import and export growth has outpaced the rate of increase in GNP.

    Services include:

    Travel and entertainment

    Education

    Business services (engineering, accounting, legal services)

    Payment of royalties and license fees

    Overview of International Finance

    The foreign exchange market consists literally of a buyers’ and sellers’ market where

    currencies are traded for both spot and future delivery on a continuous basis. Who are the participants in the market?

    The Central Bank can buy and sell currencies in the foreign exchange market and

    government securities in an effort to influence exchange rates Some of the trading in the foreign exchange market takes the form of transactions

    needed to settle accounts for the global trade in goods and services. Economists use the concept of purchasing power parity when adjusting national income data to improve compatibility.

    Economic Exposure

    This refers to the impact of currency fluctuations on the present value of a company’s

    expected future cash flows. Economic exposure is directly proportional to the amount of business a company conducts outside the home market.

    “When countries or regions experience currency and/or economic stress, we often have increased

    exposure to certain risks, but also often have new profit opportunities. Potential increased risks

    include, among other things,

    High receivable delinquencies and bad debts

    Delays or cancellations of sales and orders principally related to power and aircraft equipment

    Higher local currency financing costs

    Showdown in established financial services activities.”

    Managing Exchange Rate Exposure

    • 1. Sell products in the home country’s currency

    • 2. Hedging exchange rate exposure involves establishing an off-setting currency position such that loss or gain of one currency position is offset by a corresponding gain or loss in some other currency.

      • a. Porsche is fully hedged; that is it takes currency positions to protect all earnings from foreign-exchange movements.

      • b. External hedging methods- for managing both transaction and translation exposure require companies to participate in the foreign currency market. Specific hedging tools include:

        • i. Forward contracts Currency options

    ii.

    • c. Internal hedging methods include

      • i. Price adjustment clauses Intra-corporate borrowing or lending in foreign currencies

    ii.

    • d. Currency option

      • i. A put option gives the buyer the right to, not the obligation, to sell a specified number of foreign currency units at a fixed price, up to the option’s expiration date.

    ii.

    Conversely, a call option is the right to buy the foreign currency.

    • 3. Demanding a particular currency for its foreign sales.

      • a. Does not eliminate risk; simply shifts it to the customers.

      • b. In common practice, companies typically attempt to invoice exports (receivables) in strong currencies and imports (payables) in weak currencies. However, in today’s highly competitive world market, such a practice may reduce a company’s competitive edge.

    Chapter 3: Regional Market Characteristics and Preferential Trade Agreements

    The WTO and GATT

    Treaty among nations whose governments agree, at least in principle, to promote trade among members. Multilateral global initiative The WTO provides a forum for trade-related negotiations among its 150 members. The WTO has a Dispute Settlement Body (DSB) that mediates complaints

    concerning unfair trade barriers and other issues between the WTO’s member

    countries. During a 60-day consultation period, parties to a complaint are expected to engage in good faith negotiations and reach an amicable solution. If that fails a complainant can ask the DSB to appoint a three-member panel of trade experts to hear the case behind closed doors.

    Free Trade Area

    Rules of origin discourage the importation of goods into the member country with the lowest external tariff for transhipment to one or more FTA members with higher external tariffs. The Group of Three (G3), an FTA encompassing Columbia, Mexico, and Venezuela. Closer Economic Partnership Agreement, a free trade agreement between China and Hong Kong.

    Customs Union

    Andean Community Social integration Decide together what each country should produce Foreign goods and companies were kept out as much as possible Abolished all foreign echange, financial and fiscal incentives, and export subsidies by 1992.

    o

    o

    o

    o

    Central American Integration System Gained momentum with the granting of observer status to Panama

    o

    Mercosur

    CARICOM

    SICA countries agreed to conform to a common market external tariff of 5 % to 20% for

    most goods by the mid 1900’s.

    ASEAN Plus 3 China Japan Korea ASEAN Plus 6 Australia

    New Zealand

    India

    Marketing Issues in the Asia-Pacific Region

    Mastering the Japanese takes flexibility, ambition, and a long term commitment. Marketers must also master the keiretsu system of tightly knit corporate alliances.

    European Union

    Maastricht Treaty set the stage for the transition from the EMS to an economic and monetary union (EMU) that includes a European Central Bank and a single European currency known as the Euro.

    The single currency area, which officially began on January 1 st 1999, is expected to bring many benefits to companies in the euro zone

    o

    Eliminating costs associated with currency conversion and exchange rate uncertainty.

    The EFTA and the EEA

    Norway, Iceland, and Liechtenstein are the only remaining EFTA countries that are not EU members.

    The Lone Convention and the Contonou Agreement

    Designed to promote trade and provide poor countries with financial assistance from a European Development Fund.

    The Middle East

    Includes 16 countries.

     

    Differences in economic and political categories

     

    o

    Mostly free

     

    Bahrain

    Kuwait

    Saudi Arabia

     

    o

    United Arab Emirates Mostly Unfree

     

    Qatar

     

    o

    Repressed

     

    Iran

    Saudi Arabia, monarchy of 22 million people and 25% of the world’s known oil

    reserves.

    Cooperation Council for the Arab States

    1981 Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates 45% percent of the world’s known oil reserves Cooperation in all economic, social and cultural affairs

    Gulf finance ministers drew up an economic cooperation agreement covering

    o

    Investment

    o

    Petroleum

    o

    abolition of custom duties

    o

    harmonisation of banking regulations, financial region, industrial strategy and monetary coordination

    Coordination in trade development, policies and prices. Marketing Issues in the Middle East

    Decisions are not usually made by correspondence over the phone.

    The Arab business person deals with the person, not the company.

    Africa

    EU remains main trading partner

    Emerging Non-Oil Mena Countries

    o

    Jordan

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    Lebanon

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    Morocco

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    Tunisia

    ECOWAS

    Treaty of Lagos.

    By Jan 1990, tariffs on 25 items manufactured in ECOWAS members states had been eliminated.

    Liberia, and Sierra Leone are still experiencing political conflict and economic decline.

    East African Corporation

    Established a formal mechanism to promote trade and economic integration

    Tariff issues

    Devlop regional ties in tourism and coordinate energy projects

    South African Development Community

    In discussions with the EU about formation of a FTA.

    Another concern is war in Congo.

    Chapter 4: Social and Cultural Environments

    Culture can be defined as “ways of living, built up by a group of human beings, that are transmitted from one generation to another”.

    Hofstede defines culture as “the collective programming of the mind that distinguishes the members of one category of people from another”.

    Two categories

    • 1. Material/ physical

    • 2. Nonmaterial/ subjective/ abstract

      • a. Attitude

      • b. Belief

      • c. Behaviour

    Aesthetics: Colours

    • 1. Red is a popular colour in most parts of the world.

      • a. Tied to centuries old traditions of viticulture and winemaking

      • b. Associated with

    i.

    Active

    ii.

    Hot

    iii.

