Topic 2

Home Grown / Developed Products

Product that has been developed, produced and/or grown in Australia.

• Products produced in Australia are globally recognised for quality.

• They use Aus raw materials, highly trained employees to produce, etc.

• Products produced in Aus are covered by ACL - come with guarantees.

• If successful here in Aus, most likely to be successful globally.

BUSINESS Benefits:

• Financial Growth - Australian quality is sort after in global market.

• Perception of high quality therefore charge a premium price.

• As a global business there is a perception that the business is successful and more trustworthy = leads to an increase of market share.

COUNTRY Benefits:

• Products produced in Australia = increase in job availability (employment).

• Products owned by Aus business = profits stay in Aus which attracts 30% business tax to benefit Australians through government spending.

• Aus products sold globally - exported therefore more money comes into Aus (injections) in the form of payments from other countries (Balance of Payments = Import vs Export).

• As more unique Aus goods are exported there is more global awareness of our culture and quality products. This could lead to an increase in tourisms and purchase of other Australian produce.

CONSUMER Benefits:

• More competition in the market gives consumers more choice and lower pricing as Aus businesses compete with multinational businesses.

• Support local businesses and jobs.

• Purchasing Aus products = Australian guarantees.

ISSUES:

• Confusion between Australian owned, produced, product of, or made in. Labelling recently changed to show percentages.

• Aus products usually more expensive due to labour costs and taxes, therefore difficult for smaller businesses to compete in local market as multinational organisations enter.

• Consumers choice = price during contracting economy due to decline in disposable income - choose foreign products because they are cheaper.

• Transfer pricing results in less business tax being paid to Australian government by large businesses compared to the sales made in Australia (local consumption).

Global brands

A name, sign, colour or symbol used to identify a business that sells its product internationally and recognised in multiple countries.

• Psychological meaning in a brand

• Brand experiences form customers thoughts, feelings, perceptions, beliefs and attitudes towards a brand.

• Differentiate from competitors easily and quickly in competitive international markets.

• Inspires customer loyalty.

Benefits of Global Brands:

1) CREDIBILITY (Public Image of Success)

• Consumers tend to place higher value on global brands as they are seen as successful in their home country - therefore consumer believe they must be of quality.

• Success in more than one country creates credibility - an image of success.

• More reliable because they are successful in multiple regions and therefore have money behind them - not likely to go out of business.

• Global brand adds value to the business - credibility allows a business to charge a premium because consumers are willing to pay more for brands they perceive as dependable and reliable.

• Encourages customer loyalty so they are not as affected by price rises due to changes in the global economy.

• Image of being successful - prospective employees see the business as more secure = Employer of Choice.

• Opportunities of employees to work globally.

• Attract best employees from all over the world.

• Encourages employee diversity which leads to increasing business innovation therefore able to satisfy a global consumers needs/wants.

2) FINANCIAL GROWTH

• Reaching more customers by accessing different countries with a greater number of potential customers leads to increase in sales revenue.

• Access to global supply chain leads to cost reduction - higher profit margins as economies of scale is more likely to be achieved by a global brand.

• Increase Sales - Reach more customers: Accessing multiple markets (countries) allow business to reach more diverse customers. Aus has a relatively small population compared to other countries.

• Lower Costs - Economies of Scale: More sales and high production levels allow businesses to achieve better economies of scale (cost per unit). More sales are generated by reaching a large customer base in other countries.

3) GLOBAL RECOGNITION

• Ability of customers to instantly recognise brand in a competitive global market.

• Global brands are more widely known about due to more chat/social media connecting the world.

• Travellers seeing known brand in other countries are more likely to select it because they know what they are getting.

• Increased using a standardised global marketing approach.

Standardise or Adapt

STANDARDISE

Creating one strategy for the global market. Keep elements of the marketing mix the same - Product (brand, name, features), Price, Place, Promotion. Successful in home country.

Advantages:

• Lower the costs - not required to design, develop, produce may versions.

• Less management.

