MAN3600 Exam 4 Dr. Kim FSU

Licensing

when a firm permits another to use its intellectual property for compensation designated as royalty (payment). Usually an agreement between a licensor and a licensee.

Licensed property may include...

patents, trademarks, copyrights, technology, technical know-how, specific business skills.

Benefits of licensing

-does not require capital investment or involvement with foreign customers.

-capitalizes on research and development already conducted.

-helps avoid host country regulations applicable to equity ventures.

Costs of licensing

-very limited form of foreign market participation.

-doesn't guarantee a basis for future expansion.

-licensor may create its own competitor!

ex: Zenith gave LG and Samsung licenses, Zenith got pushed out of market.

Franchising

the granting of the right by a parent company to another independent entity to do business in a prescribed manner. Franchising is more structured and better prescribed than licensing.

In order to be successful in franchising...

the firm must offer unique products/propositions, and a high degree of standardization.

Major forms of franchising

manufacturer-retailer (car dealerships)

manufacturer-wholesaler (soft drink companies)

service-firm retailer (fast food restaurants)

Why do firms want to franchise?

financial gain, market potential, and saturated domestic markets.

Strategic Alliance

an arrangement between two or more companies with a common business objective. Business form this agreement with suppliers, consumers, competitors, and companies in other industries in order to better compete.

Reasons for inter-firm cooperation:

market development, to share risks/resources, to block co-opt competitors.

Contractual Agreements

strategic alliance partners may join forces for R&D, marketing, production, licensing, cross-licensing, cross-market activities, or outsourcing (NO EQUITY).

Contract Manufacturing

allows corporations to separate the physical production of goods from the R&D and marketplace (Apple).

Management Contracts

involve selling one's expertise in running a company while avoiding the risk or benefit of ownership (management skills).

Turnkey Operation

contractual agreement permitting a client to acquire a complete system following its completion (everything is taken care of).

Equity Participation

some companies have acquired minority ownerships in companies that have strategic importance for them (ex: Apple & emerging technologies) (SOME EQUITY).

Reasons for equity participation:

ensures supplier ability, builds working relationships, creates market entry/support of global operations.

Joint Ventures

involves participation of two or more companies in an enterprise in which each party contributes assets, has some equity, and shares risk (CREATES A NEW ENTITY/COMPANY).

Reasons for establishing a joint venture:

1. gov't policy/legislation.

2. one partner's needs for another's skills.

3. one partner's needs for another's assets.

The key to a joint venture...

sharing of a common business objective.

Consortia

research consortia emerged to combat high costs and risks of R&D; must be 3 partners or more.

Joint Research and Development Act of 1984

allows domestic/foreign firms to participate in joint basic research efforts without the fear of antitrust action (over 100 consortia have been registered in the U.S. since this passed).

Full Ownership (FDI)

best option for firms that want to have full control. Management must evaluate the extent to which total control is important to the success of its int'l marketing activities.

Reasons for FDI:

ethnocentric approach, financial concerns, don't want to share profit.

Greenfield Investment

when a firm invests to build a new manufacturing, marketing, or administrative facility, as opposed to acquiring existing facilities (start on your own).

Acquisition

direct investment or purchase of an existing company/facility (one company acquires the other).

Merger

special type of acquisition in which two firms join to form a new, larger firm.

Wholly Owned Direct Investment

FDI in which the investor fully owns the foreign assets (100%).

Equity Participation (nature of ownership)

acquisition of partial ownership of an existing firm.

Equity Joint Ventures

type of partnership in which a separate firm is created through the investment by two or more parent firms that gain joint ownership of the new legal entity (may be the only way that a company can expand into a new country).

Vertical Integration

firm owns, or seeks to own, multiple stages of a value chain for producing, selling, and delivering a product.

Forward Vertical Integration

firm develops capacity to sell its outputs by investing in downstream value-chain facilities, that is, marketing and selling operations (less common).

Backward Vertical Integration

acquires the capacity abroad to provide inputs for its foreign/domestic production processes by investing in upstream facilities, typically factories, assembly plants, or refining operations.

Horizontal Integration

firm owns businesses across different industries (common outside the U.S., Korea: Toyota, Samsung, etc.)

Global Marketing Strategy

plan of action that guides the firm in:

1. how to position itself/its offerings in foreign markets and which consumers to target.

2. degree to which its marketing program elements should be standardized/adapted.

(different from other marketing strategies, more standardization than adaptation).

Market Segmentation

dividing the firms total customer base into homogenous clusters. Allows managers to formulate unique marketing strategies for each group (based on income, lifestyle, demographics).

How to segment markets...

divide the market using variables that matter to the company, and then TARGET.

Global Market Segment

represents a group of customers that share common characteristics across many markets; generally follows global media, embraces new trends, and has disposable income (MTV and Levi Strauss target a homogenous youth market all over the world).

Positioning

firm develops both the product and its marketing to evoke a distinct impression in the customer's mind, emphasizing differences from competitive offerings (identify gap & place!).

Standardization

extent to which elements of the marketing mix should be standardized; this is the goal (ex: iPhone).