    Vibrant

    iv.

    Emotional

    v.

    Sharp

    vi.

    Soft drinks and good tasting

    • c. Red is poorly received in most African countries

    • 2. Blue because of its association with the sky and water has an elemental connotation with undertones of

      • a. Dependability

      • b. Constancy

      • c. Eternity

  • 3. White connotes purity and cleanliness in the West, but is associated with death in parts of Asia.

  • 4. In the Middle East, purple is associated with death.

  • 5. Gray connotes inexpensive in China and Japan, while it is associated with high quality and expensive in the U.S.

  • 7.

    South Korean and Japanese associate yellow with soft drinks and good tasting.

    Language and Communication

    Linguists have divided the study of spoken or verbal language into 4 key areas:

    • 1. Syntax (rules of sentence formation)

    • 2. Semantics (system of meaning)

    • 3. Phonology (system of sound patterns)

    • 4. Morphology (word formation)

    Other Points:

    Semiotics is the study of signs and their meanings.

    In Korean

     

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    8282, Pal Yi, hurry up

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    7179, chil han chil gu, close friend

    o

    4 5683 968, I love you

    Communication issues which may arise

    Sequencing

    Phasing- pertains to whether certain important agenda items are discussed immediately after the parties have taken some time to establish rapport.

    High and Low Context Cultures

    Insisting on competitive bidding can cause complications in low context cultures.

    Long term values include:

    Persistence

    Ordering relationships

    Observing this order

    Sense of shame

    Gaman, Japanese, patience.

    In Japan and other Asian cultures characterised by a low tolerance for ambuigity, buyers will be conscious of brand names and are likely to exhbit high brand loyalty.

    A company can and should provide reassurance by stressing warranties, money back guarantees, and risk-reducing features.

    The higher the power distance, the lower the level of trust. Organisationally, high PDI finds expression in tall, hierarchical organisations, a preference for centralisation and relatively more supervisory personnel.

    Cutler argues that print advertising is, by its very nature, designed to communicate to an individual reader.

    Japanese, kuchikomi, word of mouth.

    Although Japanese teens pay attention to print and television advertising, it is clear that marketers can reach this segment by providing selected youngsters with product samples.

    Martin Ross- 3 types of brand images

    • 1. Functional

    • 2. Social

    • 3. Sensory

    In countries where power distance is high, social brand images enhance brand performance. Conversely, by limiting the use of social and sensory images and emphasising the functional benefits, marketers can enhance brand performance in countries or regions with lower power distance. Sensory brand images perform well in countries where high individualism is a dominant culture pattern and social brand strategies would be effective in countries characterised by low individualism.

    Avoiding the Self-Reference Criteria requires a person to suspend assumptions based on prior experience and success and be prepared to acquire new knowledge about human behaviour and motivation.

    In diffusion of innovations, Rogers distilled the research into 3 concepts

    1.

    Adoption process

    • 2. Characteristics of innovations

    • 3. Adopter categories

    Charactertistics of innovation:

    • 1. Relative advantage (how product compares with existing products)

    • 2. Compatibility

    • 3. Complexity

    • 4. Divisibility (ability of product to be tried and used on a limited basis without great expense)

    • 5. Communicability (the degree to which benefits of an innovation or the value of a product may be communicated to the potential market)

    Adopted Categories

    At least, in the West, adoption is a social phenomenon that is characterised by a distribution curve. Adopters tend to be:

    Younger

    Wealthier

    Higher social status

    One of the main reasons for the normal distribution of adopter categories is the interaction effect; that is, the process through which individuals who have adopted an innovation influence others.

    Diffusion of Innovations in Pacific Rim

    Likely to be fewer innovators in Japan and other Asian countries, where risk avoidance is high.

    Marketing Implications of Social and Cultural Environments

    Environmental sensitivity reflects the extent to which products must be adapted to the culture-specific needs of different national markets. There are environmentally sensitive

    products that do not require significant adaptation to the environments of various world

    markets. At the other end of the continuum are products that are highly sensitive to different

    environmental factors. The greater a product’s environmental sensitivity, the grester the need

    for manegers to addrss specific economic, regulatory, technological, social and cultural environmental conditions.

    Chapter 5: The Political, Legal, and Regulatory Environments of Global Marketing

    Political culture reflects the relative importance of the government and legal system and provides a context within which individuals and corporations understand their relationship to the political system.

    Salient issues arising from the political environment include:

    • 1. governing party’s attitude toward sovereignty,

    • 2. political risk,

    • 3. taxes,

    • 4. the threat of equity, dilution, and expropriation.

    Nation-States and Sovereignty

    Sovereignty can be defined as supreme and independent political authority.

    Government actions taken in the name of sovereignty occur in the context of two important criteria:

    • 1. Country’s stage of development

    • 2. Political and economic system in place in the country

    Conversely, when many nations reach advanced stages of economic development, their governments declare that (in theory at least), any practice or policy that restrains free trade is illegal.

    Political Risk

    Political risk is the possibility of a change in a country’s political environment or government policy that would adversely affect a company’s ability to operate effectively and profitably.

    Companies can purchase insurance to offset potential political risks arising from the political environment. In Japan, Germany, France, Britain, the United States, and other industrialised nations, various agencies offer investment insurance to corporations doing business abroad.

    The OPIC provides various types of political risk insurance to U.S. companies; in Canada, the Export Development Corporation performs a similar function.

    Taxation

    The high level of political risk currently evident in Russia can be attributed in part to excessively high taxes on business operations. High taxes encourage many enterprises to engage in cash or barter transactions that are off the books, and sheltered from the eyes of the tax authorities. This, in turn, has created a liquidity squeeze that prevents companies from paying wages to employees; unpaid, disgruntled workers can contribute to political instability.

    Many companies make efforts to minimise their tax liquidity by shifting the location of income.

    Earnings stripping is where foreign companies reduce earnings by making loans to U.S. affiliates rather than using direct investment to finance U.S. activities. The U.S. subsidiaries can deduct interest it pays on such loans and thereby reduce its tax burdens.

    Seizure of Assets

    Creeping expropriation has been applied to limitations on economic activities of foreign firms in particular countries. These have included:

    • 1. Limitations on repatriation of profits, dividends and royalties

    • 2. Technical assistance fees from local investments or technology arrangements

    Other issues include:

    • 1. Local content requirements

    • 2. Quotas for hiring local nationals

    • 3. Price controls

    • 4. Other restrictions affecting return on investments

    • 5. Discriminatory tariffs

    • 6. Non-tariff barriers

    Representatives of expropriated companies may seek recourse through arbitration at the World Bank Investment Dispute Settlement Centre.

    International Law

    Article 38 of the ICJ Statute:

    The Court whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply:

    • a. International conventions, whether general or particular, establishing rules expressly recognised by contesting states

    • b. International custom, as evidence of general practice accepted in law;

    • c. The general principles of law recognised by civilised nations

    • d. Subject to the provisions of Article 59, judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law.