• Consistent image → increases recognition globally.

Disadvantages:

• Does not cater for difference in various business environments (especially cultural and legal).

• Difficult to adapt when changes.

Used when:

• Target markets are similar in both operating and macro environments (external environment).

• Limited cultural and legal differences especially.

ADAPTATION

Customise or change all or some elements of the marketing mix.

Advantages:

• Cater for difference in foreign markets (tastes, customers, laws etc).

• Connect to new markets - catering to specific needs and wants → recognition of differences.

Disadvantages:

• More management and expenses.

• Lack of uniformity and consistency can lead to less recognition.

WHICH?

• Social and Cultural factors - Are the consumer needs/wants significantly different?

• Language and Cultural - Translation and meaning of words, symbols, colours, phrases etc.

• Legal Requirements - Labelling, packaging, product standards, etc.

Standardise elements such as brand but adapt product features.

Brand must reflect same values in different regions of the world (positioning should remain the same).

Consider how brand translates - meaning of words, colour and shape in different communities and cultures. Many businesses going global will simplify brand.

E-Commerce

ROLE - Facilitation of financial transactions that occur over the internet between countries.

Features of e-commerce that facilitate a global consumer in purchasing a product from a global business:

• CONTACT INFO & ABOUT US - Global consumers feel secure in dealing with businesses that can be contacted using various methods. Global consumers make decisions to interact with businesses that operate ethically and in a sustainable way.

• CURRENCY CONVERSION - E-commerce website has the ability of showing the currency depending in the location of the global consumer.

• MULTILINGUAL FACILITIES - Offer the ability for consumers, regardless of country, to change the language of the website in a globalised world.

Explain:

• E-commerce is a quick and low risk strategy for global expansion - soes not require business to set up a bricks and mortar store or develop partnerships within countries they are expanding to.

• Enables businesses to access a global market 24/7 to be ‘open’ regardless of the time zone in which the customers are located.

• Websites allow the business to complete financial transactions regardless of currencies.

Advantages:

• Convenience - can occur 24hrs a day, seven days a week, regardless of location.

• Increased range - many stores offer a wider array of products online than they can carry in their brick and mortar counterparts. Many stores that solely exist online may offer consumers exclusive inventory that is unavailable elsewhere.

• Reduces the cost of reaching a global consumer as there is no requirement for a physical presence in each country.

Disadvantages:

• Limited customer service - if you are shopping online for a computer, you cannot simply ask an employee to demonstrate a particular model’s features in person, and although some websites let you chat online with a staff member, this is not a typical practice.

• Lack of instant gratification - when you buy an item online, you must wait for it to be shipped to your home or office. However, retailers like Amazon may offer same-day delivery as a premium option for select products.

• Inability to touch products - online images do not necessarily convey the whole story about an item, and so purchases may be unsatisfying when the products received do not match consumer expectations.

Issues:

• Data security and protection of financial info.

• Not the core business of online retail stores throughout the world.

• Amount of info websites collect about its customers is becoming an increasing legal burden on businesses - outsourced.

• Global consumers are becoming more concerned.

• Multiple shopping sites used and often prefer to use same payment method on all, requiring them to only give their credit card details to one company.

Technology

DISTRIBUTION OF PRODUCTS

Distribution: Strategy/process used to get a product from the business to the end consumer.

• Direct - Selling your products or services to your overseas customers and then post items to foreign country.

• Indirect - Partnering with distributers and retailers. Distributers purchase your products and resell them, while agents act as intermediaries, selling on your behalf. Local expertise and established networks, reducing the burden of navigating unfamiliar markets.

• Strategy - Intensive, selective or exclusive.

How is it used:

Direct - using the internet for products such as eBooks, music, event tickets, tv shows and movies, software, games. Download or stream. Subscription services.

Indirect - use of wholesalers

• Automated storage retrieval systems (purpose built warehouse and distribution centres with robotic technology). Costly and usually only used by large multinational companies, reduces the need for human labour.