Adaptation

marketers may consider every situation independently, or rely on decision-support systems to aid in program adaptation; main focus is to adapt to consumers (ex: coke bottle names).

Benefits of Standardization

cost savings, utilization & transfer of know-how, uniform image of quality service, easier coordination/control.

Factors encouraging standardization

"shrinking" of the world marketplace, similar market segments/preferences, economies of scales in business activities (similarities).

Factors encouraging adaptation

differences in: national preferences, laws & regulations, living standards, economy, and national infrastructure (differences).

4 Types of Internationalization Strategies (Standardization)

international, multi-domestic, global, transnational.

Coca-Cola's brand portfolio...

they standardize AND adapt.

Factors that Affect Product Adaptation

regional/country/local characteristics, product characteristics, company considerations.

The Market Environment (Characteristics)

gov't regulations, economic development, competitive offerings, climate/geography.

Product Constituents and Branding

product ingredients must not violate legal regulations and social/religious customs; trademarks are vulnerable to counterfeiters (cannot offend customer either).

Packaging and Appearance

packaging serves 3 functions:

1. protection

2. promotion

3.user convenience

Product Perception

styling, color, and size play an important role in how a consumer perceives a product.

Method of Operations and Usage

product that is operable in the U.S. may not be operable in a foreign market (DVD's, electrical voltages, english vs. metric system).

Quality and Service

quality is essential to marketing products internationally, especially where price is a competitive factor (alibaba.com).

servicing products in int'l markets requires local repair staff (expensive).

Core Product

core benefit or service (not as much adaptation).

Tangible Product

packaging, styling, features, brand name, and quality (a bit more adaptation).

Augmented Product

installation, delivery/credit, warranty, after sale service (much more adaptation).

Country-of-Origin Effects

the origin of a product may have a strong effect on consumer perceptions/biases about foreign products (French wine, British Mad Cow, Swiss watches).

Pricing

pricing is the only revenue generating element of the marketing mix. Pricing is a means of attracting and communicating an offer to a potential buyer (competitive tool).

Cost-Oriented Pricing (Standardized Pricing)

standard worldwide price: one price regardless of a buyer's location in the market (a.k.a. rigid cost-plus pricing).

Dual Pricing (Standardized Pricing)

differentiates between domestic and export prices...

cost-plus method: allocates domestic and foreign costs to the product.

marginal cost method: considers direct costs of producing and selling for exports as lowest price; fixed costs are disregarded (a.k.a. incremental pricing).

Market-Differentiated Pricing (Adaptive Pricing)

based on the dynamics of the marketplace: competition, exchange rates, local purchasing power, etc (a.k.a. flexible cost-plus pricing).

Western Approach to Pricing Issues

if cost is too high, return to design stage; periodic cost reduction.

Japanese Approach to Pricing Issues

target costs for each component force departments and suppliers to struggle and negotiate trade offs; continuous cost reduction.

Internal Pricing Factors

firm strategy and goals (profits vs. market share), production costs.

External Pricing Factors

competitor price, economic conditions, adaptation costs, tariffs, consumer buying power.

Price Escalation

from export-related costs:

-cost of modifying product for another market

-operational costs of exporting

-cost incurred in entering the foreign market

price escalation for exports results also from hidden costs

Combatting Price Escalation

shortening the distribution channel, redesigning the product, shipping product unassembled (Free Trade Zones), re-classifying (lower tariffs), moving production to another country.

Gray Market

legal importation of genuine products into a country by intermediaries outside the authorized distribution network (between white and black market... ex: Ebay).

Dumping

occurs when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production.

Predatory Dumping

intentional selling at a loss to increase market share.

Unintentional Dumping

occurs when market factors cause the import's selling price to fall below prices in the exporter's home market (new exchange rate... companies cannot keep up).

Remedies for Dumping

1. antidumping duties: levied on goods sold at less than market value.

2. countervailing duties: imposed on imports which are subsidized in the exporter's home country.

Transfer Pricing (Intracompany Pricing)

inter-company price that reveals some potential of minimizing their tax exposure.

Transfer Pricing is Affected by...

taxes, import duties, inflationary tendencies, unstable gov't's, regulations.

Channel Design Considerations

coverage

the number of areas in which a product is represented and the quality of that representation.

Types of Coverage

intensive- everywhere (gum).

selective- iPhone, TV.

exclusive- to guarantee income (Toyota, Honda).

Channel Management

coordinating two independent entities with shared goals; relationship needs to be managed for the long term.

Factors complicating Channel Management

ownership, different rules of law, geographic distance (ex: Yamaha piano dealer location).

Personal Selling

person-to-person communication.

Advertising

non-personal communication.

Publicity

non-paid, commercially significant news (can be good or bad).

Sales Promotion

direct inducements of extra value or incentives.

Media Strategy (Advertising)

selection of media vehicles.

Creative Strategy (Advertising)

promotional message (is it going to work everywhere?)

Advertising Checklist

-identify context of country.

-identify significant factors (color/music).

-translate ads from English carefully.

-is your target audience ad literate?

(ex: Saudi Arabia doesn't allow competitive ads).