    Common Law versus Civil Law:

    A civil law country is one in which the legal system reflects the structural concepts and principles of the Roman Empire in the 6 th century. Private law is the all-inclusive source of authority by reference to which every disputed case must be referred for decision. In civil law countries, a contract between two or more parties, who are fully liable for the actions of the company forms companies. Asian countries like Japan, Korea, Thailand, Indochina, Taiwan, Indonesia, and China are civil law jurisdictions. In much of Central Europe, civil law prevails.

    In a common law country, many disputes are decided by reliance on the authority of past judicial decisions (cases). Common-law countries often rely on codification in certain areas. In common-law countries, companies are legally incorporated by state authority. The U.S., 9 of Canada’s 10 provinces, and other former colonies with Anglo-Saxon history, founded their systems on common law. Asian countries like India, Pakistan, Malaysia, Singapore, and Hong Kong are common law jurisdictions. Common law tends to prevail more in Eastern Europe.

    Islamic Law

    The sharia is a comprehensive code governing Muslim conduct in all areas of life, including business. The code is derived from two sources:

    • 1. The Koran

    • 2. Hadith

      • a. Based on the life teachings by Muhammad

      • b. Spells out the products and services that are haram (forbidden)

    • c. Guidelines of Hadith correspond with common law.

    Sidestepping Legal Issues: Important Business Issues

    Jurisdiction

    Jurisdiction pertains to global marketing insofar as it concerns a court’s authority to rule on particular type issues arising outside of a nation’s borders or to exercise power over individuals or entities from different countries.

    The court may examine whether the foreign company maintains an office, solicits business, maintains bank accounts or other property, or has agents and employees in the state in question.

    Intellectual Property Rights

    A patent is a formal legal document that gives an inventor the exclusive right to make, use, and sell an invention for a specific period of time.

    A trademark is defined as a distinctive mark, motto, device or emblem that a manufacturer affixes to particular product or package.

    A copyright establishes ownership of written, recorded, performed, or filmed creative work. Counterfeiting is the unauthorised copying and production of a product.

    An associative counterfeit, or imitation, uses a product name that differs slightly from a well- known brand but is close enough that consumers will associate it with the genuine product.

    Piracy is the unauthorised publication or reproduction of copyrighted work.

    Antitrust

    Some legal experts believe that the pressures of global competition have resulted in an increased evidence of price-fixing and collusion among companies.

    The European Commission has the power to block a proposed merger or joint venture, approve it with only minor modifications, or demand substantial concessions before granting approval.

    A cartel is a group of separate companies that collectively set prices, control output, or take other options to maximise profits.

    Licensing and Trade Agreements

    Licensing is a contractual agreement in which a licensor allow a licensee to use patents, trademarks, trade secrets, technology, or other intangible assets in return for royalty payments or other forms of compensation.

    Important considerations in licensing include:

    • 1. Analysis of what assets a firm may offer for licensing,

    • 2. Price of assets

    • 3. Whether to grant the right to only “make” the product or to grant the rights to “use” or “sell” as well.

    Among the exclusions by the U.S.’ Omnibus Trade and Competitiveness Act was “grease payments” to low-level officials to cut red tape and expedite “routine governmental actions” such as clearing shipments through customs, securing permits, or getting airport passport clearance to leave a country.

    The Regulatory Environment

    Regulatory agencies address a wide range of marketing issues, including:

    • 1. Price controls

    • 2. Valuation of imports and exports

    • 3. Trade practices

    • 4. Labelling

    • 5. Food and drug regulations

    • 6. Employment conditions

    • 7. Collective bargaining

    • 8. Advertising content

    • 9. Competitive practices

    As noted by The Wall Street Journal:

    • 1. Predatory in the U.S. but paternal in Germany

    • 2. Easier to open a business in the U.S. than in Germany because Germans value social consensus over risk taking, but its harder to hire people because Americans worry more about discrimination lawsuits.

    • 3. Easier to import children’s clothes in the U.S. than Japan because Japanese bureaucrats, defend a jumble of import restrictions, but it’s harder to open a bank in the U.S. because Americans strongly defend state prerogatives.

    Chapter 12: Pricing

    Product costs establish the price floor. Prices for comparable substitutes create the price ceiling.

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    Price Ceiling Optimum Price Price Floor

    Pricing Strategies

    • 1. Market Skimming

      • a. May occur at the introduction stage of the product cycle

    • 2. Penetration Pricing

      • a. Appropriate to saturate market prior to imitation by competitors

    Considerations for Setting Price

    • 1. Prices’ reflection of products’ quality

    • 2. Competitive price

    • 3. Pricing method or objective

    • 4. Discounts/allowances for international customers

    • 5. Differ prices with market segments

    • 6. Elastic or inelastic market segment

    • 7. Reasonable or exploitive (governments’ view)

    • 8. Dumping Laws

    Cost-Based Pricing

    • 1. Full absorption cost method

    • 2. Rigid cost-plus pricing

    • 3. Flexible cost-plus pricing

    Full Absorption Cost Method

    Absorption costing means that all of the manufacturing costs are absorbed by the units produced. In other words, the cost of a finished unit in inventory will include direct materials, direct labor, and both variable and fixed manufacturing overhead. As a result, absorption costing is also referred to as full costing or the full absorption method.

    Absorption costing is a method for appraising or valuing a firm's total inventory by including all the manufacturing costs incurred to produce those goods. These manufacturing costs include:

    Direct Materials - These are the raw materials such as wood, metal, bricks, etc that are

    used in order to create a finished usable good which will be demanded by the market. Direct Labor - Direct Labor is the manwork and total factory hours put behind

    assembling the raw materials, creating the finished good, etc. Fixed Manufacturing Overhead - This includes expenses such as rent of factory where

    the raw materials are turned into finished goods, amortization of factory building, utilities, etc. Variable Manufacturing Overhead - These are the general and administrative expenses in the manufacturing process.

    Absorption costing is different from the other costing methods because it takes into account fixed manufacturing overhead (includes expenses such as factory rent, amortization, utilities). One drawback of absorption costing is that managers can increase production levels without taking into account total sales (whether there is enough demand for all the goods they are producing).

    Amity School Slides

    The full absorption cost method defined per-unit product cost as the sum of all past or current direct and indirect manufacturing and overhead costs. When goods cross national borders, there are costs and expenses such as transportation, duties and insurance. By adding the desired profit margin to the cost-plus figure, managers arrive at a selling price.

    Rigid Cost-Plus Pricing

    Rigid cost-plus pricing sets prices without regard to any considerations. They make no adjustments to reflect market conditions outside the home country. The advantage of rigid cost based pricing is its simplicity. The disadvantage is that this approach ignores demand and competitive conditions in the target markets, setting prices too high or low. A rigid cost approach can result in severe price escalation, leading to exports that cost too much.