• Supply chain management software (warehouse, shipping, procurement, inventory control, etc). Different systems from various stakeholders integrated and pull data from multiple sources to keep all stakeholders informed. AI collects data and identifies areas in the supply chain and distribution networks that are risky or inefficient for management to optimise the process.

• Parcel Tracking (indicates where the parcel is on its way to its final destination).

E-COMMERCE

Internet with secure payment systems.

• 24/7 online purchasing regardless of time zones

• Currency conversion tech

• Language options

• Reduces expenses of setting up physical storefronts in foreign countries

• Websites provide customers with product graphics, reviews and specifications

• Basket suggestions

• Build customer relations - asking for reviews, chat bots.

SOCIAL MEDIA

Connecting to customers in real time regardless of location, different countries simultaneously. Larger reach into other countries. Mobile tech increases, especially in developing countries such as in Africa.

• Global Customer Profiling Data – learn about different needs and wants from consumers in different countries, used for targeted messaging to customer segmentation characteristics.

• Targeted messages/advertisements that are relevant to user.

• Live streaming of new stock items.

• Q&A sessions.

• Chatbots and messaging (including responding to comments in various languages in real time).

• Polls, surveys to gauge customer reactions – data analysis showing trends in different countries.

• Direct linking to e-commerce.

• Viral campaigns including hashtag (categorise to enhance searches related to the specific topic, helps build a global community with similar interests). Use for global marketing as it spreads across various platforms used in multiple countries.

Acquisition

One company PURCHASES most or all of another company’s SHARES in order to TAKE CONTROL (both companies can still exist as separate entities).

Rationale: Quick expansion into global market

Benefits:

• Increase market share by buying out a competitor

• Expanding into new markets by purchasing a business in a foreign market

• Obtain IP or advance tech and expertise, especially local knowledge of a foreign market.

Describe:

A larger business (usually a company) purchases a smaller business. Takes control. Can be a subsidiary of a larger business.

HORIZONTAL

Acquiring a competitor within the same industry to eliminate competition.

VERTICAL

Buying a company at a different stage of the supply chain to strengthen control, e.g. amazon acquiring whole foods to enhance its grocery supply chain.

• FORWARD INTEGRATION - When a company acquires or merges with distributors or retailers to control the distribution and sale of its products. Benefits: Direct customer interaction enhances relationships by controlling sales, Reduces cost of 3rd party distribution leading to higher profit margins, Maintains a consistent brand experience because of more brand control, Better market access ensures products reach customers directly.

• BACKWARD INTEGRATION - Company acquires the suppliers or manufactures to gain control over the production and supply of raw materials or components. Benefits: Reduces costs by eliminating the need to buy from external suppliers, Maintains consistency and quality in raw materials, Reduces dependency on external suppliers, Integrates supply chain activities to optimise production.

If acquiring another company:

• HOSTILE – the secret purchasing of shares as they come on the market (sold by shareholders) until majority of shares are purchased for controlling interest

• FRIENDLY – agreement to purchase to share, usually from a current major shareholder

Advantages:

• Reduce entry barriers

• Access to IP

• Increase market power, removing competitor

• Increase economies of scale

• More expertise or knowledge in foreign markets

• Diversification if vertical.

Disadvantages:

• Costly (debt pressures)

• Hostile takeover may lead to negative public image

• Change in management

• Increase administrative management

Mergers

A COMBINATION of two companies into a NEW single legal entity.

• Friendly, win-win agreement

• New entity (company) created

• Usually companies of similar size

• True mergers are rare

• Horizontal (same industry) or vertical (forward or backward along the supply chain).

HORIZONTAL - Merger between businesses that directly compete with each other.

VERTICAL - Merger between businesses that operate along the supply chain. Combination along the production and distribution process of a business. Higher quality control, better flow of information along the supply chain.

Rationale:

• Gain a greater market share (smaller players within a market joining together to be more competitive against dominant players in the market).

• Achieve greater efficiencies and economies of scale.

(Companies will often agree to be merged when they know they cannot survive alone or need assistance to achieve next level such as global expansion).

Advantages:

• Achieve efficiency and economies of scale

• Quality control

• Increase market share

• More expertise

Disadvantages:

• Job losses

• Clash of cultures

• Loss of control over decision making

• Loss of vision/mission

Joint Venture

Two or more business entities entering into a cooperative for a specific project or purpose, CREATING an INDEPENDENT ENTITY.

• Remain separate entities

• New entities created for the specific purpose or project

• Usually for a certain amount of time, not ongoing

• Sharing of resources, knowledge, and risk.

Rationale: To achieve something that you could not do by yourself.

• Share risk, resources, capital, expertise, etc.

• Gain access to IP and knowledge (especially regarding foreign markets).

• Provide to community - give back to increase public image.

• Financial growth and loss minimisation (diversification into new markets or industries).

• Overcome legal restrictions regarding ownership laws in some countries.

Advantages:

• Access and gain knowledge/expertise

• Sharing risks and costs

• Remain separate legal entity

• Building relationships and networks

Disadvantages:

• Disagreements on roles and objectives

• Clash of cultures from different beliefs and processes

• Risk to reputation, negative public image

• Time and legal costs in setting up

• Trust other partners to have access to expertise, etc.

Franchise

Business CONTRACT granting authorisation (LICENSE) to other business, enabling them to carry out specified COMMERCIAL ACTIVITIES.

• Franchisor - business that grants the license to a 3rd party to conduct business under their brand.

• Franchisee - business who is granted license to use method of business and trademark.

Services provided by the Franchisor include:

• Recognised brand name

• Site selection and development

• Business trainee to franchisees

• Research and development of new products

• Field support to franchisees

• Brand marketing campaigns

Rationale:

• Quick method of global expansion

• Expansion with minimum capital contribution - Franchisees pay for set up

• Franchisor can take advantage of local knowledge in foreign country.

• Take advantage of franchisees with local language and knowledge of cultural nuances.

MASTER FRANCHISEE

License to sell area development and individual franchises in a foreign market.

• Select franchisees for individual or area development

• Select sites

• Train and support franchisees

AREA DEVELOPMENT FRANCHISEES

Granted with the right to start a specified number of franchises within a designated area.

Franchise-Specific Laws:

DISCLOSURE LAWS

Franchise Disclosure Document, allows franchisee to make an informed decision. Franchisor must provide:

• Financial statements (profit and loss, balance sheet)

• Outline of key staff and management experience

• Clear outline of fees and expenses for individual franchisees

• Required capital investment outlay for individual franchisees

• Franchise history (including legal issues).

RELATIONSHIP LAWS

• Minimum responsibility of Franchisor

• Right and responsibilities of Franchisees

Overrides any contractual agreement.

Levels the relationship - Franchisor has more knowledge and experience, reduces ability to take advantage of franchisee with limited knowledge.

Advantages:

• Quick expansion

• Minimum capital outlay

• Accurate knowledge on foreign market

• Master and Area franchisee may already have contacts for suppliers and potential franchisees

• Master and Area franchisee already know the language and cultural nuances

• Master and Area franchisee can provide better logistical support for the franchisees as they are located in the foreign market

• Global branding.

Disadvantages:

• Division of profits/fees paid to the franchisor (Master Franchisee receives part)

• Potential weakening of brand standards due to loss of control

• Additional administrative and legal costs in implementing a master franchise system, such as a separate Franchise Disclosure Document

• Public image threat.

Outsourcing

Where one business CONTRACTS another to perform one or more of its NON-CORE FUNCTIONS.

Non-core functions - routine, administrative and maintenance tasks that are not part of the business purpose or strategy, e.g. human resources and manufacturing.

As part of negotiations you can outline specific details, quality, etc. Can be done in home country or in another country.

Rationale:

COST REDUCTION - Take advantage of economies of scale achieved by 3rd party.

• Benefit - lower cost per unit than the business could achieve themselves which will make their pricing more competitive in a global market.