    Flexible Cost Plus Pricing

    An alternative method, flexible cost plus pricing, ensures that prices are competitive in a particular market environment. Experienced exporters and global marketers use this approach. Flexible cost plus incorporates the estimated future cost method to establish the future cost.

    Terms of Sale

    • Obtain export license if required

    • Obtain currency permit

    • Pack goods for export

    • Transport goods to place of departure

    • Prepare a land bill of lading

    • Complete necessary customs export papers

    • Prepare customs or consular invoices

    • Arrange for ocean freight and preparation

    • Obtain marine insurance and certificate of the policy

    Incoterms

    • Ex-works seller places goods at the disposal of the buyer at the time specified in the contract; buyer takes delivery at the premises of the seller and bears all risks and expenses from that point on.

    • Delivery duty paid seller agrees to deliver the goods to the buyer at the place he or she names in the country of import with all costs, including duties, paid.

    • FAS (free alongside ship) named port of destination seller places goods alongside the vessel or other mode of transport and pays all charges up to that point

    • FOB (free on board) – seller’s responsibility does not end until goods have actually been placed aboard ship

    • CIF (cost, insurance, freight) named port of destination risk of loss or damage of goods is transferred to buyer once goods have passed the ship’s rail

    • CFR (cost and freight) seller is not responsible at any point outside of factory

    Environment Influences on Pricing Decisions

    • Currency Fluctuations

    • Inflationary Environment

    • Government Controls, Subsidies, Regulations

    • Competitive Behavior

    • Sourcing

    Pricing Policy Alternatives

    • Extension (ethnocentric)

    • Adaptation (polycentric)

    • Geocentric

      • Intermediate course of action

      • Recognizes that several factors are relevant to pricing decision

        • Local costs

        • Income levels

        • Competition

        • Local marketing strategy

    Transfer Pricing

    • Pricing of goods, services, and intangible property bought and sold by operating units or divisions of a company doing business with an affiliate in another jurisdiction

    • Intra-corporate exchanges

    Cost-based transfer pricing

    Market-based transfer pricing

    Negotiated transfer pricing

    Counter-trade

    • Counter-trade occurs when payment is made in some form other than money

    • Options

    Barter

    Counter-purchase Offset Compensation trading Cooperation agreements Switch trading

    Chapter 13: Channel Decisions

    Distribution is the physical flow of goods through channels. Channels are made up of a coordinated group of individuals or firms that perform functions that add utility to a product or service

    Channels Create Utility via:

    • 1. Place

    • 2. Form

    • 3. Time

    • 4. Information

    Distributor wholesale intermediary that typically carries product lines or brands on a selective basis

    Agent an intermediary who negotiates transactions between two or more parties but does not take title to the goods being purchased or sold

    Guidelines for Dealing with Channel Intermediaries

    • Select distributors – don’t let them select you

    • Look for distributors capable of developing markets, rather than those with a few good customer contacts

    • Treat local distributors as long-term partners, not temporary market-entry vehicles

    • Support market entry by commitment of money, managers, and proven marketing ideas

    • From the start, maintain control over marketing strategy

    • Make sure distributors provide you with detailed market and financial performance data

    • Build links among national distributors at the earliest opportunity

    Physical Distribution and Logistics Management

    • Order Processing

      • Order entry

      • Order handling

      • Order delivery

  • Warehousing

  • Inventory Management

  • Transportation

    • Rail

    • Truck

    • Air

    • Water

  • Inland water transportation

    Ocean transportation

    • Pipeline

    College Essay on Globalisation and the IMF

    “Globalisation benefits the rich and powerful countries more than it benefits the nations of the Caribbean.” To what extent is this true?

    Globalisation is the growth of social, economic and cultural development across borders. It does, in fact, benefit the rich and powerful or developed countries more than it benefits the developing nations of the Caribbean. This is mainly due to the one-sided or unequal exchange that usually occurs between the developed and developing countries. Even the oldest independent countries in the Caribbean often find themselves dependent on the more developed countries not only to invest in them and present themselves as markets, but to aid in the development process of the country and the Caribbean region in general. This demand for foreign investments from developed countries only serves to further reinforce the dependence and weakness of the Caribbean countries, but the strength of the developed countries.

    Due to the great power and wealth that these developed countries possess, they are often able to have a greater say in the international affairs. This assures that they are always able to make or influence decisions that will be to their benefit and often to the detriment of the Caribbean countries. This advantage of the developed countries creates a disadvantage for the Caribbean countries as they are usually faced with the worst end of economic bargains as they are easily manipulated. This was the consequence of the emergence of international trading organisations which were able to dictate the rules of free trade in the new, globalised economy. This is reflected in the case where the United States persuaded Britain to cease their guaranteed acceptance of banana from the Caribbean, so that their own banana crops could stand a better chance of competition on the global market. This, of course, will benefit the United States as

    they will have more markets for their crops while Jamaica’s economy will suffer if banana, one of the country’s main export crops, can find no market.

    The benefits of globalisation for the developed countries do not stop there. Globalisation and its partner, free trade- as illustrated by the banana incident- leads to greater competition on the

    market. The developed countries, at the end of the day, stand a much better chance of winning this competition. This is because the developed countries are highly industrialised and hence highly mechanised. This means that they are then able to produce goods cost effectively, as well as mass produce goods, and so are able to sell their goods at much lower prices than the Caribbean. To top it all off, their goods are often considered to be of better quality than that which is produced in the Caribbean. Subsequently, Caribbean countries will only continue to lose their markets as a result of competition on the global market from the more developed countries.

    A great effect of globalisation has been the emergence of Multinational Corporations. These are agents that are privately owned and controlled in one country, which is usually a developed country. However, they carry out at least 25% of their production across national borders. These agencies invest in the Caribbean for two main reasons. Firstly, to take advantage of cheap labour

    and material; and secondly, to avoid high production cost and taxes back home. These, of course, are not in any way aimed at aiding in the development of the Caribbean. This is despite the claim that globalisation is expected to aid in the development of the global economy. The Multinational Corporations usually engage in repatriation of funds. For eg. in Haiti, an average of $50 million a year was transferred to the United States between 1977 and 1984. (Export-Led Development and the Lewis Model in Haiti by Alex Dupuy, IN Caribbean Sociology Edited by

    Christine Barrows, 2001, pg. 903)

    They usually use their influence to drive locals out of

    business. They often operate contrary to laws and legislations. The better paying positions are still reserved for their own people. And yet Caribbean countries find themselves competing amongst each other for this kind of non-profitable investment in them, in hopes of somehow

    heightening their position on the globalised market. Frankly, however, the only thing that seems

    to be heightened is their position on the MNC’s list of most vulnerable and easily manipulated

    countries, for the purpose of exploitation. And all this for the promise of increased minimum wage employment, financial loans with undoubtedly high interest and the alleged easing of economic strain on a country.