EXPERTISE - 3rd party business keeps up to date and hire staff with high level of knowledge and skills within their area of business.

• Benefit - production efficiencies and quality pasted onto the business in time and price per unit making them more competitive in a global market.

FOCUS ON CORE - Allows the business to focus on what their brand and business is about.

• Benefit - ability to distribute more resources and time on core business to maintain a competitive advantage.

How:

• Check credentials - proven track record.

• Current and future capabilities - can the 3rd party cater for your needs now and have room for growth. This can include if they plan to subcontract out other businesses.

• Financial stability - get copies of its recent accounts, ask for a banker’s references and consider getting a report from a credit checking agency.

• Brand fit - does the 3rd party fit with your brand profile of sustainability and human rights.

• Communication - ability to communicate and overcome language and cultural barriers.

Includes contractual negotiations on quality and ability to innovate and collaborate.

Causes - globalisation and increase competitive markets.

Consequence - looking for ways to increase production to keep up with demand / looking for ways to reduce costs to remain competitive on price.

Advantages:

• Operation costs reduction

• Cost control - paid per product

• Specialist / experts

• Focus on core function

• Resources and capital used on core - efficient

• Releasing internal capabilities.

Disadvantages:

• Threat to public image

• Quality problems

• Threat to security

• Loss of control (quality)

• Hidden costs (accommodation, time, travel)

• Job insecurity - loss of skills in home country.

Issues:

• Control over Quality - It is more difficult to ensure quality work which can affect your brand reputation.

• Movement of Jobs Offshore - Using offshore outsource contractors means jobs may be lost in home country, negative impact on brand image as seen as not supporting home country development.

Outsourcing & Offshoring Ethics

Role of Ethics - Guide business decisions and practices above the minimum expected global standards in relation to global environment and labour practices.

• Set of values and morals that the business operates under.

• Triple Bottom Line - not all about profits, need to consider environment and people as well.

• Outlined within Corporate Social Responsibility policy document.

Why:

• Improve or develop positive public image that will attract customers and sales.

• To ensure the longevity of the business into the future (e.g. required resources will be available).

How:

• To make business decisions that consider the business impact on environmental and human resources.

• Not just comply with laws in various countries, but operate using global standards and expectations.

• Strong Corporate Social Responsibility policy and procedures to ensure all levels of business management are acting and making decisions that comply with the business ethos.

OUTSOURCING (use of a 3rd party external organisation for a non-core function)

• Do not retain control over decision making

• Can make ethical decision on which external organisation to use (ensure alignment with organisation’s corporate social responsibility policy)

• Can stipulate expectations/requirements as part of the contractual obligations - No child labour is used but need to do spot checks on 3rd party to ensure compliance, check raw materials are sourced ethically etc, consider 3rd parties impact on environment.

Ethical decisions:

• Sending jobs overseas rather than supporting local jobs - onshoring vs offshoring.

• Lack of environmental protection laws in some developing countries that are focused on industrialisation of their country.

• Work standards comparable to International Labour Standards not the legal standards of the country - WHS, break times, discrimination, use of child labour, decent pay rates.

OFFSHORING (moving and operating a business function to a different country such as manufacturing)

Why: Retain control over decision making (to ensure the business is complying with high ethical standards itself and supply chain).

• Labour - International Labour Standards.

• Environment - minimise carbon footprint.

(offshoring decisions can affect public image)

International Labour Standards

Why have them?

• To level the playing field in a global economy

• Stabilise globalisation and improve economic performance across developed and developing countries

• People seen as human beings not a commodity

• Reduce global poverty

International Labour Organisation (ILO) provide:

• CONVENTIONS: legally binding

• RECOMMENDATIONS: best practice by not legally binding

5 Core Categories:

• Freedom of association and the right to collective bargaining;

• The elimination of all forms of forced or compulsory labour;

• The effective abolition of child labour;

• The elimination of discrimination in respect of employment; and

• Provision of safe and healthy working environment