    Globalisation also encourages the “brain drain”. As transportation and migration to the more developed countries become easier, this occurs as the educated, skilled and wealthy population leaves the country. The developed country then benefits from an influx of highly qualified workers, while the Caribbean is left with an employment problem. A shortage in doctors and teachers often leads the government to be forced to make the wages more attractive in order to keep and attract workers.

    Also, due to globalisation, there is the spread of the material culture of developed countries, which produces at least two consequences that are closely interlinked. Firstly, due to the spread of their material culture, developed countries find a market for their goods in the developing countries. This leads to the second consequence. The developed countries’ currency will always be of greater value than that of the developing countries. Also the currency of some developed countries, such as, Britain and the United States, can be used worldwide, while developing countries have to earn foreign exchange. As the demand for foreign goods increases, the demand for foreign currency also increases needed to buy these foreign goods. If the demand for foreign currency is too high then the currency is devalued, prices go up and once again, the superiority of the currency of the developed country is reinforced.

    However, globalisation is not just purely economic and social. The spread of non-tangible cultures of the developed countries may lead to the suppression and erasure of other cultures. This occurs in a massive attempt to accept a modernised culture in place of a traditional one in hopes that this will aid in the industrialisation, modernisation and development process. According to David Browne et al (2003), “the continuous penetration of foreign images, views of the world and lifestyles could inhibit the development of small countries.”

    As the more developed countries have greater political and economic power they are better able to manipulate situations to suit themselves. This benefit is spread to even the private sector of these countries, from which the Multinational Corporations are born. As a result, despite the

    good intentions of globalisation, the concept can always be manipulated in a practical manner by the developed countries to ensure that it is them- and not the entire globe- that benefits most from the globalisation process.

    Notes on the IMF

    The International Monetary Fund.

    The International Monetary Fund’s (IMF) primary responsibility is to oversee the functioning of

    the international monetary system

    To join the IMF, countries must pay a deposit, called a quota. Quotas are important because

    they determine a country’s voting power within the organization, serve as part of a nation’s official reserves, and determine a country’s borrowing power from the IMF

    A country is allowed to borrow up to 25 percent of its quota from the IMF. Additional borrowings require that countries agree to IMF conditionality. A Dollar-Based Gold Standard. Under the international monetary system established at Bretton Woods, all countries agreed to peg the value of their currencies to gold (the dollar was pegged to gold at a value of $35 per ounce). Thus, the agreement was a fixed exchange rate system. In addition, the United States agreed to redeem the dollar for gold at the request of foreign central banks. In this way, the dollar played a key role in the Bretton Woods

    system. The Bretton Woods system provided a generally stable environment for international business because under the agreement, each country agreed to maintain the value of its currency within ±1 percent of its par value. An additional feature of the Bretton Woods agreement was an adjustable peg mechanism that allowed a country to alter the value of its currency in extraordinary circumstances. The text provides an example of the circumstances that prompted Great Britain to readjust the pound’s peg value in 1967.

    Main Purposes of the IMF are:

    • 1. Promote international monetary cooperation

    3.

    Promote exchange stability, maintain orderly exchange arrangements, and avoid competitive exchange devaluation.

    • 4. Make resources of the Fund temporarily available to members.

    • 5. Shorten the duration and lessen the degree of disequilibrium in the international balance of payments.

    The Bretton Woods Agreement established the IMF as the agency to regulate the fixed exchange rates and enforce the rules of the international monetary system.

    Special Drawing Rights

    This is an IMF asset whose value is based on a basket of the five biggest members’ currencies (France, Germany, Japan, UK, USA). SDR is set daily and changes with increases and declines in the values of its underlying currencies. The significance of the SDR is that is it the unit of account for the IMF. Each nation is assigned a quota based on the size of its economy when it enters the IMF. Payment of this quota by each nation provides the IMF with the funds it needs to make short-term loans to members.

    Advantages and Disadvantages

    With economies around the world on the verge of collapsing. Some are pointing to the IMF as a potential saviour of the world economy. They argue that the IMF can play a key role in avoiding financial crisis and restoring confidence to a battered international economy. Yet, at the same time many view the IMF with disdain, arguing that their intervention causes more problems than it solves.

    What does the IMF actually do? and Why is its role so Controversial.

    The IMF was founded in 1944, to facilitate the post war economic recovery. In particular the IMF was to play a role in stabilising exchange rates and balance of payments, whilst its sister organisation the World Bank would provide loans for long term development.These days the IMF plays a role in:

    Compiling statistics and evaluation of its member countries economies (Nearly all in UN are members of IMF)

    Intervening in Financial crisis to provide loans and conditions for restructuring the economy to avoid future crisis.

    Advantages of the IMF

    IMF can be seen as lender of last resort. When a country is seeing an exodus of currency due to a balance of payments crisis, the IMF can provide crucial loans to stabilise the economy and prevent a collapse of confidence.

    Supporters argue that the IMF can also impose necessary reforms on an economy. Reforms such as privatisation, fiscal responsibility, control of Money supply, and attacking corruption. These policies may cause short term pain, but, are essential for preventing future crisis and long term development.

    Provides an exernal assessment of the economy, which helps the government to implement popular ideas.

    Yet, despite the potential benefits of having a monetary fund which can provide an effective counter to financial crisis, the role of the IMF has proved very controversial. It's critics argue the IMF is dominated by the perspective of the G8 industrialised nations. They argue the IMF insists on blanket policies of structural adjustment which may actually harm the economies they are intervening.

    IMF recommends decisive action to buttress the region's financial sector

    Friday, October 21, 2011

    The International Monetary Fund (IMF) has called for Caribbean governments to act decisively to address "persistent" weakness in the financial sector while stressing the need for stronger resolve to reduce high public debt.

    It said economic recovery remains weak as states continue to struggle to recover from the protracted recession, and warned that a further decline in advanced economies would dampen regional recovery and add pressure to an already heavy public sector burden.

    "Fiscal consolidation efforts should, to the extent possible, preserve growth and competitiveness by avoiding step cuts in infrastructure spending," the IMF's Regional Economic Outlook launched earlier this month stated.

    It cited as "troubling", the fragilities in the region's financial sector specifically the Eastern Caribbean Currency Union, where, in July, the Eastern Caribbean Central Bank intervened in the operations of ABI Bank because of liquidity problems.

    Reference was also made to the issues involving the failed CLICO and British American Insurance Companies that have still not been resolved.

    "In the Eastern Caribbean Currency Union, ECCU, financial sector health indicators have continued to deteriorate, highlighting the importance of steps to further strengthen the sector," the report explained.

    "The authorities need to diagnose the health of the financial system quickly and develop options for strengthening balance sheets, and avoid further compromising public finances."

    The IMF said while countries such as Jamaica, Antigua & Barbuda, and St. Kitts and Nevis have moved to reduce their public debt, greater efforts are needed over the medium term as debt levels across the region have climbed by nine per cent of the Gross Domestic Product since the crisis.

    "A strategy to gradually reduce public wage and pension spending - not only in central government but also in autonomous agencies - will be necessary to guarantee public debt sustainability, with the added benefit of improving the region's competitiveness," it added.

    According to the report, tourism-intensive economies are projected to expand lower during 2011- 2012, almost one percent lower than previously anticipated.

    However, it said the mineral-rich countries of Guyana and Suriname would benefit from record gold prices.

    Growth in Haiti, it stated, is expected to fall just over two percent percent from the 8 per cent projected in April due to the slow pace of reconstruction efforts.

    Paper on Regional and National Economic Development in the Caribbean

    “While regional and national economic development could be enhanced by supporting

    Caribbean integration, Caribbean leaders have several hurdles which must be negotiated if

    such integration is to materialise.” Discuss in light of the CARICOM experience.

    Abstract

    While regional and national economic development could be enhanced by supporting Caribbean integration, Caribbean leaders have several hurdles which must be negotiated if such integration is to become a reality. Some of these hurdles will be discussed in light of the CARICOM experience throughout this paper.

    According to Wild, Wild and Han (2006), regional economic integration, or regionalism, refers to “the process whereby countries in a geographic region cooperate with one another to reduce or eliminate barriers to the international flow of products, people or capital.” The authors also went on to say that, “A group of nations in a geographic region undergoing economic integration is

    called a regional trade bloc.” There are five levels of this kind of regional and national economic

    development. These are, respectively, free-trade area, customs union, common market, economic union and political union.

    In Caribbean history, regional and national economic development has been in response to the forces of globalisation. As such, the Caribbean has made several attempts to integrate, from the West Indian Federation in the early 1960’s to CARICOM’s inception with the Treaty of Chaguaramas in 1973. The continued attempts at Caribbean integration have led to the attempt at

    maturity of CARICOM from the customs union to common market level as CSME. However, as previously mentioned, there are several hurdles that must be overcome before the ideal theory and proposed benefits of the CSME or CARICOM can be realised. These benefits and the hurdles hindering their attainment will be discussed under the relevant headings.

    Regional and National Economic Development Could Be Enhanced by Supporting Caribbean Integration

    As the question clearly points out, there are several benefits that may be derived from regional and national economic integration in the Caribbean, as a result of CARICOM. In order to identify these benefits, it is perhaps best to look at the key elements of the CARICOM/CSME market economy as provided by www.caricom.org (n.d.). These will be identified and discussed as follows.

    The first advantage or key element is that of free movement of goods and services. According to www.caricom.org (n.d.), this will be achieved “through measures such as eliminating all barriers to intra-regional movement and harmonising standards to ensure acceptability of goods and services traded.” This will lead to trade creation, which is “the increase in level of trade between nations that result from regional economic integration” (Wild,

    Wild & Han, 2006). This, in turn, has advantageous spill over effects on the member-states involved. For starters, consumers and industrial buyers in member nations would be faced with a wider selection of goods and services from which to choose, thereby increasing their bargaining power and free market competitive forces. Another result of trade creation is that buyers can then

    purchase goods and services at lower costs, thereby increasing demand and stimulating the economy and general standard of living, as citizens have more money to spend and invest.

    The second advantage, based on a key element of CSME and CARICOM is that of the right to free establishment. According to www.caricom.org (n.d.), this refers to the right of CARICOM owned businesses to operate in any Member State without restrictions. Obviously, this has several benefits for Caribbean companies hoping to expand regionally. This kind of expansion would allow these businesses to gain the kind of experience and knowledge that it would take to expand on a larger scale to other viable, international locations. If Caribbean

    businesses became more competitive in the international market, then there would be the potential for greater profits, which when repatriated back to their respective Caribbean home countries, would lead to an inflow of capital and foreign exchange.

    The third key element is that of free movement of labour, which directly compliments the right to establishment. This is hoped to be achieved “through measures such as removing all obstacles to intra-regional movement of skills, labour and travel, harmonising social services (education, health, etc.), providing for the transfer of social security benefits and establishing common standards and measures for accreditation and equivalency. (www.caricom.org, n.d.).” Free movement of labour would allow for citizens to improve their chances of employment

    (Wild, Wild & Han, 2006), as well as, allow different member states to take advantage of the skills most available in each region. This would then help Caribbean businesses to improve the quality of workers that they may select, as well as, encourage foreign direct investment from

    MNC’s looking for a large, skilled labour force to employ.

    The fourth key element identified by www.caricom.org (n.d.), is that of a common external tariff and common trade policy. This is advantageous to the Caribbean Member States as it allows for greater consensus, which strengthens the Caribbean as a single unit, against outside countries and competitors. An already working example of this is seen in the European Union, which is considered the most formidable trading block in the world, based on the strength they have accrued from the consensus among member states. This consensus gives them a greater bargaining power, and the pooling of resources allows them to compete more effectively in the global market.

    The final key element that will be addressed is that of free movement of capital which will be attained “through measures such as eliminating foreign exchange controls, convertibility of currencies (or a common currency) and integrated capital market, such as a regional stock exchange (www.caricom.org, n.d.).” In the Caribbean, the Organisation of East Caribbean States (OECS) has already achieved this. On the 29 th of December 2010, the OECS Heads of Government signed a treaty to establish an economic union. Even before this, however, the States had already employed the use of a common currency, which CARICOM has not yet been able to implement (Caribbean Business Enterprise Trust Inc., 2006). The benefits of this common currency can be demonstrated in the strength of their East Caribbean dollars (EC$)

    against the Jamaican currency, based on their value against the US dollar. The EC$ is stabilised at roughly $2.70 to US$1, while the Jamaican dollar is roughly $84.40 to US$1. While this may have benefits of cheaper export products, Jamaica imports far more than it exports, so this benefit is often not felt by its citizens.

    Caribbean Leaders have Several Hurdles which must be Negotiated if such Integration is to Materialise

    Regardless of the benefits that can be gained from integration, the Caribbean leaders have many hurdles which must be negotiated before such integration will materialise. Four of these hurdles are, namely, relinquishing the national interest for that of the regional interest, ease and safety of movement of people, undue pressure from the United States and the embargo enforced against Cuba, and finally, economic obligations to CARICOM.

    For about six decades, the Caribbean, in response to globalisation, has been making several attempts to integrate. However, in the pursuit of this, one of the greatest hurdles encountered by Caribbean leaders was the refusal of nation states to relinquish their national interest, for that of the regional interest. In other words, rather than truly integrate, nations still aimed to remain separate because they refused to take on any venture that may have had adverse effects on the nation, even if it led to an overall improvement for the rest of the member states. This was due to several reasons, such as, the uneven distribution of resources, competition amongst nation states for the same market of similar goods, and the refusal of the more developed Caribbean countries to carry the economic burdens of the less developed Caribbean countries. This kind of separation, and somewhat selfishness, has hindered CARICOM and caused some countries to pick and choose what terms they wish to apply from the Treaty of Chaguaramas, rather than apply the entire treaty as it is meant to be applied. The end result is confusion, and constant disagreements between Caribbean leaders.

    The issue of ease and safety of movement of people came to light after articles like “Bajan Cops Questioned in Reported Rape of Jamaican Woman” (Jamaica Observer, 2011, April 5) gained spotlight in the media. This article in specific, spoke of the case in which Barbadian

    officials were accused of sexually harassing a Jamaican woman who had travelled to their island. The article states that:

    “Last month, Shanique Myrie, a Jamaican woman who travelled to the eastern Caribbean island, complained that she was finger raped and subjected to humiliating treatment by Barbadian officials before being booted out of the country. Days later three men who went to the island to promote an artiste and to negotiate Reggae singer Junior Reid's appearance on the Reggae on the Hill concert, also claimed they were beaten, locked up and booted out of the country even though had satisfied all of the island's entry requirements. The Myrie incident drew cries of condemnation from a wide cross-section of society and prompted government to government dialogue between the two countries.”

    This incident has yet to be resolved and has been the on-and-off interest of the media

    since it was first mentioned. However, despite the gruesome implications of such an accusation, there is a greater problem at hand, and this has much to do with how one nation state treats the citizens of another. The stereotypes and dislike for Jamaicans that are held amongst some Caribbean people of other nations, have therefore inhibited the ease and safety with which Jamaicans can travel. This, as the article stated, “prompted government to government dialogue between the two countries (Jamaica Observer, 2011, April 5).” This situation, then, has led to

    another hurdle that the Caribbean leaders must negotiate in order to promote true integration between the countries.

    The third identified hurdle that Caribbean leaders must negotiate in order for integration to materialise is the undue pressure of the United States, and their embargo against Cuba. In spite of Cuba’s embracing of Communist and Socialist socio-economic and political policies, the country is still ranked ahead of Jamaica, and other CARICOM countries, in terms of Gross National Income per capita, according to the 2010 figures (GNIPC, 2010). However, despite their close proximity to other large CARICOM nation states, such as, Haiti and Barbados, Cuba has not been able to truly integrate with the rest of CARICOM states due to the embargo placed on them by the United States. This embargo not only restricts trade between Cuba and the United

    States, but also has sanctions for other member states that may begin to form close bonds and ties

    with Cuba. The United States’ utter distaste for Caribbean countries having any close ties to

    Cuba and their ideals, and their response to this, can be shown in their invasion of Grenada in 1983 (http://news.bbc.co.uk, 1983, October 25). According to this source:

    “United States marines and army rangers have invaded the Caribbean island of Grenada, seized the

    country's two airports and taken Cuban and Soviet prisoners. The action, which has shocked the world, was ordered by President Ronald Reagan following a bloody coup by Cuban-trained military ... The invasion of this former British colony has angered British Prime Minister Margaret Thatcher who

    spoke with President Reagan last night to try to dissuade him from military action

    The US Secretary

    ... of Defense, Caspar Weinberger, said three US soldiers were killed as they fought members of a Cuban

    work force building a runway at Point Salinas Airport. Other US officials said 30 Soviet advisers and 600 Cubans had been arrested. The Caribbean Broadcasting Corp owned by the Barbados government

    reported four Cubans dead.”

    While we would like to think that this kind of a reaction is no longer likely in this day and age, most Caribbean countries have continued to refrain from developing ties with Cuba in an effort to remain in good stands with the United States. This fear and hindrance to fully incorporating Cuba into CARICOM will continue for as long as the embargo persists; thereby

    inhibiting the rest of the Caribbean’s ability to reap the benefits of Cuba’s highly skilled and

    highly educated labour force. While this is not necessarily something that Caribbean leaders can negotiate amongst themselves, it is a matter that CARICOM should begin to negotiate with the United Nations, and the United States, if possible.

    The final hurdle that must be negotiated by Caribbean leaders in order for integration to materialise is that of economic obligations. As far as CARICOM is concerned, the economic burden has not been equal. There are countries that have been able to grow their economy as a result of their relationship with CARICOM, but often this is at the disadvantage of other countries. For example, Jamaica has allowed free movement of goods, services and people into the country, with virtually no limitations. However, this has not been the case in other countries, as can be seen in the case of the sexual harassment of the Jamaican woman (Jamaica Observer,

    2011, April 5), as well as Trinidad’s refusal to accept a shipment of Jamaican patties in 2010

    (Richardson, 2010, November 28). Also, according to Johnston, (2011, June 24):

    “CSME is not good for our economy and cannot take us to Manley's "economic independence". We

    cannot sacrifice our prosperity to mollify the bruised egos of great men

    ...

    Other Caricom nations are

    prosperous, so let's get ours and move on

    ...

    CSME is good for other members. Why? [Jamaica is] a

    big desirable market to them in a single market. Caricom nations have done well and we should learn from them. They manage their economies and enjoy prosperity [but] we are no economic example ... Currency value is a marker of success. Caricom currencies range from $1 to $6 for US$1, the

    Jamaican dollar is near $90. It tells us how badly we have managed our country for 49 years

    ...

    The

    pause means we must examine CSME from our selfish national standpoint. Our prosperity matters. It's

    not linked to CSME but to the 30m near-by in the Greater Antilles. We do not need CSME's

    permission to bond with our closest neighbours.”

    This quotation sums up not just the negative effects that CARICOM has had on the Jamaican economy, but also illustrates the refusal to relinquish our national interest for regional interest, as well as, our need to make political and economic ties with our closer neighbours, as well.

    Conclusion

    In an attempt to address the question proposed, regional and national economic development benefits have been discussed, as well as, the hurdles that Caribbean leaders must overcome in

    order for these benefits of integration to be achieved. Special attention has also been given to the

    CARICOM experience, as well as, Jamaica’s individual experience amidst the other nation states

    of the CARICOM agreement. It has therefore been illustrated that though there are many benefits to be accrued from regional and national economic development, there are many hindrances inhibiting their attainment in the Caribbean, and it will take the effort of our leaders, and negotiations carried out in good faith, in order to achieve the goals and key elements that have

    been proposed not just for CARICOM, but the future goals of CSME.

    Chapter 9: Global Market Entry Modes

    The Right Strategy Depends On:

    Vision

    Attitude towards risk

    How much investment capital is available

    How much control is desired

    Three Main Market Entry Strategies

    • 1. Licensing

    • 2. Investment

    • 3. Strategic partnerships

    Licensing

    Advantages of Licensing

    • Provides additional profitability with little initial investment

    • Provides method of circumventing tariffs, quotas, and other export barriers

    • Attractive ROI

    • Low costs to implement

    Disadvantages of Licensing

    • Limited participation

    • Returns may be lost

    • Lack of control

    • Licensee may become competitor

    • Licensee may exploit company resources

    Special Licensing Agreements

    • Contract manufacturing

    Company provides technical specifications to a subcontractor or local manufacturer

    Allows company to specialize in product design while contractors accept responsibility for manufacturing facilities

    • Franchising

    Contract between a parent company-franchisor and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies

    Investment

    • Partial or full ownership of operations outside of home country

    Foreign Direct Investment

    • Forms

    Joint ventures

    Entry strategy for a single target country in which the partners share ownership of a newly-created business entity

    Minority or majority equity stakes

    Outright acquisition

    Advantages of Ownership  Access to markets  Avoidance of tariffs or quota barriers  Technology

    Advantages of Ownership

    • Access to markets

    • Avoidance of tariffs or quota barriers

    • Technology experience transfers

    • Access to new manufacturing techniques

    Strategic Partnerships

    Collaborative agreements

    Strategic alliances

    Strategic international alliances

    Global strategic partnerships

    Characteristics & Attributes

    • CHARACTERTICS:

      • Participants remain independent following formation of the alliance

      • Participants share benefits of alliance as well as control over performance of assigned tasks

      • Participants make ongoing contributions in technology, products, and other key strategic areas

  • ATTRIBUTES:

    • Two or more companies develop a joint long-term strategy

    • Relationship is reciprocal

    • Partners’ vision and efforts are global

    • Relationship is organized along horizontal lines (not vertical)

    • When competing in markets not covered by alliance, participants retain national and ideological identities

  • Disadvantages

    • Must share control over assigned tasks

    • Risk of strengthening a competitor

    • Conflict between participants

    Advantages

    Enables firms to share high costs for a project

    Accommodates a lack of skills, resources within a company by forming an alliance with company with those resources

    Provides access to national and regional markets

    Provides learning opportunities

    Success Factors

    Mission

    Strategy

    Governance

    Culture

    Organisation

    Management

    Principles to Follow

    • While partners in some areas, partners are still competitors in other areas

    • Harmony is not the most important measure of success

    • Everyone must understand where cooperation ends and competitive compromise begins

    • Learning from each other is critically important

    Value Chain Concept

    What is a value chain?

    The value chain describes the full range of activities that firms and workers do to bring a product from its conception to its end use and beyond. This includes activities such as design, production, marketing, distribution and support to the final consumer. The activities that comprise a value chain can be contained within a single firm or divided among different firms. Value chain activities can produce goods or services, and can be contained within a single geographical location or spread over wider areas.

    Why are we interested in global value chains?

    Studies from a range of disciplines show that global value chains have become much more prevalent and elaborate in the past 10 to 15 years. While many firms have had international operations and trading relationships for decades and a few for more than a century, global value chains now contain activities that are tightly integrated and often managed on a day-to-day basis. This means that firms and workers in widely separated locations affect one another more than they have in the past. Some of these effects are quite straightforward, as when a firm from one country establishes a new factory or engineering center in another country, and some are more complex, as when a firm in one country contracts with a firm in another country to coordinate production in plants owned by yet another firm in a third country, and so on.

    Tracing the shifting patterns of global production, understanding how GVCs work or are “governed,”

    and determining the roles they play in rich and poor countries alike, is what the study of global value

    chains is all about. GVC research consists of learning the details of jobs, technologies, standards, regulations, products, processes, and markets in specific industries and places.

    Are all global value chains the same?

    No. Research has also shown that GVCs exhibit a variety of characteristics and impact communities in a

    variety of ways. In a paper that emerged from the deliberations of the GVC Initiative (Gary Gereffi, John Humphrey, and Timothy Sturgeon, “The governance of global value chains,” Review of International Political Economy, vol. 12, no. 1, 2005), five different GVC governance patterns were identified:

    • 1. Markets. Markets are the simplest form of GVC governance. GVCs governed by markets contain

    firms and individuals that buy and sell products to one another with little interaction beyond exchanging goods and services for money. The central governance mechanism is price. The linkages between value chain activities are not very "thick" because the information that needs to be exchanged and knowledge

    that needs to be shared is relatively straightforward.

    • 2. Modular value chains. This is the most market-like of three network-style GVC governance

    patterns. Typically, suppliers in modular value chains make products or provide services to a customer's specifications. Suppliers in modular value chains tend to take full responsibility for process technology and often use generic machinery that spreads investments across a wide customer base. This keeps switching costs low and limits transaction-specific investments, even though buyer-supplier interactions can be very complex. Linkages are necessarily thicker than in simple markets because of the high volume of information flowing across the inter-firm link, but at the same time codification schemes and the

    internalization of coherent realms of knowledge in value chain "modules," such as design or production, can keep interactions between value chain partners from becoming highly dense and idiosyncratic.

    • 3. Relational value chains. In this network-style GVC governance pattern we see mutual dependence

    regulated through reputation, social and spatial proximity, family and ethnic ties, and the like. The most obvious examples of such networks are in specific communities, or “industrial districts”. Dense

    interactions and knowledge sharing are supported by the deep understanding value chain partners have of one another, but unlike the codification schemes that enable modular networks, these "short-cuts" tend to be idiosyncratic and thus difficult and time-consuming to re-establish with new value chain partners.

    • 4. Captive value chains. In this network-style GVC governance pattern, small suppliers tend to be

    dependent on larger, dominant buyers. Depending on a dominant lead firm raises switching costs for suppliers, which are "captive." Such networks are frequently characterized by a high degree of monitoring and control by the lead firm.

    • 5. Hierarchy. This governance pattern is characterized by vertical integration (i.e."transactions" take

    place inside a single firm). The dominant form of governance is managerial control.

    Much of the literature that seeks to categorize cross-border economic activity emphasizes only two options: market or hierarchy. Firms either invest offshore directly or buy goods and services from foreign firms. A smaller body of literature has noted the prevalence of network forms of organization where there is some form of "explicit coordination" beyond simple market transactions but which fall short of vertical integration. While this is a useful insight, there is convincing evidence that not all networks are the same. The GVC framework specifies three types of network governance (modular, relational, and captive) along with the two traditional modes of economic governance (markets and hierarchies).

    What makes GVCs different?

    • 1. The complexity of transactions.

    • 2. The codifiability of transactions. In some industries schemes have been worked out to codify

    complex information in a manner in which data can be handed off between GVC partners with relative ease, often using advanced information technologies.

    • 3. The competence of suppliers. The ability to receive and act upon complex information or

    instructions from lead firms requires a high degree of competence on the part of suppliers. Only then can

    the transfer of complex but codified information be achieved (as in modular networks) or intense interaction be worthwhile (as in relational networks). Where competent suppliers do not exist, lead firms either must internalize the function (hierarchy) or outsource it to suppliers that they tightly monitor and control (captive suppliers).

    In order to generate improvements in the supply or quality of any product, one needs to
    In order to generate improvements in the supply or quality of any product, one needs
    to consider all aspects of the range of steps in the chain of events from production to
    consumption, including both opportunities and constraints, and the demand and supply
    of necessary products and services.
    A value chain is a connected
    string of companies, groups
    and other players working
    together to satisfy market
    demands for a particular
    product or group of
    products.